<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
COMMISSION FILE NO. 017833
GREENLAND
CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS
SPECIFIED IN ITS CHARTER)
NEVADA 87-0439051
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1935 AVENIDA DEL ORO, SUITE "D"
OCEANSIDE, CA 92056
(Address of principal executive offices)
(760) 414-9941
(Issuer's telephone number)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUER
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.
CLASS A COMMON STOCK 66,561,920 SHARES OUTSTANDING
$0.001 PAR VALUE AS OF NOVEMBER 06, 2000
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT
(CHECK ONE)
YES NO X
---- ----
<PAGE>
GREENLAND CORPORATION
REPORT ON FORM 10-QSB
QUARTER ENDED SEPTEMBER 30, 2000
TABLE OF CONTENTS
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Condensed consolidated balance sheets as of September 30, 2000
and December 31, 1999.
Condensed consolidated statements of operations for the three
and nine months ended September 30, 2000 and 1999.
Condensed consolidated statements of changes in stockholders'
equity for the nine months ended September 30, 2000, and the
year ended December 31, 1999.
Condensed consolidated statements of cash flows for the nine
months ended September 30, 2000 and 1999.
Notes to condensed consolidated financial statements.
Item 2. Management's discussion and analysis of financial condition and
results of operations.
Part II. Other Information
</TABLE>
2
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GREENLAND CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
Thousands of dollars, except share amounts 2000 1999
---------------------------------------------------------------------------------- ------------------ ------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 204 $ 236
Accounts receivable (less allowance for uncollectible accounts of
$88 thousand in 2000, and $120 thousand in 1999) 84 6
Receivables from employees 9 26
Inventories 279 299
Accounts receivable - officers 109 162
Prepaid officers compensation - 63
Other current assets 123 -
Notes receivable 200 -
------------------ ------------------
Total current assets 1,008 792
Property and equipment, net 550 190
Long term notes receivable, net - -
Investments 900 900
Intangibles, net 2,953 2,863
Other assets 141 8
------------------ ------------------
Total assets $ 5,552 $ 4,753
================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Notes payable $ 332 $ 98
Trade accounts payable 636 427
Accrued expenses 429 573
Current portion of capital leases 34 -
Notes payable to related parties 50 270
------------------ ------------------
Total current liabilities 1,481 1,368
Long term liabilities:
Long term portion of capital leases 93 -
------------------ ------------------
Total Liabilities 1,574 1,368
------------------ ------------------
Stockholders' Equity:
Common stock, $.001 par value; 180,000,000 shares
authorized, 62,062,432 (35,298,622 in 1999) issued
and outstanding 62 35
Additional paid in capital 23,364 16,882
Subscribed shares unissued - 175
Receivable for issued shares (88) -
Retained deficit (19,360) (13,707)
------------------ ------------------
Total stockholders' equity 3,978 3,385
------------------ ------------------
Total liabilities and stockholders' equity $ 5,552 $ 4,753
================== ==================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
3
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GREENLAND CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
Thousands of dollars, except per share amounts 2000 1999 2000 1999
------------- ------------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues $ 86 $ 223 $ 561 $ 225
Cost of revenues 747 160 2,558 160
------------- ------------- ----------- ----------
Gross income/(loss) (661) 63 (1,997) 65
------------- ------------- ----------- ----------
General and administrative expenses 667 720 2,706 2,124
Research and development costs 190 464 551 818
Repurchase of distributor agreement - - 320 -
------------- ------------- ----------- ----------
Total operating costs 857 1,184 3,577 2,942
------------- ------------- ----------- ----------
Operating loss (1,518) (1,121) (5,574) (2,877)
------------- ------------- ----------- ----------
Other income (expenses):
Gain on sale of investment and equipment - - - 20
Loss on sale of investments - - (43) (1,165)
Reserve on note receivable-unrealized - - - (1,900)
Interest expense (16) (13) (49) (40)
Other 12 13 16 13
------------- ------------- ----------- ----------
Total other income (expense) (4) - (76) (3,072)
------------- ------------- ----------- ----------
Net loss from continuing operations (1,522) (1,121) (5,650) (5,949)
------------- ------------- ----------- ----------
Gain on sale of discontinued operations - - - 713
------------- ------------- ----------- ----------
Loss before income taxes (1,522) (1,121) (5,650) (5,236)
Income tax expense - - 3 -
------------- ------------- ----------- ----------
Net Loss $ (1,522) $ (1,121) $ (5,653) $ (5,236)
============= ============= =========== ==========
Net loss per share:
Loss before discontinued operations (0.03) (0.04) (0.11) (0.28)
Gain from discontinued operations - - - 0.03
Basic and diluted loss per share (0.03) (0.04) (0.11) (0.25)
Weighted average shares outstanding
Basic and diluted 60,551 27,214 52,651 21,259
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
4
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GREENLAND CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
UNAUDITED
<TABLE>
<CAPTION>
Additional Subscribed Receivable
Common Stock Paid-in Shares for issued Retained
Thousands of shares/dollars Shares Amount Capital Unissued shares Deficit Total
----------------------------------- ---------- ---------- ------------- -------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Dec 31, 1998 12,708 $ 13 $ 12,652 $ -0- $ -0- $ (6,885) $ 5,780
Shares issued to retire debt
and purchase assets 4,273 4 766 - - - 770
Sale of common stock 5,898 6 1,100 - - - 1,106
Shares issued for services 12,420 12 2,359 - - - 2,371
Subscribed shares unissued - - - 175 - - 175
Warrants to purchase shares - - 5 - - - 5
Net loss - - - - - (6,822) (6,822)
----------------------------------- ---------- ---------- ------------- -------------- --------------- -------------- -------------
Balance at Dec 31, 1999 35,299 $ 35 $ 16,882 $ 175 $ -0- $ (13,707) $ 3,385
----------------------------------- ---------- ---------- ------------- -------------- --------------- -------------- -------------
Shares issued to retire debt
and purchase assets 2,245 2 854 - (88) - 768
Sale of common stock 11,576 12 2,159 - - - 2,171
Shares issued for services 8,269 8 2,275 - - - 2,283
Subscribed shares issued 942 1 174 (175) - - -
Warrants to purchase shares 3,731 4 485 - - - 489
Options issued for services - - 535 - - - 535
Net loss - - - - - (5,653) (5,653)
----------------------------------- ---------- ---------- ------------- -------------- --------------- -------------- -------------
Balance at Sept 30, 2000 62,062 $ 62 $ 23,364 $ -0- $ (88) $ (19,360) $ 3,978
=================================== ========== ========== ============= ============== =============== ============== =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
GREENLAND CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended
September 30, September 30,
Thousands of dollars 2000 1999
------------------------------------------------------------------------ ------------------ -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,653) $ (5,236)
Adjustments to reconcile net loss to cash used in
operating activities:
Depreciation and amortization 471 10
Allowance for uncollectible account 29 1,900
Realized loss on disposal of assets 43 451
Repurchase of Distributor Agreement 320 -
Stock issued for services 2,283 2,144
Options issued for service 535 -
Changes in assets and liabilities:
Accounts receivable (30) (98)
Inventories 20 (337)
Trade accounts payable 209 176
Accrued expenses (144) 40
Other (211) 119
------------------ -------------------
Net cash used in operating activities (2,128) (831)
------------------ -------------------
Cash flows from investing activities:
Purchase of equipment (347) (50)
Investment in notes receivable (200) -
------------------ -------------------
Net cash used in investing activities (547) (50)
------------------ -------------------
Cash flows from financing activities:
Proceeds from sale of stock 2,171 1,022
Collection of stock subscriptions - 43
Amounts repaid to stockholders - (27)
Proceeds from sale of warrants 489 -
Repayment of capital leases (17) -
Repayment of loan - (66)
------------------ -------------------
Net cash provided by financing activities 2,643 972
------------------ -------------------
Increase in cash and cash equivalents (32) 91
Cash and cash equivalents at the beginning of period 236 3
------------------ -------------------
Cash and cash equivalents at end of period $ 204 $ 94
================== ===================
Supplemental cash flow information:
Cash paid for interest $ 36 $ -
Cash paid for income taxes $ 3 $ -
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
GREENLAND CORPORATION AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(CONTINUED)
Supplemental disclosure of non-cash investing and financing activities for the
nine months ended September 30, 2000:
The Company acquired assets in the amount of $430 thousand by issuing
stock.
The Company repaid debt of $206 thousand through the issuance of stock.
The Company repaid notes payable to related parties of $220 thousand
through the issuance of stock.
The Company acquired receivables from its officers and employees in the
amount of $88 thousand for the exercise price of certain shares issued
under the employee stock option plan.
The Company acquired equipment and furniture in the amount of $144 thousand
by incurring capital leases.
The Company issued options to purchase 4.1 million shares with a weighted
average strike price of $.15 for services totaling $535 thousand.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
GREENLAND CORPORATION
NOTES TO CONDENSED CONSOLIDATED STATEMENTS
(UNAUDITED)
IN THOUSANDS EXCEPT SHARE AMOUNTS
NOTE 1. BASIS OF PRESENTATION
General
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with the instructions to Form 10-QSB. Therefore, they do
not include all information and footnotes necessary for a complete presentation
of financial position, results of operations, cash flows, and stockholders'
equity in conformity with generally accepted accounting principles. The
condensed consolidated balance sheet at December 31, 1999 was derived from the
audited balance sheet at that date which is not presented herein. Except as
disclosed herein, there has been no material change in the information disclosed
in the notes to the financial statements included in the Company's annual report
on Form 10-KSB for the year ended December 31, 1999. In the opinion of
Management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included, and all such
adjustments are of a normal recurring nature. Operating results for the nine
months ended September 30, 2000 are not necessarily indicative of the results
that can be expected for the year ended December 31, 2000.
NOTE 2. GOING CONCERN UNCERTAINTY
As shown in the accompanying condensed consolidated financial statements, the
Company has suffered recurring losses from operations, and as of September 30,
2000, has a retained deficit of $19.4 million. These factors, among others,
raise substantial doubt about the Company's ability to continue as a going
concern. The Company's need for working capital is a key issue for management,
and is an essential component in the Company's ability to meet its goals and
objectives. The Company had a working capital deficit of $473 thousand at
September 30, 2000, and used $2.1 million in cash for operating activities
during the nine months ended September 30, 2000. During the nine months ended
September 30, 2000, the Company realized $469 thousand from the exercise of
Class A Warrants from its Private Placement Offering. If all three classes of
Warrants issued pursuant to the Private Placement Offering were exercised, the
Company would realize net proceeds of approximately $36 million. However, there
can be no assurances that any additional Warrants will be exercised. As
discussed in note 16, the Company is in a dispute regarding the ownership of
software technology paid for by Greenland Corporation, which Seren Systems,
Inc. has refused to deliver and/or make available to the Company. As a result,
Greenland Corporation has been unable to fulfill its obligations with respect
to certain purchase orders and/or contracts. The Company filed a Demand for
Arbitration with the American Arbitration Association against Seren Systems,
Inc. with respect to the above mentioned dispute. The Company remains confident
that once the true facts in this matter are fleshed out before an arbitrator,
Greenland Corporation will obtain the substantive determination necessary to
obtaining the return of its property. The Company is also pursuing
institutional and private party financing. There is no assurance, however, that
the Company will be successful in meeting its goals and objectives in the
future.
NOTE 3. INVENTORIES
Inventories at September 30, 2000 were as follows:
<TABLE>
<S> <C>
Raw materials $ 264
Work-in-progress 168
Finished goods -
----------------
432
Less allowance for obsolescence (153)
----------------
$ 279
================
</TABLE>
8
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Note 4. PROPERTY AND EQUIPMENT
Net property and equipment at September 30, 2000 were as follows:
<TABLE>
<S> <C>
Computers and equipment $ 253
Demonstration equipment 304
Furniture and fixtures 117
Leasehold improvements 16
----------------
690
Accumulated depreciation (140)
----------------
$ 550
================
</TABLE>
Depreciation expense for the nine months ended September 30, 2000 was $131.
Note 5. NOTE RECEIVABLE
In March 2000, the Company repurchased the exclusive distribution rights to the
Master Distribution Agreement with SmartCash ATM, Ltd. (SmartCash). Among other
considerations the Company agreed to loan SmartCash $200 thousand collateralized
by 333,334 shares of Greenland stock, with a fair value of $49 thousand at
September 30, 2000. Payments are due on the note upon the sale of the stock
collateral, and interest accrues at 10% per annum. In addition, the Company
believes it has a direct offset of this note receivable against the $320
thousand note payable to SmartCash (see Note 13).
Note 6. INVESTMENTS
Investments at September 30, 2000 consisted of convertible preferred stock
recorded at the lower of cost or market. The preferred stock, valued at $900
thousand, is convertible into fully paid and non-assessable shares of common
stock at a conversion price adjusted downward to equal the average of the
closing bid price for a share of common stock for the five trading days of
September 25 through September 29, 2000. Therefore, the preferred stock
conversion automatically adjusts the investment value to $900 thousand at the
end of September 2000.
Note 7. INTANGIBLE ASSETS
In 2000, the Company capitalized $430 thousand of costs incurred to upgrade and
enhance the check cashing software purchased from Check Central, Inc. The
software was not ready for its intended use at September 30, 2000. The Company
amortizes capitalized software costs over 5 years. At September 30, 2000, net
intangible assets of the Company include $666 thousand of software developed by
Seren Systems, Inc. (see Note 16).
Note 8. NOTES PAYABLE
Notes payable at September 30, 2000 are summarized as follows:
Notes Payable: $ 332
Notes Payable to Related Parties $ 50
The Company repaid note obligations during the nine months ended September 30,
2000 in the amount of $426 thousand with stock (see Note 13).
9
<PAGE>
Note 9. CAPITAL LEASES
During 2000, the Company obtained financing for certain furniture and equipment
through leases. Future minimum lease payments under the capital leases for the
years ending September 30, are as follows:
<TABLE>
<S> <C>
2001 $ 60
2002 60
2003 33
2004 28
2005 6
----------------
Total lease payments payable 187
Less amount representing interest (60)
----------------
Net lease payable $ 127
================
</TABLE>
Note 10. STOCKHOLDERS' EQUITY
Private Placements of Common Stock
On or about May 1, 1999, the Company commenced an offering to sell, pursuant to
a confidential private placement memorandum, up to 1,600,000 units at $5 per
unit. Each unit offered included 11.5 shares of common stock and warrants to
purchase 30 additional shares of common stock at prices ranging from $.50 per
share to $1.50 per share. In the first two quarters of 2000, the Company issued
12,518,582 shares pursuant to the offering, and realized net proceeds of $2.2
million after deducting costs related to the offering of $2.9 million.
In addition, during 2000 the Company realized $469 thousand, and issued
2,004,993 shares from the exercise of Class A Warrants from its Private
Placement Offering.
Additional Common Stock Issued
The Company issued 8.3 million shares of its common stock for services during
the nine months ended September 30, 2000. The Company recognized expenses for
such services of $2.3 million.
The Company issued 1.9 million shares in settlement of notes payable and accrued
interest totaling $435 thousand.
The Company issued 338 thousand shares to acquire assets totaling $430 thousand.
In conjunction with the repurchase of the exclusive distributor agreement, the
Company issued warrants to purchase 500 thousand shares of restricted Company
Stock (see Note 13).
The Company issued options to purchase 4.1 million shares with a weighted
average strike price of $.15 for services totaling $535 thousand.
Note 11. RELATED PARTY RECEIVABLES
The Company had receivables from officers and employees totaling $206 thousand
at September 30, 2000. Of this amount, $88 thousand represented the exercise
price of shares issued under the employee stock option plan. The Company has
accepted arrangements for employees to return issued stock valued at $88
thousand. The remaining $118 thousand represented employee tax withholding for
salaries paid in stock, which was paid by the employees in October 2000.
Note 12. SEGMENTS
The Company has two reportable segments consisting of (1) the sale and
distribution of automatic check cashing machines and (2) fee income earned
through check cashing transaction processing.
The following is information for the Company's reportable segments for the nine
months ended September 30, 2000:
10
<PAGE>
<TABLE>
<CAPTION>
Processing
Sales Segment Segment Unallocated Total
------------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenue $ 236 $ 325 $ -0- $ 561
Gross margin (507) (1,490) -0- (1,997)
Depreciation and amortization 20 228 242 490
Interest expense 49 49
Other, net (3,604) (3,604)
------------------- ---------------- ---------------- ----------------
Income (loss) from continuing
operations before income taxes $ (507) $ (1,490) $ (3,653) $ (5,650)
=================== ================ ================ ================
Identifiable assets $ - $3,042 $2,510 $5,552
Capital expenditures $ - $ 461 $ 426 $ 887
</TABLE>
The above negative gross margins include fixed overhead costs for expenses such
as supervision, labor, amortization and depreciation, communications, and
facilities, as well as the direct costs to manufacture and service the automated
banking machines. Management anticipates improvements in the gross margins as
the volume of machines sold and transactions processed increase to a level
sufficient to absorb these overhead costs. Revenues earned from the transaction
processing segment included $303 thousand earned from software development. This
development was performed in conjunction with an Interim Work and Assignment
Agreement entered into with ACS Retail Solutions.
Note 13. REPURCHASE OF DISTRIBUTOR AGREEMENT
In June 2000, the Company repurchased the exclusive distribution rights to the
Master Distribution Agreement with SmartCash ATM, Ltd. (SmartCash). In
consideration, the Company agreed to loan SmartCash $200 thousand collaterized
by 333,334 shares of Greenland Corporation common stock, release certain
restrictions on Company common stock held by SmartCash, issue warrants to
purchase 500,000 shares of Company common stock, and continue to pay commissions
on sales of machines until said commissions equal $320 thousand. In addition,
the Company issued SmartCash a note payable for $320 thousand that will be
repaid through the payment of the commissions noted above. The company recorded
a $320 thousand expense on this transaction (see Notes 5, 7 and 9).
Note 14. SOFTWARE DEVELOPMENT REVENUES
In anticipation of entering into a long term check cashing services agreement
with ACS Retail Solutions, Inc. (ACS), the Company entered into an Interim Work
and Assignment Agreement with ACS in June 2000. Under the terms of the Interim
Agreement the Company provided development services, and recorded $303 thousand
in revenues for those services. As a result of a dispute between Greenland
Corporation and Seren Systems, Inc. regarding ownership of the software
technology, the Company was unable to complete its obligation with respect to
this Agreement and, as a result, the Company recorded an $84 thousand reserve
against the unpaid receivable balance. These services were accounted for on a
percentage of completion basis (see note 16).
Note 15. SUBSEQUENT EVENTS
Subsequent to September 30, 2000, the Company issued 4,499,488 shares of common
stock for services.
Note 16. LEGAL PROCEEDINGS
On September 29, 2000, the Company filed a First Amended Complaint for
Declaratory Relief and Provisional Remedies in San Diego County Superior Court
against Seren Systems, Inc. The Complaint sought preliminary relief in a dispute
regarding the ownership of software technology paid for by Greenland
Corporation, which Seren Systems, Inc. has refused to deliver and/or make
available to the Company. As a result, Greenland Corporation has been unable to
fulfill its obligations with respect to certain purchase orders and/or
contracts. On November 3, 2000, the judge issued a telephone ruling denying the
Company's request for a preliminary injunction.
On October 12, 2000, the Company filed a Demand for Arbitration with the
American Arbitration Association against Seren Systems, Inc. with respect to the
above mentioned dispute. The November 26, 1998 Consulting Agreement by and
between the Company and Seren Systems, Inc. stipulates that any controversy
between the parties shall be settled by binding arbitration. The Company remains
confident that once the true facts in this matter are fleshed out before an
arbitrator, Greenland Corporation will obtain the substantive determination
necessary to obtaining the return of its property.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report contains forwarding looking statements, which involve risk
and uncertainties. Forward-looking statements include, without limitation, any
statement that may predict, indicate or imply future results, performance or
achievements and may contain the words "believe," "expect," "anticipate,"
"estimate," "project," "will be," "will continue" or words or phrases of similar
meaning. Forward-looking statements involve risks and uncertainties, which may
cause actual results to differ materially from the forward-looking statements.
Such risks and uncertainties include, but are not limited to, risks associated
with completing product development; commercial use of check-cashing machines;
product repairs; consumer acceptance; need for additional financing;
manufacturing risks; dependence on suppliers; dependence on distributors; rapid
technological changes; dependence on key personnel; compliance with state laws;
risks of technical problems or product defects; dependence on proprietary
technology and other factors detailed in the Company's reports filed with the
Securities and Exchange Commission.
INTRODUCTION
The following discussion pertains to the Company's operations and financial
condition as of September 30, 2000.
The Company is engaged in the development, production, distribution, servicing
and marketing of proprietary software that is capable of providing consumers
with a full range of automated financial services including payroll check
cashing, ATM, payday advance, wire transfer, bill paying, money order and phone
card dispensing services delivered through a freestanding kiosk, similar in
appearance to an ATM machine. The Company acquired this technology in May 1998,
when the Company purchased the exclusive rights to all of Check Central Inc's.
software and hardware designs for the expressed intent of completing the
development and marketing of a stand-alone Check Cashing ATM unit. Check
Central's technology was acquired through an exchange of all the issued and
outstanding stock of Check Central, Inc. for 35,000,000 (pre-reverse split)
restricted shares of the Company's common stock valued at $2.6 million.
PLAN OF OPERATION
The Company has invested, and continues to invest substantial amount of capital,
considerable time and effort in the development and evolution of the Check
Cashing ATM. The formation of relationships with Cisco Systems, MC Info, Sprint,
Fourth Shift and Bantec reflects the emphasis the Company has placed in
assembling the best available technology and service providers. Prior to the
fourth quarter of 1999, the Company's strategy for sales of the Check Cashing
ATM was through the utilization of an established, national distributor of ATM
machines. The strategy of a single, exclusive Master Distributor was altered in
the fourth quarter of 1999 through the addition of Affiliated Computer Services
(ACS) as a distributor for the Company pursuant to a two year, non-exclusive
distributorship agreement which allows ACS certain rights to sell and market the
Check Cashing ATM in the United States. Management believes that ACS can provide
the access to large chain outlets and banking institutions that otherwise may
not be accessible to the Company. Our current dispute with Seren Systems, Inc.
(see Note 16) is delaying these efforts.
On March 20, 2000, the Company further adjusted its sales strategy by
repurchasing the rights to the Master Distributorship from SmartCash ATM.
Although SmartCash will remain a non-exclusive distributor, the Company believes
that the repurchase of the rights to the Master Distributorship provides the
Company with the certain advantages including: increase in gross hardware and
software profits, allows the Company to work directly with Independent Sales
Representatives and provides the Company with unencumbered access to corporate
chain market sales such as WalMart and Piggly Wiggly (see Note 13). The machine
test at WalMart was completed in October 2000. Management anticipates further
discussions with WalMart once several additional machine features are available.
In July the Electronic Commerce Group (ECG) of Affiliated Computer Services
(ACS) became a privately held company pursuant to a sale to GTCR Golder Rauner
LLC, a private equity firm managing in excess of $4 billion. As part of this
transaction Greenland agreed to the assignment of the distributorship agreement
between Greenland and ACS Retail Solutions to ECG. All material terms and
conditions of the distributorship agreement remain unchanged.
The Company added to its marketing efforts by implementing a sales and marketing
support staff at the Oceanside facility. This staff is primarily engaged in
locating and supporting qualified distributors and Independent Sales Operators
for the distribution of the Check Cashing ATM, and coordinating effective
coverage of regional and national chain accounts. Presently the Company has
contracts with approximately 37 distributors. Management has not engaged in
direct sales activity because it believes that established distributors have the
sales infrastructure in place to penetrate the market more quickly and
efficiently. This strategy allows the Company to concentrate its resources on
doing what it does best, develop reliable, efficient products.
The Company expects to receive revenue from two revenue streams. The first is
through the sale of the Check Cashing ATM. The Company anticipates the initial
direct material and labor cost of the machine will be approximately 60% of the
Company's selling price. The Company expects that this margin will improve as
larger volumes of machines are purchased and the Company can take advantage of
volume discounts.
12
<PAGE>
The second revenue stream is generated from the fees earned in connection with
the various banking services provided on each of the machines in operation. Fees
from check cashing are regulated by the vast majority of the states and range
from 2% to 6% of the face value of the check cashed. Fees for payday advances
are also regulated by the states and range from 15% to 18% of the amount of the
advance. Fees from other services range from $0.35 per transaction to 30% of the
transaction. The Company will share this revenue stream with the owner of the
machine and/or other parties. The fee generation of the Company will increase
with the placement of additional machines, and as machines mature in the market,
more transaction fees will be generated.
Management believes that it has created a convenient and cost effective system
for the reporting of activity and earnings generated from its Check Cashing ATMs
through a secure website. The website allows the users to view transactions in
both summary and detail formats, and to download transaction information into
spreadsheets.
The Company anticipates that its working capital needs will be met through a
combination of institutional and private party financing, revenues earned
from the sale of the Check Cashing ATM's, and proceeds from three classes of
warrants which may be exercised as part of the Private Placement Offering.
There are no assurance the Company will receive additional proceeds from the
private placement through the exercise of warrants (See Liquidity and Capital
Resources and Change of Securities).
RESULTS OF OPERATIONS
REVENUE
The Company earned revenues of $86 thousand and $561 thousand for the three and
nine months ended September 30, 2000, respectively. This represents a $137
thousand decrease, or 61%, from the three months ended September 30, 1999, and a
$366 thousand, or 149%, increase from the nine months ended September 30, 1999.
The Company earned revenues from the sale and rental of Check Cashing ATM's of
$60 thousand and $221 thousand for the three months ended September 30, 2000,
and 1999, respectively. Sales revenue for the nine months ended September 30,
2000 was $236 thousand. During the first two quarters of 1999 the Company was a
development stage company, did not sell machines, and, therefore, did not
generate significant sales revenue.
Revenues earned from the transaction processing segment of $26 thousand and $325
thousand for the three and nine months ended September 30, 2000, respectively,
increased $24 thousand and $321 thousand from the comparative periods in 1999.
During the three and nine months ended September 30, 2000, revenues of $102
thousand and $387 thousand were earned from software development. This
development was performed in conjunction with an Interim Work and Assignment
Agreement entered into with ACS Retail Solutions (ACS) in anticipation of a long
term servicing agreement. As a result of a dispute between Greenland Corporation
and Seren Systems Inc. regarding ownership of the software technology, the
Company was unable to complete its obligation with respect to this agreement,
and, as a result, the Company recorded an $84 thousand reserve against the
unpaid receivable balance.
COST OF SALES
The Company incurred costs of revenues of $747 thousand and $2.6 million for the
three and nine months ended September 30, 2000, respectively. Of these costs,
$199 thousand and $743 thousand, respectively, related to the cost of
manufacturing machines. These costs included fixed overhead expenses for items
such as supervision, testing, and facilities, as well as the direct cost of the
machines sold. Management anticipates significant improvements in the gross
margin on machine sales as the volume of machines sold increases to a level
sufficient to absorb these overhead costs. The gross margin on machine sales for
the three and nine months ended September 30, 2000 was $(139) thousand and
$(507) thousand, respectively. During the first two quarters of 1999, the
Company was a development stage company, and, therefore, did not manufacture
machines for sale. Costs associated with manufacturing test machines, and
processing the associated transactions were included in general and
administrative expenses.
Costs associated with transaction processing, included in cost of sales, were
$548 thousand and $1.8 million for the three and nine months ended September 30,
2000, respectively, resulting in gross margins on transaction revenue of $(522)
thousand and $(1.5) million, respectively. Processing costs included fixed
overhead expenses such as the amortization of software development costs,
depreciation, labor, and communications. Management anticipates improvements in
the gross margin as an increased number of machines are placed in the field, and
the Company benefits from the associated economies of scale.
OPERATING EXPENSES
Operating expenses for the three and nine months ended September 30, 2000 were
$857 thousand and $3.6 million,
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respectively, compared to $1.2 million and $2.9 million, respectively, for the
corresponding periods in 1999. General and Administrative expenses for the nine
months ended September 30, 2000 increased 27%, from the corresponding period in
1999. This increase was as result of increased infrastructure, including the
addition of an in-house marketing department.
Research and Development Costs for the three and nine months ended September 30,
2000 of $190 thousand and $551 thousand, respectively, decreased 59% and 33%,
respectively, from the comparative periods in 1999, which reflect the Company's
transition from a development stage company to an operating company during the
third quarter of 1999.
During March 2000, the Company repurchased the exclusive distribution rights
to the Master Distribution Agreement with SmartCash ATM, Ltd. (SmartCash). In
consideration, the Company agreed to loan SmartCash $200 thousand
collateralized by company stock, release certain restrictions on Company
common stock held by SmartCash, issued warrants to purchase 500,000 shares of
Company common stock, and continue to pay commissions on sales of machines
until said commissions equal $320 thousand. In addition, the Company issued
SmartCash a note payable for $320 thousand that will be repaid through the
payment of the commissions noted above. The company recorded a $320 thousand
expense on this transaction.
OTHER EXPENSE
Net Other Expense of $76 thousand for the nine months ended September 30, 2000
decreased $3 million from the comparative period in 1999. During 1999, the
Company exchanged 1,100,000 convertible preferred shares in a public company for
notes receivable valued at $1.9 million with interest at 9%. The Company had
substantial doubt about the collectibility of the notes and, therefore,
established a 100% allowance during 1999. The Company does not recognize
interest income on impaired notes. In addition, during 1999, the Company
recorded a $1.2 million loss reserve in connection with the sale of 290,000
shares of convertible preferred stock in Golden Age Homes, Inc. to one of its
officers. The shares were not convertible until December 1999 and the value at
the time of conversion was uncertain. The shares were carried at $1.5 million at
the time of sale. As part of the transaction, the Company was relieved of debts
totaling $435 thousand and issued 2,800,000 shares to the officer valued at $285
thousand.
NET LOSS FROM CONTINUING OPERATIONS
During the three and nine months ended September 30, 2000, the Company incurred
net losses from continuing operations of $1.5 million and $5.7 million,
respectively, which represents a 36% increase and a 5% decrease in losses from
continuing operations, respectively, from the comparative periods in 1999.
DISCONTINUED OPERATIONS
In April 1999, the Company sold its automated meter reading technology (AMR
division) in exchange for shares of convertible preferred stock with a face
value of $900 thousand. Accordingly, the AMR division is accounted for as
discontinued operations and its operating results are shown separately in the
accompanying financial statements. The AMR division had no net sales in 1999.
The only asset identifiable with the AMR division consisted of the automated
meter reading technology. The Company realized a gain of $713 thousand on the
disposal of the asset.
LIQUIDITY AND CAPITAL RESOURCES
On September 30, 2000, assets totaled $5.6 million, which represents a $799
thousand, or 17% increase, from December 31, 1999's total assets of $4.8
million. The increase is attributable to increased current assets, as well as
increases in property and equipment, and other assets. The Company's total
liabilities increased to $1.6 million from $1.4 million.
The Company reevaluates its assets on an on-going basis to determine the most
effective use and benefit to the Company in relation to the Company's operating
needs. Based on this review, the Company may, when appropriate, either sell or
leverage the assets for liquidity to support the Company's capital requirements.
Stockholder's equity was $4.0 million at September 30, 2000, an increase of $593
thousand, or 18%, from December 31, 1999. This increase was due to increased
paid in capital of $6.5 million received primarily from the Private Placement
Offering, and was offset by losses of $5.7 million. The Company has a retained
deficit of $(19.4) million.
The Company had a working capital deficiency of $473 thousand at September 30,
2000, which represents a $103 thousand, or 18% improvement from the working
capital deficiency of $(576) thousand at December 31, 1999. This improvement was
primarily due to additional funds provided to the Company from the Private
Placement Offering.
In total, the Company realized approximately $3.5 million net proceeds from the
Offering and issued 16,000,000 restricted shares of Common Stock. If all Class A
Warrants are exercised the Company will realize approximately $6 million of
proceeds, if all Class B Warrants are exercised the Company will realize
approximately $12 million of proceeds and if all
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Class C Warrants are exercised the Company will realize approximately $18
million of proceeds. There can be no assurance that any portion of the Class A,
Class B and/or Class C Warrants will be exercised. Said exercise is dependant
upon many factors outside the control of the Company.
The Company's needs for working capital is a key issue for management and
necessary for the Company to meet its goals and objectives. The Company
continues to pursue additional sources of institutional and private party
financing.
YEAR 2000 COMPLIANCE
In 1999, the Company completed its year 2000 compliance review of its
information technology systems and non-information technology systems and
successfully implemented all related upgrades, replacements, or modifications
necessary. The Company experienced virtually no year 2000 business interruptions
either internally or related to its major vendors. The total cost of the year
2000 related enhancements was approximately $50 thousand, including an estimate
of internal payroll committed to year 2000 related projects.
Part II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
On September 29, 2000, the Company filed a First Amended Complaint for
Declaratory Relief and Provisional Remedies in San Diego County Superior Court
against Seren Systems, Inc. The Complaint sought preliminary relief in a dispute
regarding the ownership of software technology paid for by Greenland
Corporation, which Seren Systems, Inc. has refused to deliver and/or make
available to the Company. As a result, Greenland Corporation has been unable to
fulfill its obligations with respect to certain purchase orders and/or
contracts. On November 3, 2000, the judge issued a telephone ruling denying the
Company's request for a preliminary injunction.
On October 12, 2000, the Company filed a Demand for Arbitration with the
American Arbitration Association against Seren Systems, Inc. with respect to the
above mentioned dispute. The November 26, 1998 Consulting Agreement by and
between the Company and Seren Systems, Inc. stipulates that any controversy
between the parties shall be settled by binding arbitration. The Company remains
confident that once the true facts in this matter are fleshed out before an
arbitrator, Greenland Corporation will obtain the substantive determination
necessary to obtaining the return of its property.
Additionally, from time to time the Company is a defendant (actual or
threatened) in certain lawsuits encountered in the ordinary course of its
business, the resolution of which, in the opinion of management, should not have
a material adverse effect on the Company's financial position results of
operations, or cash flows.
ITEM 2 CHANGES IN SECURITIES
In February 2000, the Company fully subscribed its Private Placement Offering
(the "Offering"), which was commenced on May 1999 pursuant to Regulation D Rule
506 of the Securities Act of 1933, as amended. The Offering provided for the
sale of units, each unit consisting of 11.5 Shares of Common Stock of Greenland
and Class A Warrants to purchase 10 Shares of Greenland Common Stock at $.50,
Class B Warrants to purchase 10 Shares of Greenland Common Stock at $1.00 and
Class C Warrants to purchase 10 shares of Greenland Common Stock at $1.50. The
Class A Warrants expire in 12 months from date of issuance, Class B warrants 18
months from date of issuance and Class C Warrants 24 months from date of
issuance.
During the first quarter of 2000, the Company realized $2.2 million in net
proceeds from the Offering, and issued 12,225,332 restricted shares of common
stock. These Securities are not registered and are deemed to be "Restricted" as
that term is defined under Rule 144 of the Securities Act of 1933. The
Securities were issued in reliance on the exemption from registration pursuant
to Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
Written representations were obtained from the purchasers and legends were
placed upon the certificates issued in connection therewith.
In addition, during the nine months ended September 30, 2000, the Company
realized $469 thousand and issued 2,004,993 shares from the exercise of Class A
Warrants from its Private Placement Offering.
Additional Common Stock Issued
The Company issued 8.3 million shares of its common stock for services during
the nine months ended September 30, 2000. The Company recognized expenses for
such services of approximately $2.3 million.
The Company issued 1.9 million shares in settlement of notes payable and accrued
interest totaling $435 thousand.
The Company issued 338 thousand shares to acquire assets totaling $430 thousand.
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In conjunction with the repurchase of the exclusive distributor agreement, the
Company issued warrants to purchase 500 thousand shares of restricted Company
Stock.
The Company issued options to purchase 4.1 million shares with a weighted
average strike price of $.15 for services totaling $535 thousand.
ITEM 3 - DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on September
29, 2000. The following members were elected to the Company's Board
of Directors for the ensuing year: Louis T. Montulli, Max Farrow,
Thomas Beener, Lee Swanson, Gene Cross, and George Godwin. The
shareholders also approved an increase in the Company's authorized
shares from 100 million to 180 million and an increase in the number
of shares authorized under its 1999 Stock Option Plan from 8 million
to 14 million. In addition, the shareholders elected Levitz, Zacks,
and Ciceric to serve as the Company's independent accountants for the
fiscal year 2000.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule
(b) Exhibit 99.1 - First Amended Complaint for Declaratory Relief and
Provisional Remedies.
(c) Exhibit 99.2 - Telephone ruling on First Amended Complaint for
Declaratory Relief and Provisional Remedies.
(d) Exhibit 99.3 - Commercial Demand for Arbitration Against Seren
Systems.
(e) Reports on Form 8-K - None
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: November 20, 2000 By: /s/ Ken Hoitt
--------------------------
Ken Hoitt
Acting Chief Financial Officer
Date: November 20, 2000 By: /s/ Thomas J. Beener
------------------------
Thomas J. Beener
Secretary, Director
Date: November 20, 2000 By: /s/ Louis T. Montulli
--------------------------
Louis T. Montulli
CEO, Chairman of Board
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