29
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended May 31, 1996
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________________ to __________________
Commission File Number 1-13776
GREENMAN TECHNOLOGIES,INC.
--------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 71-0724248
-------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
7 KIMBALL LANE, BUILDING A, LYNNFIELD, MA 01940
----------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (617) 224-2411
Securities registered pursuant to Section 12 (b) of the Exchange Act:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
Common Stock, $ .01 par value Boston Stock Exchange
Class A Common Stock Purchase Warrants Boston Stock Exchange
Securities registered pursuant to Section 12 (g) of the Exchange Act:
Common Stock, $ .01 par value
(Title of each class)
Class A Common Stock Purchase Warrants
(Title of each class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
The issuer's revenues for the fiscal year ended May 31, 1996 were $4,338,538
----------
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the average bid and asked prices of such stock, as of September
10, 1996 was $7,817,469.
As of September 10, 1996, 5,076,083 shares of Common Stock of issuer were
outstanding. The aggregate market value of the shares of Common Stock was
$11,103,932.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
PART 1
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
GreenMan Technologies, Inc. (the "Company" or "GreenMan") was
incorporated under the laws of the State of Arkansas on September 16, 1992 and
reincorporated under the laws of the State Delaware on June 27, 1995. The
Company was formed to primarily develop, manufacture and sell "environmentally
friendly" plastic and thermoplastic rubber parts and products that are
manufactured using recycled materials and/or are themselves partially or wholly
recyclable.
The Company's Molding operation (the "Molding operation"), located in
Malvern, Arkansas, provides injection molding manufacturing services to
customers' specifications in the production of plastic and thermoplastic rubber
parts for such products as stereo components and speakers, water filters and
pumps, plumbing components and automotive accessories. The Molding operation
uses leased state-of-the-art injection molding equipment that is energy and
labor efficient, has fast cycle times and minimizes production waste. The
facility also conducts R&D testing and development of the Company's GreenMan
Environmental Materials ("GEM") stock (formerly referred to as "GTPR"), and
test the use of these materials in the manufacture of a variety of "sample"
products.
The Company's Molding operation is scheduled to commence the
manufacture of the Company's first consumer product, a GEM Stock trash
container, in the Fall of 1996. Future proposed products, to be manufactured
utilizing injection molding, will also be produced at the Molding operation,
which management expects to result in a gradual transition from contract/custom
molding to captive molding activities.
The Company's Recycling operation (the "Recycling operation"), located
in Jackson, Georgia, was established to develop low-cost sources of rubber and
plastic waste (made from recycled plastics and crumb rubber from tires) for use
in the production of the Company's GEM Stock and to develop markets for
end-products to be made using the GEM Stock.
The Company has targeted several markets with products incorporating
significant amounts of recovered crumb rubber and plastic waste, including the
building industry with anti-fatigue floor mats, roofing products, and timbers;
the lawn and garden market with landscape timbers, and fencing; the consumer
products market with trash containers, recycling totes, and storage containers;
and the transportation industry with nose cones, barriers, railroad ties and
railway crossing mats. Through an agreement with Crumb Rubber Technologies,
Inc., ("CRT"), the Company gains the capability to produce crumb rubber that can
be combined with recycled plastic waste and virgin plastic to produce the
Company's GEM Stock which will be used in the production of the Company's
proposed consumer and industrial products, sold as a merchant chemical to other
users of crumb rubber or sold in its raw state. Through an agreement with BFI
Tire Recyclers of Georgia, Inc., a wholly owned subsidiary of Browning-Ferris
Industries ("BFI"), the Company has a secured multi-year supply of waste tires
to feed the Company's Jackson, Georgia crumb rubber processing operation.
On October 10, 1995, the Company acquired all of the outstanding common
stock of DuraWear Corporation ("DuraWear"). DuraWear was incorporated under the
laws of the State of Delaware on September 5, 1972 and was reincorporated under
the laws of the State of Alabama on December 7, 1990. DuraWear which is located
in Birmingham, Alabama, manufactures, installs and markets a diverse range of
high quality ceramic, polymer composite, and alloy steel materials engineered to
resist severely abrasive and corrosive conditions typically encountered in bulk
material handling systems in such industries as paper and pulp, mining, coal
handling and grain storage and transportation.
PRODUCTS AND SERVICES
MOLDING OPERATION
The Company's Molding operation was established primarily to develop,
manufacture and sell "environmentally friendly" plastic and thermoplastic rubber
parts and products that are manufactured using recycled materials and/or are
themselves partially or wholly recyclable. In order to offset expenses
associated with capital leases for the required injection molding equipment, the
Company decided to accept contract (or custom) molding jobs in order to keep the
resident equipment productive. Accordingly, the Molding operation has, since its
inception, provided customers with a reliable, cost-effective, high-quality
source for the manufacture of plastic and thermoplastic rubber parts.
Traditional contract manufacturing is widely used in the plastic and
thermoplastic rubber industries as a cost effective alternative to in-house
manufacturing. Generally, the customer owns design molds for use in the
manufacture of its products or parts and provides the molds to outside injection
molding companies, such as the Company.
The Company combines leased state-of-the-art injection molding
equipment, comprehensive quality and production control systems, and
consultation on mold design and modification to improve labor costs and assembly
times, reduce waste and improve end-product quality. The Company has also
assisted several customers in converting their products from virgin materials to
the use (in whole or in part) of recycled materials.
Initially begun as an adjunct to its injection molding operations, the
Molding operation also offers product assembly services. Components are produced
by, and/or delivered to, the Molding operation by customers and assembled to the
required stage of completion.
RECYCLING OPERATION
The Recycling operation was established to identify processing
techniques and alternative lower-cost sources of supply of rubber and plastic
waste for recycling, as well as to identify rubber and plastic based
end-products for which there is significant market demand. The Company has
identified, as its first potential market opportunity, a proprietary raw
material -- GEM Stock -- and consumer products that are to be manufactured using
GEM Stock which incorporate crumb rubber recovered from discarded automobile
tires and plastic waste.
The Recycling operation's first facility located in Jackson, Georgia is
primarily engaged in the production of high-quality crumb rubber products. This
facility has and continues to operate under limited operating conditions as both
equipment and processes are being evaluated and refined in order to maximize the
production capabilities of the facility. The products generated by this
operation include crumb rubber, which is sorted into various mesh sizes to
address specific market applications, and a variety of other rubber feedstocks.
The Company has developed and is currently marketing on a limited
basis, a proprietary thermoplastic rubber material, called GEM Stock using
recovered crumb rubber in combination with recycled plastic waste and virgin
plastic. In April 1996, the Company signed a license agreement with Plastic
Solutions of Texas, Inc. ("PSTI") for the exclusive world wide right and license
to use PSTI's proprietary additive technology for co-mingling (mixing or
blending) of dissimilar plastics and rubber. This license agreement provides the
Company with the ability to incorporate significantly more types of low cost
recycled plastic and rubber into the production of GEM Stock. As currently
manufactured, products made using GEM Stock have properties that are comparable
to those products made using virgin rubber or plastic at a significant cost
savings to the Company. The Company believes that GEM Stock is suitable as a raw
material for use in the manufacture of many of the types of commercial parts and
products currently manufactured by the Molding operation. To date, revenues from
products made using GEM Stock have accounted for less than 10% of the Company's
revenues, and, as a result, there can be no assurance that the Company will be
able to manufacture GEM Stock in quantities necessary to achieve significant
revenues and profits.
The Company also intends to use GEM Stock as the primary raw material
in the manufacture of the Company's proposed line of environmentally friendly,
or "green" consumer products, such as recycling totes, trash cans, playground
and recreational furniture, landscape timbers, corral and picket fencing,
storage bins, and home-use composters. These products are intended to be made
using the broad spectrum of crumb rubber mesh (or particle) sizes to be produced
at the Jackson, Georgia facility. The Company is evaluating the economic and
manufacturing feasibility of several of these proposed products and has
conducted preliminary discussions with possible distributors of such products.
There can be no assurance that such discussions will result in orders for the
products, consumer acceptance of the products or significant revenues for the
Company. Management believes that the Company's internal needs for GEM Stock
will be addressed first, thereby allowing the Company to become its own customer
for raw materials for use in the manufacture of its GreenMan products.
DURAWEAR
DuraWear manufactures and markets ceramic, polymer composite and alloy
steel materials, specifically engineered to resist the highly abrasive
conditions typically encountered in bulk material handling systems. DuraWear
sells its products primarily to industries where the process equipment
experiences significant wear as a result of material movement over equipment
surfaces ("abrasion-wear") or material impact on equipment surfaces
("impact-wear"). Such industries include paper and pulp, mining, mineral
processing, coal handling, grain storage and transportation, cement and
fertilizers.
Ceramics. DuraWear produces CeraDur(R), a pale green colored ceramic
plate made of approximately 96% alumina, less than 2% silica and a small amount
of nickel, which are combined and fired at very high temperatures, resulting in
high density and very low porosity products. These properties make CeraDur(R)
one of the most abrasion-resistant ceramic plates commercially available for
application in highly abrasive conditions. CeraDur(R) is rated 9 on Moh's scale
(an engineering scale which compares material hardness) and second in hardness
only to diamond, which is rated 10. Other commercially available products
generally contain less than 96% alumina and are fired at lower temperatures,
resulting in a less dense product with 25% to 50% less wear life compared to
CeraDur(R).
The Company also manufactures another ceramic product called
Aluminox(R), which contains approximately 90% alumina and a small amount of
nickel. Aluminox(R) is designed to provide less abrasion resistance as compared
to CeraDur(R) for markets and applications where a lower cost alternative is
required.
Polymer Composites. DuraWear distributes two polymer composites for
abrasion-wear applications. Xylethon(R) has a cellular chain structure which
makes it a highly dense plastic material. Its alloyed matrix yields superior
adhesion resistance and dimensional stability when compared to polyvinyl
chloride ("PVC"), polyurethane and ultra high molecular weight ("U.H.M.W.")
polyethylene. Xylethon(R) is lightweight compared to abrasion-resistant steel
plates, which are generally nine times heavier, and is less susceptible than
steel to the distortions caused by thermal cycles.
Trowellable Coatings. In areas where pre-engineered shapes cannot be
installed, trowellable cements and mortars are applied to provide wear resistant
linings. The two basic types of coatings are ceramic based epoxy mortars and
metal based epoxy mortars. Ceramic mortars consist of micromesh particles of
alpha alumina in an epoxy matrix. Metal-based mortars contain metal powders in
an epoxy matrix. The coatings have been specifically formulated for strong
adherence to a great variety of substrates. The linings are used for vertical or
horizontal surfaces including walls, floors, and roofing.
MANUFACTURING
MOLDING OPERATION
The Company conducts all its injection molding and assembly operations
at its leased 45,000 sq. ft. facility located in Malvern, Arkansas. The Molding
operation uses leased state-of-the-art injection molding equipment that is
energy and labor efficient, has fast cycle times, and minimizes production
waste.
The Company may need to expand its existing manufacturing operations
through strategically located satellite operations should the decision be made
to expand existing capabilities to include compression molding, for consumer and
industrial floor mats, and extrusion capabilities for the manufacture of
fencing, landscape timbers, and other outdoor products. There can be no
assurance that the additional customers, if any, gained by establishing new
manufacturing facilities will justify the expense of constructing, staffing and
operating such facilities or that the Company will not experience difficulties
in supervising and coordinating the activities of separate locations.
RECYCLING OPERATION
The Recycling operation's crumb rubber plant in Jackson, Georgia is
located in a 15,000 sq. ft. building on land that is leased from BFI under a
multi year agreement. In October 1995, the Company placed a purchase order for
cryogenic recycling equipment and was required to place a 50% or $700,000
deposit with the equipment manufacturer for each cryogenic recycling equipment
line ordered. In March 1996, the Company made a second $700,000 deposit towards
the purchase of another cryogenic recycling equipment line. The Recycling
operation has and continues to operate under limited operating conditions as
both equipment and processes are being evaluated and refined in order to
maximize the production capabilities of the facility.
As of May 31, 1996, the first cryogenic recycling equipment line has
been delivered and the Company is working with the equipment manufacturer to
finalize installation, operation and acceptance of the initial cryogenic
recycling equipment.
DURAWEAR
DuraWear manufactures only its ceramic products at the facility it owns
which is located in Birmingham, Alabama on five acres of land. DuraWear's
polymer composites and other products are manufactured by third parties on a
contract basis. DuraWear's polymer composites are currently produced by only one
supplier to DuraWear's specifications under a confidentiality agreement, and the
number of alternative suppliers is limited. Management has identified several
alternative suppliers for DuraWear's polymer composites in the event that there
are any adverse changes in its existing relationships. With the exception of its
polymer composites, the Company believes that there are multiple manufacturing
sources available for DuraWear's other products. While DuraWear has
long-standing relationships with its current suppliers, such facilities are not
controlled by DuraWear, and they could sever their relationships with DuraWear
at any time. In such event, particularly as regards the products for which there
are now limited suppliers, it could be difficult for DuraWear to find other
suppliers that could manufacture DuraWear's products to the specifications
required by DuraWear on acceptable terms, if at all.
RAW MATERIALS
MOLDING OPERATION
Generally, raw materials required for the Molding operation are
purchased directly from suppliers on a purchase order basis rather than a
contract basis. The Molding operation purchases such materials on an "as and
when needed" basis, primarily from five suppliers. There can be no assurance
that, absent contracts with firm price and delivery terms, that suppliers will
not increase their prices, change their credit terms or impose other conditions
of sale that may be unfavorable to the Company. While the Company does not
believe that it would experience any significant difficulty in obtaining
materials from alternative sources on comparable terms, there can be no
assurance that such supplies could be obtained on price and delivery terms
favorable to the Company. Until such time, if ever, that the Company begins to
produce GEM Stock in sufficient quantities for its own use on a cost efficient
basis, it is and will be required to purchase crumb rubber and recycled and
virgin plastic from third parties in order to produce its proposed GreenMan
consumer products. Management believes that there are currently a limited number
of suppliers of high-quality crumb rubber that is free of fiber and metal. In
addition, when and if the Company commences production of GEM Stock in
commercial quantities, it will require primarily used tires as raw materials.
RECYCLING OPERATION
The Company believes that the overall supply of tires will be
sufficient to meet the Company's requirements for crumb rubber in the
foreseeable future based on the Company's agreement with BFI whereby BFI will
supply the Recycling operation with a minimum of 3.5 million tires per year,
initially for 5 years with the ability to extend the agreement for another 15
years. The Company has reason to believe that through it's nationwide
operations, BFI has access to more than 40 million additional tires per year for
processing. In addition, according to Scrap Tire News, nearly 255 million
passenger automobile tires are currently discarded annually in the U.S., and of
that total approximately 1% are used for asphalt pavement, 11% are burned to
provide energy, approximately 2% are processed for retreading; and the remaining
tires are landfilled, adding more than 200 million tires annually to the
estimated 3 billion tires already stockpiled in landfills.
DURAWEAR
DuraWear obtains its primary raw materials, consisting of alumina and
nickel oxides from a number of sources on a purchase order rather than a
contract basis. Therefore, the price and other terms upon which such materials
are obtained are also subject to change over which DuraWear has no control.
Management believes that competitive alternate sources of such raw materials are
available, but there can be no assurance that this would be the case at a time
when such sources might be needed by the Company.
PRODUCT DEVELOPMENT
In April 1996, the Company signed a license agreement with Plastic
Solutions of Texas, Inc. ("PSTI") for the exclusive world wide right and license
to use PSTI's proprietary additive technology for co-mingling (mixing or
blending) of dissimilar plastics and rubber. The Company paid a one-time
licensing fee at signing of the agreement and no additional fees are due if the
Company uses the licensed technology in the manufacture of its own products
(i.e. GEM Stock products). A 3% royalty is due in situations where the additive
technology is sold as raw material. This license agreement allows the Company
the ability to incorporate a broader range of low cost recycled plastic and
rubber into the production of GEM Stock. As currently manufactured, products
made using GEM Stock have properties that are comparable to those products made
using virgin rubber or plastic at a significant cost savings to the Company.
In addition to its efforts relating to the recovery of crumb rubber and
production of GEM Stock, the Company may seek to develop new products, which may
involve entering into joint ventures or other strategic alliances. The Company
has not to date entered into any such relationships other than noted above, with
respect to new products, nor can there be any such assurance that the Company
will be successful in entering into such relationships, nor that it will be able
to develop new products which result in revenues or profits to the Company.
CUSTOMERS
MOLDING OPERATION
In the fiscal year ended May 31, 1994, two customers, Jacuzzi Brothers
Division, Little Rock, ("Jacuzzi") and Klipsch and Associates
("Klipsch"),accounted for approximately 67% and 17%, respectively, of the
Company's net sales and in the fiscal year ended May 31, 1995, three customers,
Jacuzzi, Stant Manufacturing, Inc. and R. G. Sloane & Co. Inc., accounted for
approximately 62%, 14% and 10%, respectively, of net sales. In the fiscal year
ended May 31, 1996, two customers, Jacuzzi and Stant Manufacturing, accounted
for approximately 38% and 14%, respectively, of the Company's consolidated net
sales Currently, the Molding operation serves customers in a number of
industries such as: Jacuzzi -- water filters and pumps; Klipsch -- stereo
components and speakers; Stant Manufacturing, Inc. -- automotive gas caps; R. G.
Sloane & Co., Inc. -- plumbing products; and Essic Air Products, a division of
Wal-Mart Corporation - humidifier component parts.
RECYCLING OPERATION
As of May 31, 1996, the Recycling operation had not yet commenced
commercial production of crumb rubber and therefore had no revenue for the
fiscal year ended May 31, 1996. The Company has targeted several markets with
products incorporating significant amounts of recovered crumb rubber and plastic
waste, including the building industry with anti-fatigue floor mats, roofing
products, and timbers; the lawn and garden market with landscape timbers, and
fencing; the consumer products market with trash containers, recycling totes,
and storage containers; and the transportation industry with nose cones,
barriers, railroad ties and railway crossing mats. Management also believes that
the Company's internal needs for it's GEM Stock will allow the Company to become
its own customer for raw materials for use in the manufacture of its GreenMan
products.
DURAWEAR
DuraWear did not have any customers which accounted for 10% or more of
consolidated net sales during the fiscal year ended 1996. DuraWear's customers
include Georgia Pacific, Boise Cascade, Container Corp. of America, Champion
International, Thompson Coal, Greyco, and various power utilities throughout the
U.S.
The Company does not have any long-term contracts pursuant to which any
customer is required to purchase any minimum amount of products. There can be no
assurance that the Company will continue to receive orders of the same magnitude
as in the past from existing customers or that it will be able to market its
current or proposed products to new customers. The loss of any major customer
would have a materially adverse effect on the business of the Company as a
whole.
SALES AND MARKETING
The Company has begun to utilize outside manufacturer's sales
representative organizations, in addition to its on-going in-house sales
activities. DuraWear has in place a network of sales representatives for both
domestic and international sales, which may be used by the Company in connection
with the sale of its products.
Assuming the Company succeeds in manufacturing crumb rubber and GEM
Stock in commercial quantities at an acceptable cost, of which there can be no
assurance, a significant portion of the Company's production will be utilized
for internal use in the manufacture of the proposed GreenMan consumer products.
Any excess material will likely be compounded (mixed) on a contract basis and
then be offered for sale on a merchant chemical basis through such compounder's
traditional sales vehicles, as well as directly through the Company.
The Company's proposed consumer products will be sold through the
Company's agreement with Big East Sales and Marketing, Framingham, Massachusetts
- -- a firm with a national presence in the wholesale and retail consumer markets
through a nationwide sales representative network, and which has more than 25
years experience selling directly to major discount department store chains,
builders' supply and hardware store chains, and lawn and garden stores. Big East
Sales and Marketing has established a separate operating unit called Big East
Green which is dedicated to marketing, selling and promoting the Company's
environmentally friendly GEM Stock consumer products.
DuraWear markets its products primarily to the process industry where
material movement typically causes abrasion resulting in wear of the process
equipment. Applications for DuraWear's products span many industries such as
paper and pulp, mining, mineral processing, coal handling, grain storage and
transportation, cement and fertilizers.
COMPETITION
MOLDING OPERATION
The injection molding contract manufacturing industry is highly
competitive and characterized by severe price cutting by small regional
contractors. While the Company believes that its facility, modern equipment and
advanced quality control are attractive features to potential customers, there
can be no assurance that the Company can capture adequate competitive contracts
to achieve or sustain profitability, either at its present location or at any
satellite location it seeks to establish.
In seeking to introduce and market its proposed GreenMan consumer
products, the Company will be competing with many established manufacturers of
similar products. Most of these competitors have substantially greater financial
and marketing resources and significantly greater name recognition among both
retailers and consumers than the Company. A number of companies with products
made from recycled tires have already entered the market. For example, OMNI
Rubber Products manufactures solid-rubber, non-steel reinforced railroad
crossings from recycled crumb rubber and R.A.S. Recycling, Inc., together with
Royal Rubber Manufacturing, are developing playground and recreational surfacing
mats made of recycled tire rubber. In addition, several companies manufacture
products similar to the Company's proposed GreenMan line of products, such as
industrial floor mats, playground furniture, and landscape timbers. There can be
no assurance that the Company will be able to compete successfully in the
consumer market.
If the Company is successful in manufacturing and selling its GEM
Stock, of which there can be no assurance, the Company will compete with other
producers and suppliers of traditional plastic and thermoplastic rubber
products, including recycled and virgin products. The Company's success in
marketing its products will depend on its ability to convince potential buyers
that its products are of comparable or superior quality to alternative products
and that its products are also comparable in cost to competing products. There
can be no assurance that the Company will be able to compete effectively with
established producers, many of which have substantially greater financial and
manufacturing resources than those of the Company.
RECYCLING OPERATION
Historically, companies in the tire processing industry have created
significant amounts of tire derived fuel chips ("TDF") and crumb rubber, which
had limited uses other than the generation of electricity which was not
environmentally sound. There are a number of tire recycling companies in
existence today which produce crumb rubber in limited quantities and varying
levels of quality (ie. Rouse Rubber). There are also several companies that
simply process tires into TDF to be burned as supplemental fuel or break down
the tire material into it's elemental components ("Pyrolysis") and sell the
components individually (ie. ECO2). The Company believes that the limited
success experienced by these companies is due to the fact that this industry is
disaggregated among small and under-capitalized companies and there has been
limited success in identifying and producing end user products that incorporate
recycled materials. The Company has developed a strategy for recycling tire and
plastic waste which involves complete "closed loop" recycling from waste pile to
end product.
The Company's further-refined strategy involves the positioning of the
Company to ensure a reliable, long-term source of supply for raw materials. The
partnering agreement with BFI assures a minimum of 3.5 million tires per year
initially for 5 years and potentially up to 20 years. This relationship with BFI
is what management believes differentiates the Company from other competitors as
it represents a multi-year commitment of a steady, reliable supply of
high-quality raw materials to the Company's Recycling operation.
DURAWEAR
DuraWear has several competitors for its products, most of whom have
greater financial and marketing resources than DuraWear. In the ceramics market,
competitors include Coors Ceramics Co., Champion and Packo Industrial Ceramics,
Inc. and in the polymer composite market include Solidur Plastics, DuPont and BP
America.
DuraWear competes on the basis of the longer-lasting wear resistance
performance of its products as compared to products offered by competitors.
Management believes that DuraWear products offer customers significant cost
advantages, notwithstanding DuraWear's products' higher prices.
GOVERNMENT REGULATION
The Company's tire recycling and manufacturing activities maybe subject
to extensive and rigorous government regulation designed to protect the
environment. Management does not expect that the Company's activities will
result in the emission of air pollutants, the disposal of combustion residues,
or the storage of hazardous substances (as is the case with other tire recycling
processes such as pyrolysis). The establishment and operation of plants for tire
recycling are subject to obtaining numerous permits and complying with
environmental and other government regulations, both in the U.S. and most
foreign countries. The process of obtaining required regulatory approvals can be
lengthy and expensive. Moreover, regulatory approvals, if granted, may include
significant limitations on the Company's operations. The EPA 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 the Company from
obtaining, or affect the timing of, regulatory approvals.
The effect of government regulation may be to delay for a considerable
period of time or to prevent the Company from developing its business as planned
and/or impose costly requirements on the Company, the result of which may be to
furnish an advantage to its competitors or to make the Company's business less
profitable, or unprofitable, to operate.
PROTECTION OF INTELLECTUAL PROPERTY RIGHTS AND PROPRIETARY RIGHTS
None of the equipment or machinery that the Company or DuraWear
currently use or intend to use in their respective current or proposed
manufacturing activities are proprietary; any competitor can acquire equivalent
equipment and machinery on the open market. The Company believes that it has
developed specialized know-how in the blending of plastics and rubber for use in
its molding machines and that its processes are proprietary. The Company has
acquired exclusive world-wide rights to a proprietary additive technology (PSTI)
which will enable the Company to blend a broader range of virgin and recycled
plastics together, and/or combine such plastics with crumb rubber from recycled
tires. The Company also believes that many of the formulae and processes used in
manufacturing DuraWear's products are proprietary, and DuraWear has executed
confidentiality agreements with the appropriate employees and subcontractors.
However, there can be no assurance that competitors will not
develop processes or products of comparable efficiency and quality. DuraWear
does not have any patents and does not believe any of its products are
patentable. Moreover, there can be no assurance that any patents that may be
granted in the future will be enforceable or provide the Company with meaningful
protection from competitors. Even if a competitor's products were to infringe
patents owned by the Company, it could be very costly for the Company to enforce
its rights in an infringement action, and such an action would divert funds and
resources otherwise available for use in the Company's operations. Consequently,
there can be no assurance that the Company would elect to prosecute potential
patent infringement claims it might have. Furthermore, there can be no assurance
that the Company's proposed products will not infringe any patents or rights of
others.
The Company has used the name "GreenMan" and other trade names in
interstate commerce and asserts a common law right in and to such names. A
trademark search has been conducted for the name "GreenMan" which found that
there are no significantly similar names currently being used in the Company's
current and intended industries. The Company intends to file an application with
the U.S. Department of Commerce, Patent and Trademark Office to register its
name and establish trademark rights. There can be no assurance, however, that
such a trademark application will be approved. Although the Company has been
using the GreenMan name for its custom molding services and has not yet begun
significant marketing for its consumer products, the inability of the Company to
continue to use the name in connection with such services as well as in
connection with the proposed GreenMan consumer products could have an adverse
effect on the Company's efforts to establish name recognition for its products
in the commercial and consumer marketplaces.
DuraWear has registered trademarks for a number of its products,
including CeraDur and Xylethon and has used the name "ExcelloSlide" and other
trade names in interstate commerce and asserts a common law right in and to such
names. There can be no assurance, however, that such right would sufficiently
protect the Company's right to use such names or that, if and when the Company
files trademark applications for such names, that such applications would be
approved.
EMPLOYEES
As of May 31, 1996, the Company had approximately 85 employees which
includes 23 employees located at DuraWear.
Neither the Company nor DuraWear are a party to any collective
bargaining agreements, and they each consider the relationship with their
employees to be satisfactory.
ITEM 2. DESCRIPTION OF PROPERTIES
The Molding operation currently occupies approximately 45,000 square
feet of combined industrial/manufacturing space in Malvern, Arkansas, including
2,000 square feet of office space under a lease with an unaffiliated third party
that expires on May 31, 1997 at a monthly rent of $5,325.
In October 1995, the Company entered into a three year lease for
approximately 2,700 square feet of administrative office space, located in
Lynnfield, Massachusetts at a monthly rental of $3,238.
In December 1995, the Company entered into a five year lease agreement
with BFI Tire Recyclers of Georgia, Inc. ("BFI") whereby the Company will lease
for $1 per year, approximately 15,000 square feet of land located in Jackson,
Georgia on which a tire recycling facility has been built. The Company is
responsible for all improvements and operating costs relating to the leased
premises. This agreement can be extended for up to three additional five year
terms with the consent of both parties.
DuraWear owns two industrial buildings and an office building in
Birmingham, Alabama, located on five acres of land zoned for industrial
expansion. Both industrial buildings are suitable for manufacturing/production
operations. DuraWear currently utilizes 75% of the available space, with excess
capacity to handle approximately three times their current production volume.
There is readily available space for possible expansion if needed.
Management believes that the Company's existing facilities are adequate
for its current needs.
ITEM 3. LEGAL PROCEEDINGS
In October 1994, the Company was sued in Robert H. Jones v. GreenMan
Technologies, Inc. in the 15th Judicial District Court in Lafayette, Louisiana,
by a former consultant who seeks, among other things, unpaid consulting fees, as
well as licensing fees/royalties relating to the Company's alleged use of a
cryogenic process for recovering crumb rubber that Mr. Jones alleges he
developed. The Company has retained Louisiana counsel and is contesting this
lawsuit vigorously. The Company believes that the outcome will not have a
material adverse effect on the Company or its business. Neither the Company nor
DuraWear is a party to any other material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company conducted a Special Meeting of Stockholders on Friday June
7, 1996. The matters considered at the meeting were (1) approval of an amendment
to the Company's Certificate of Incorporation to increase the authorized number
of shares of the Company's Common Stock from 10,000,000 to 20,000,000; (2)
approval of an increase in the number of shares of Common Stock authorized under
the 1993 Stock Option Plan from 410,000 to 1,000,000 and (3) approval of the
adoption of the 1996 Non-Employee Director Stock Option Plan.
The results of each vote was as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non Votes
--- ------- ------- ---------
<S> <C> <C> <C> <C>
VOTE 1 - Amendment to the Certificate of Incorporation
to increase the authorized number of shares of
Common Stock to 20,000,000 3,717,491 526,846 11,825 ---
VOTE 2 - Approval to increase the number of shares
authorized under the 1993 Stock Option Plan 2,184,458 541,575 26,375 1,503,754
VOTE 3 - Approval of adoption of the 1996 Non-
Employee Director Option Plan 2,161,030 575,500 24,975 1,494,657
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock and the Class A Common Stock Purchase
Warrants are traded on the NASDAQ SmallCap Market under the symbols "GMTI" and
"GMTIW", respectively, and listed on the Boston Stock Exchange under the symbols
"GMY" and "GMYW", respectively since October 2, 1995. The following table sets
forth the high and low bid quotations for the Common Stock and Class A Common
Stock Purchase Warrants for the periods indicated as quoted by NASDAQ. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Class A Common Stock
Common Stock Purchase Warrants
------------ ------------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
FISCAL 1996
Quarter Ended November 30, 1995 (from October 2) $8.63 $6.00 $3.00 $1.00
Quarter Ended February 29, 1996 7.50 2.50 3.00 1.00
Quarter Ended May 31,1996 6.38 4.00 3.00 .75
FISCAL 1997
Quarter Ended August 31, 1996 $4.13 $2.25 $1.38 $ .13
</TABLE>
On September 10, 1996, the closing bid price of the Common Stock was
$2.19 and the closing bid price for the Class A Common Stock Purchase Warrants
was $ .38.
As of September 10, 1996 the Company estimated that the approximate
number of stock holders of record of the Company's Common Stock were
approximately 950.
The Company has not paid any cash dividends on its Common Stock since
inception and it does not anticipate paying any cash dividends in the
foreseeable future.
In August 1996, Landmark International, the Company's IPO underwriter
and market maker suspended market-making operations. The Company has in excess
of 20 registered market makers and is continuing its efforts to expand the
number of firms making market in the Company's securities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
GreenMan Technologies, Inc. was incorporated in 1992 to primarily
develop, manufacture, assemble and sell environmentally friendly plastic parts
and products. The Company's Molding operation provides injection molding
manufacturing services in the production of plastic and thermoplastic rubber
parts for such products as stereo components and speakers, water filters and
pumps and computer accessories.
The Company's Recycling operation was established to develop lower cost
sources of supply of rubber and plastic waste for recycling as well as to
identify rubber and plastic based end-products for which management believes
there is a significant market demand. The Company has targeted several markets
with products incorporating recovered crumb rubber including the building
industry with anti-fatigue floor mats, roofing products and timbers, and the
lawn and garden market with landscape timbers and fencing.
In October 1995, the Company sold in its initial public offering
("IPO"), 1,265,000 shares of common stock at $5.00 per share and 1,265,000
redeemable Class A common stock purchase warrants at $.10 per warrant and
received net proceeds of approximately $5,390,000 after underwriting commissions
and other issuance costs paid at the closing.
Simultaneous with the closing of the IPO, the Company acquired all of
the outstanding common stock of DuraWear Corporation, ("DuraWear") a company
which manufactures, installs and markets a diverse range of high quality
ceramic, polymer composite, and alloy steel materials engineered to resist
severely abrasive and corrosive conditions typically encountered in bulk
handling systems in such industries as paper and pulp, mining, coal handling and
grain storage and transportation. The consolidated financial statements include
the results of DuraWear for the period of October 10, 1995 to May 31, 1996.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31,1996 COMPARED TO THE YEAR ENDED MAY 31,1995
Consolidated net sales for the year ended May 31 1996 ("fiscal 1996")
were $4,338,538 as compared to $2,127,745 for the year ended May 31, 1995
("fiscal 1995"). The increase in net consolidated sales of $2,210,793 or 104%
was due to a 50% or $1,071,896 increase in contract molding and assembly
business and the inclusion of $1,138,897 of DuraWear sales. During fiscal 1996,
approximately 38% and 14% of consolidated net sales were accounted for by
Jacuzzi Brothers Division, Little Rock, ("Jacuzzi") and Stant Manufacturing Inc.
("Stant") respectively. During fiscal 1995, approximately 62%, 14% and 10% of
net sales were accounted for by Jacuzzi, Stant and R. G. Sloane & Co., Inc.
("Sloane"), respectively.
Gross profit for fiscal 1996 was $1,108,540 or 26% of consolidated
sales as compared to $312,063 or 15% of sales for fiscal 1995. This improvement
in gross profit was primarily due to the inclusion of DuraWear sales which
generated a 54% gross margin while molding and assembly operations generated a
consistent 15% gross margin for the fiscal 1996 period.
Research and development expenditures were $66,610 for fiscal 1996 as
compared to $223,061 for fiscal 1995. The majority of the 70 % decrease is
attributable to the termination of two product development projects in fiscal
1995. This decrease was offset by the Company's ongoing efforts to identify new
proprietary products and expand the applications of existing product lines.
Selling, general and administrative expenses were $2,406,794 for fiscal
1996, or 55% of consolidated sales as compared to $619,163, or 29% of sales, for
fiscal 1995. The increase of $1,787,631 was primarily attributable to the
inclusion of DuraWear's operating expenses of $817,831, which included $77,778
relating to amortization of the three-year non-competition agreement and $33,232
relating to goodwill amortization. In addition, the Company's expenses increased
due to the addition of new employees, increased corporate development and
marketing activities and increased expenses related to the Company's becoming a
public company in October 1995.
As a result of the foregoing, the operating loss for fiscal 1996
increased by $834,703 to $1,364,864 or 31% of consolidated sales, as compared to
an operating loss of $530,161, or 25% of sales for fiscal 1995.
The Company repaid approximately $1,073,000 of bridge loans in October
1995 from the proceeds of its IPO which contributed to the $177,525 decrease in
interest expense for fiscal 1996 as compared to fiscal 1995. In addition, the
Company recorded additional interest expense in fiscal 1995, in connection with
the March 1995 modification of the note payable to Budra Management Corporation.
These decreases were slightly offset by the inclusion of DuraWear's interest
expense of $28,900 for fiscal 1996.
The Company experienced a net loss of $1,578,321, or $.34 per share for
fiscal 1996 as compared to a net loss of $1,092,006, or $.27 per share for
fiscal 1995.
YEAR ENDED MAY 31,1995 COMPARED TO THE YEAR ENDED MAY 31,1994
Net sales for fiscal 1995 were $2,127,745 compared to $1,164,111 for
the year ended May 31, 1994 ("fiscal 1994"). The 83% increase in sales resulted
from additional contract molding business, increases in the customer base, and
the generation of new assembly business. During fiscal 1995, approximately 62%,
14% and 10% of net sales were accounted for by Jacuzzi, Stant and Sloane,
respectively, and during fiscal 1994, approximately 67% and 17% of net sales
were accounted for by Jacuzzi and Klipsch and Associates ("Klipsch"),
respectively.
Gross profit for fiscal 1995 was $312,063, or 15% of net sales,
compared to approximately $37,991, or 3% of net sales, for fiscal 1994. The
improvement in gross profit was a result of higher pricing for both new and
existing contracts and lower per unit manufacturing costs associated with
increasing volume as operations expanded from one shift to three shifts.
Research and development expenses for fiscal 1995 increased by
$178,005, to $223,061, from $45,056 in the comparable prior period. The increase
in research and development expenses are primarily due to $180,000 in expenses
under the Company's product development agreement with Environmental Roofing
Systems, Inc. ERSI, an unrelated corporation, which has been terminated. Under
this agreement, the Company conducted product testing and market research for
all-weather roofing products using recovered crumb rubber from discarded
automobile tires. The Company does not intend to use this technology in the
future in its development of consumer or other products. The Company paid
$110,000 owed to ERSI as final payment under the agreement from the proceeds of
the IPO in fiscal 1996. Management does not expect to incur any additional
expenses in the future in connection with the termination of this agreement.
Selling, general and administrative expenses were $619,163, or 29% of
net sales, during fiscal 1995, compared to $328,672, or 28% of net sales, during
fiscal 1994. This increase of $290,491 was primarily the result of increases in
salaries and payroll taxes of approximately $206,000, increases in professional
fees of approximately $30,000, and increases of $34,000 in business travel
expenses. The increase in salary expense was primarily the result of the
addition of several administrative positions needed to support the increase in
business activity. The increase in professional fees was primarily the result of
the payment of consulting fees to the Company's non-salaried Chief Executive
Officer and the forgiveness of stock subscriptions receivable in the aggregate
amount of $12,545 from the Company's founders in consideration of services
rendered during start-up operations. The increase in business travel was due to
corporate business development activities. Selling, general and administrative
costs are expected to increase as a result of increased sales activity and the
costs associated with operating a public company.
As a result of the foregoing, the operating loss for fiscal 1995
increased to $530,161 from $335,737 for fiscal 1994. The operating loss as a
percentage of net sales decreased to 25% of net sales for fiscal 1995 from 29%
of net sales for fiscal 1994.
Other income (expense), net for fiscal 1995 was ($561,845) compared to
($324,368) for fiscal 1994. The increase in other expense was primarily due to
an increase of approximately $242,926 in interest expense and an increase of
$65,000 in deferred offering costs expensed. The increase in interest expense
was due to an increase of $175,000 in the interest expense on the notes payable
to Budra Management Corp. ("Budra") as a result of the modification of the terms
of the note to provide for the issuance to Budra of 100,000 shares of Common
Stock, valued at $500,000, at the Closing of the IPO in lieu of a $250,000 cash
payment payable one year after the Closing. As a result of the modification, the
effective interest rate on the note increased to 53% per annum. In
addition, interest on the notes payable, investors increased by $61,000 as a
result of the increase in outstanding borrowings over the 18 months ended May
31, 1995.
The Company experienced a net loss of $1,092,006, or $.27 per share for
fiscal 1995 as compared to a net loss of $660,105 or $.16 per share for fiscal
1994.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has satisfied its capital requirements
through the sale of common and preferred stock to investors, loans from
unaffiliated lenders, the acquisition of machinery and equipment through capital
leases and notes payable, and the issuance of common stock in lieu of cash for
services rendered.
On October 10, 1995, the Company raised approximately $5,390,000 from
its IPO, after underwriting commissions and other issuance costs paid at the
closing. The proceeds of the IPO were used to repay outstanding bridge loans,
and past due accounts payable, to acquire DuraWear, to construct a crumb rubber
recovery facility, to expand the injection molding operations, to retain the
underwriter as a financial consultant for a period of three years and for
general working capital needs.
In January 1996, the Company made a $500,000 advance under a
non-interest bearing loan agreement to a company owned by one of its directors.
On June 26, 1996, this advance was returned to the Company in its entirety.
During the period of February 1996 to May 1996 the Company borrowed
$1,500,000 in aggregate from a company of which two of the Company's directors
also hold positions as directors and or officers of the company. These note
payable bear interest at 10% per annum with principal and interest due in three
(3) $500,000 increments at the earlier of (1) the tenth business day following
the consummation by the Company of a minimum $3,000,000 of additional financing
or (2) on September 30, 1996, January 1, 1997 and June 1, 1997, respectively. In
addition, the Company agreed to grant warrants to purchase 100,000 shares of the
Company's common stock at an exercise price of $3.88 per share and warrants to
purchase 100,000 shares of the Company's common stock at an exercise price of
$4.00 per share The Company has the right to prepay any and all installments
without penalty.
Subsequent to year-end, the Company borrowed an additional $200,000
from this company. The note payable bears interest at 10% per annum with
principal and interest due at the earlier of (1) the tenth business day
following the consummation by the Company of a minimum $3,000,000 of additional
financing or (2) on January 1, 1997. In addition, the Company agreed to grant
warrants to purchase 100,000 shares of the Company's common stock at an exercise
price of $3.88 per share.
In May 1996, the Company borrowed $325,000 from an officer of the
Company. This unsecured note payable bears interest at prime plus 1.5% (9.75 %
at May 31, 1996) per annum with principal and interest due on the earlier of 120
days after the date of issuance or the tenth business day following the
consummation of a minimum $3,000,000 of additional financing. At May 31, 1996,
the Company had cash of $153,172, a working capital deficit of $1,202,996, net
capital of $3,535,826 and accumulated losses of $3,698,454. These balances
reflect the repayment of approximately $1,073,000 of bridge loans, approximately
$450,000 of past due accounts payable, the payment of $400,000 in connection
with the acquisition of DuraWear, $1,883,400 relating to equipment deposits,
approximately $217,000 for capital additions (excluding the crumb rubber
facility costs) and the payment of $108,000 pursuant to the underwriter's three
year consulting contract.
The Company allocated approximately $1,000,000 of the proceeds from its
IPO for the construction of the crumb rubber recycling facility. As of May 31,
1996, approximately $865,000 of the total estimated construction costs of
$1,000,000 has been expended. In October 1995, the Company placed a purchase
order for cryogenic recycling equipment and was required to place a 50% or
$700,000 deposit with the equipment manufacturer for each cryogenic recycling
equipment line ordered. In March 1996, the Company placed a second $700,000
deposit towards the purchase of another cryogenic recycling equipment line.
As of May 31, 1996, the first cryogenic recycling equipment line has
been delivered and the Company is working with the equipment manufacture to
finalize installation, operation and acceptance of the equipment. Accordingly,
the Company has not to date remitted the final $300,000 payment to the vendor
for the first line. Management expects to finance a substantial portion of the
equipment costs through lease financing arrangements with third parties.
Based on the Company's operating plans, management believes that the
available working capital together with revenues from operations and the
purchase of equipment through lease financing arrangements, will be sufficient
to meet the Company's cash requirements through the first quarter of fiscal
1997. The Company expects that additional financing will be required after this
time in order to fund continued growth. Management has identified and is
currently evaluating several immediate financing alternatives and diligently
working to determine the feasibility of each alternative. No assurances can be
given that such financing will be concluded in the near future on favorable
terms, if at all. If the Company is unable to obtain additional financing, its
ability to maintain its current level of operations could be materially and
adversely affected and the Company may be required to adjust its operating plans
accordingly.
FACTORS AFFECTING FUTURE RESULTS
The Company's revenue and operating results may fluctuate from quarter
to quarter and from year to year due to a combination of factors, including (i)
completion of the Company's crumb rubber facility and production of crumb rubber
in commercial quantities at a price that will be competitive in the market; (ii)
the Company's ability to secure additional customers for its products thereby
reducing its reliance on a few major customers; (iii) the Company's ability to
integrate and manage the operations of DuraWear, its recently acquired
subsidiary; (iv) market acceptance of the Company's proposed Gem Stock material
and GreenMan consumer products, (v) ability to obtain raw materials from
suppliers on terms acceptable to the Company; and (vi) general economic
conditions. The Company's' plans and objectives, are based on assumptions that
the Company will be successful in completing its crumb rubber facility, that it
will produce crumb rubber at a price that will be competitive in the market,
that the company will be successful in receiving additional financing to fund
future growth and that there will be no material adverse change in the Company's
operations or business.
Assumptions relating to the foregoing involve judgments with respect
to, among other things, future economic, competitive and market conditions all
of which are difficult or impossible to predict accurately and many of which are
beyond the control of the Company. As a result of the foregoing, there can be no
assurance that the Company will be able to achieve or sustain profitability on a
quarterly or annual basis. In light of the significant uncertainties inherent in
the Company's business, forward looking statements made in this report should
not be regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
ENVIRONMENTAL LIABILITY
The Company has no known material environmental violations or
assessments.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company intends to adopt Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" and SFAS No. 123, "Accounting for
Stock-Based Compensation" in the year ended May 31, 1997. As discussed in Note 1
to the consolidated financial statements, the adoption of these new accounting
standards is not expected to have a material impact on the Company's
consolidated financial position, results of operations and cash flows.
ITEM 7. FINANCIAL STATEMENTS
For information required with respect to this Item 7, see "Consolidated
Financial Statements" on pages F-1 through F-20 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The Directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- ---- --------
<S> <C> <C>
Maurice E. Needham ...................... 56 Chairman of the Board of Directors;
Chief Executive Officer
James F. Barker.......................... 55 President, Director
Joseph E. Levangie....................... 51 Chief Financial Officer; Treasurer;
Secretary; Director
Lew F. Boyd.............................. 51 Director
Buster C. Glosson........................ 51 Director
</TABLE>
Each director is elected for a period of one year at the Company's
annual meeting of stockholders and serves until his successor is duly elected by
the stockholders. The Company's officers are appointed by the Board of Directors
and serve at the discretion of the Board of Directors. No director receives
compensation for services as a director.
The Company has established an Audit Committee consisting of Mr.
Levangie and Mr. Boyd and a Compensation Committee consisting of Messrs.
Needham, Boyd and Glosson.
MAURICE E. NEEDHAM has been Chief Executive Officer and a Director of
the Company since June 1993. He also serves as Chairman of Dynaco Corporation
("Dynaco"), a manufacturer of flexible printed circuit boards which he founded
in 1987. Dynaco filed for an orderly liquidation under bankruptcy protection in
July 1993 and emerged from such protection in February 1994, as a division of
Palomar Medical Technologies, Inc., a Beverly, Massachusetts company engaged in
the development of advanced medical equipment. Prior to 1987, Mr. Needham spent
17 years at Hadco Corporation, a printed circuit board manufacturer, where he
served as President, Chief Operating Officer and Director.
JAMES F. BARKER is the founder of and has been President and a Director
of the Company since its inception in September 1992. Mr. Barker has over 14
years experience in the plastics industry with both manufacturing and OEM sales
activities in areas including injection molding, extrusion, blow molding,
machinery rebuilding and repair services and manufacturing plant operations and
design. From 1991 to September 1992, Mr. Barker was a Sales Engineer with Adams
Engineering & Equipment, a distributor of injection molding machines, extruders
and auxiliary equipment. From 1987 to 1990, he was a Sales Manager for Wood
Service, Inc., a provider of machinery rebuilding and repair services for
injection molding, extrusion and blow molding equipment.
JOSEPH E. LEVANGIE has been Chief Financial Officer and a Director of
the Company since its inception and Treasurer and Secretary since June 1993. Mr.
Levangie is the founder and has been since its inception in 1981, the Chief
Executive Officer of JEL & Associates, which specializes in corporate finance
and business strategy and development. Mr. Levangie serves as a Director of
Palomar Medical Technologies, Inc., publicly traded company.
LEW F. BOYD has been a Director of the Company since August 1994. Mr.
Boyd is the founder and has been since 1986 the Chief Executive Officer of
Coastal International, Inc., an international business development and
technology transfer firm.
BUSTER C. GLOSSON has been a Director of the Company since August 1994.
From 1965 until June, 1994, he was an officer in the United States Air Force
(USAF), most recently as a Lieutenant General and Deputy Chief of Staff for
plans and operations, Headquarters USAF, Washington D.C. Lieutenant General
Glosson is a veteran of combat missions in Vietnam and, during the Gulf War, he
commanded the 14th Air Division and was director of campaign plans for U.S.
Central Command Air Forces, Riyadh, Saudi Arabia. Lt. General Glosson is now a
private consultant to high technology industries. He serves as a Director of
Palomar Medical Technologies, Inc. and The American Materials and Technology.
The Company has agreed with the underwriter of its IPO (the
"Underwriter") that, for a period of no less than three years from the Closing,
the Underwriter may designate an adviser to the Board of Directors who will be
entitled to attend and receive notice of all meetings of the Board. The advisor
will receive the same compensation as paid by the Company to its other
non-executive Directors and will be reimbursed for all costs incurred in
attending the meetings. In lieu of designating an advisor, the Underwriter may
designate a person to serve as a Director on the Board. The Company has also
agreed to indemnify the adviser or Director against any claims arising out of
participation at Board meetings.
KEY EMPLOYEE; CONSULTANT
CHARLES E. COPPA, 33, has served as the Company's Corporate Controller
since October, 1995. A CPA, he most recently was CFO and Treasurer of Food
Integrated Technologies of Brookline, MA, a publicly-traded development stage
company from July 1994 to October 1995. Prior to joining Food Integrated
Technologies, Inc., Mr. Coppa served as Corporate Controller for Boston Pacific
Medical, Inc., a manufacturer and distributor of disposable medical products and
Corporate Controller for Avatar Technologies, Inc., a computer networking
company; and serves currently on the board of directors of the Whistler House
Museum of Art, Lowell, MA.
DHANANJAY G. WADEKAR, 41, has acted as a consultant to the Company
since inception. Mr. Wadekar was the sole stockholder and President of DuraWear
prior to it being acquired by the Company in October 1995. The Company
contracted with Mr. Wadekar to provide consulting services to the Company for
one year following the sale of DuraWear for total consideration of $20,000,
payable in equal monthly installments, commencing 30 days after the sale. Since
1988, he has been a Director and is currently the Executive Vice President and
Chairman of the Board of DynaGen, Inc., a publicly traded company engaged in the
development of diagnostic and therapeutic products for the human and veterinary
health care markets.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES AND EXCHANGE ACT OF 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than 10% of
the Company's Common Stock ("10% Stockholders"), to file with the Securities and
Exchange Commission ("the SEC") initial reports of ownership of the Company's
Common Stock and other equity securities on Form 3 and reports of changes in
such ownership on Form 4 and Form 5. Officers, directors and 10% Stockholders
are required by SEC regulations to furnish the Company with copies of all
Section 16 (a) forms they file.
To the Company's knowledge, based solely on review of the copies of
such reports furnished to the Company during and with respect to, its most
recent fiscal year, and written representation that no other reports were
required, all Section 16 (a) filing requirements applicable to its officers,
directors and 10% Stockholders were complied with.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes the compensation paid or accrued by the
Company for services rendered during the years indicated to the Company's
Chairman and Chief Executive Officer, its President and its Chief Financial
Officer. The Company did not grant any restricted stock awards or stock
appreciation rights or make any long-term plan payouts during the years
indicated.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
FISCAL YEAR SECURITIES
NAME AND ENDED OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION MAY 31, SALARY BONUS COMPENSATION OPTIONS COMPENSATION(2)
------------------ ------ ------ ----- ------------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Maurice E. Needham............ 1996 $42,924 $ -- $ 18,000(1) -- --
Chairman 1995 -- -- 36,000(1) 2,850
1994 -- -- 24,000(1) 60,000 --
James F. Barker............... 1996 81,057 -- -- -- 7,804
President 1995 66,000 -- -- -- 3,383
1994 68,538 -- -- 60,000 --
Joseph E. Levangie............ 1996 42,924 -- 18,000(1) -- --
Chief Financial Officer 1995 -- -- 36,000(1) 2,500 2,500
1994 -- -- 36,000(1) 10,000 --
- ---------
(1) Represents consulting fees paid or accrued.
(2) Represents payments made to or on behalf of Mr. Barker in fiscal 1996 for
health insurance and auto allowances. In August 1994, the Company forgave
stock subscriptions receivable from Messrs. Needham, Barker and Levangie for
services rendered during the Company's start-up operations.
</TABLE>
There were no options granted during the fiscal year ended May 31, 1996
to the executive officers named in the Summary Compensation Table above.
The following table sets forth information concerning the value of
unexercised options as of May 31, 1996 held by the executives named in the
Summary Compensation Table above. No options were exercised by such executive
officers during the fiscal year ended May 31, 1996.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES(1)
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT MAY 31, 1996 AT MAY 31, 1996 (2)
----------------------- -------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----- ----------- -------------- ------------ -------------
<S> <C> <C> <C> <C>
Maurice E. Needham.......................... 24,000 36,000 $99,840 $149,760
James F. Barker............................. 24,000 36,000 $99,840 $149,760
Joseph E. Levangie.......................... 6,500 6,000 $24,765 $24,960
- ---------
(1) There were no options exercised by any of the executive officers named in
the Summary Compensation Table in the twelve months ended May 31, 1996. The
options granted to the executive officers became exercisable commencing June 10,
1994, at an annual rate of 20% of the underlying shares of Common Stock, except
for 2,500 options granted to Mr. Levangie during the fiscal year ended May 31,
1995, which are immediately exercisable.
(2) Assumes that the value of shares of Common Stock is equal to $4.25 per
share, which was the closing bid price of the Company's Common Stock as listed
by NASDAQ on May 31, 1996.
</TABLE>
EMPLOYMENT AGREEMENTS
In October 1995, the Company entered into three-year employment
agreements with each of Messrs. Needham, Barker and Levangie pursuant to which
Messrs. Needham and Levangie will receive a salary of $72,000 per annum and Mr.
Barker will receive a salary of $80,000 per annum. Any increases or bonuses will
be made at the discretion of the Board of Directors upon the recommendation of
the Compensation Committee. The agreements provide for the payment of six months
salary as a severance payment for termination without cause. Prior thereto,
Messrs. Needham and Levangie were compensated through consulting fees paid or
accrued by the Company for their services as officers of the Company. Mr.
Barker's agreement provides for him to devote all of his business time to the
affairs of the Company, while Messrs. Needham and Levangie have agreed to devote
approximately 40 hours per week of their business time to the affairs of the
Company.
All of the Company's executive employees have executed confidentiality
and non-disclosure agreements concerning the Company's proprietary processes.
STOCK OPTION PLAN
The Company's 1993 Stock Option Plan (the "Plan") was adopted by the
Board of Directors on June 10, 1993 and approved by the stockholders on June 10,
1993.
Options granted under the Plan may be either (i) options intended to
qualify as "incentive stock options" under Section 422 of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code"), or (ii) non-qualified
stock options. Incentive stock options may be granted under the Plan to
employees, including officers and directors who are employees. Non-qualified
options may be granted to employees, directors and consultants of the Company.
The Plan is administered by the Board of Directors. Under the Plan, the
Board has the authority to determine the persons to whom options will be
granted, the number of shares to be covered by each option, whether the options
granted are intended to be incentive stock options, the manner of exercise, and
the time, manner and form of payment upon exercise of an option. The Company had
410,000 shares of Common Stock reserved for issuance under the Plan as of May
31, 1996. As a result of a Special Meeting of Stockholders held on Friday June
7, 1996, the total number of shares of Common Stock reserved for issuance was
increased to 1,000,000.
Incentive stock options granted under the Plan may not be granted at a
price less than the fair market value of the Common Stock on the date of grant
(or less than 110% of fair market value in the case of persons holding 10% or
more of the voting stock of the Company). Non-qualified stock options may be
granted at an exercise price established by the Board which may not be less than
85% of fair market value of the shares on the date of grant. Incentive stock
options granted under the Plan must expire no more than ten years from the date
of grant, and no more than five years from the date of grant in the case of
incentive stock options granted to an employee holding 10% or more of the voting
stock of the Company.
As of May 31, 1996, there were 377,500 options granted and outstanding
under the PLAN of which 88,700 options were exercisable at prices ranging from
$.09 to $1.00.
NON -EMPLOYEE DIRECTOR STOCK OPTION PLAN
On January 24, 1996, the Board of Directors of the Company adopted the
1996 Non-Employee Director Stock Option Plan ("Director Plan") and the Company's
stockholders' approved the Director Plan on June 7, 1996. The purpose of the
Director Plan is to promote the interests of the Company by providing an
inducement to obtain and retain the services of qualified persons who are not
officers or employees of the Company to serve as members of the Board of
Directors. The Board of Director has reserved 300,000 shares of common stock for
issuance and as of May 31, 1996, options to purchase 30,000 shares of Common
Stock have been granted under the Director Plan.
Each person who was a member of the Board of Directors on January 24,
1996, and was not an officer or employee of the Company, was automatically
granted an option to purchase 10,000 shares of the Company's Common Stock. In
addition, after an individual's initial election to the Board of Directors, any
director who is not an officer or employee of the Company who continues to serve
as a director will automatically be granted on the date of the Annual Meeting of
Stockholders an additional option to purchase 10,000 shares of the Company's
Common Stock. The exercise price per share of options granted under the Director
Plan is 100% of the fair-market value of the Company's Common Stock on the
business day immediately prior to the date of the grant. Each option granted
under the 1996 Director Plan is immediately exercisable for a period of ten
years from the date of the grant.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of May 31, 1996: (i) by each person
who is known by the Company to own beneficially 5% or more of the outstanding
shares of Common Stock; (ii) by each director and officer of the Company
(including any "group" as used in Section 13(d)(3) of the Securities Exchange
Act of 1934); and (iii) by all directors and officers of the Company as a group.
Unless otherwise indicated below, to the knowledge of the Company, all persons
listed below have sole voting and investment power with respect to their shares
of Common Stock, except to the extent authority is shared by spouses under
applicable law. As of May 31, 1996, there were issued and outstanding 5,076,083
shares of Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENTAGE OF
NAME (1) BENEFICIALLY OWNED(2) CLASS
- -------- --------------------- -----
<S> <C> <C>
James F. Barker (3).................................. 377,300 7.38%
Maurice E. Needham (4)............................... 361,000 7.06%
Joseph E. Levangie (5)............................... 308,500 6.07%
Dhananjay G. Wadekar................................. 539,083 10.62%
Lew F. Boyd (6)...................................... 20,000 *
Buster C. Glosson (7)................................ 20,000 *
All officers and directors as a group
(5 persons)(3,4,5,6,7)......................... 1,086,800 20.90%
- -----------------------------------------
* Less than 1% of the outstanding Common Stock.
(1) Each person's address is care of GreenMan Technologies, Inc.,7 Kimball
Lane, Building A, Lynnfield, MA 01940 with the exception of Dhananjay
Wadekar, whose address is c/o DynaGen Inc., 99 Erie Street, Cambridge,MA
02139.
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
Common Stock that an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person shown in the
table.
(3) Includes 36,000 shares of Common Stock issuable pursuant to immediately
exercisable stock options and 3,000 shares of Common Stock issuable
pursuant to immediately exercisable stock options owned by Mr. Barker's
wife. Does not include 2,000 shares of Common Stock issuable pursuant to
stock options owned by Mr. Barker's wife that are not immediately
exercisable, and 137,700 shares owned by Cynthia M. Barker, Mr. Barker's
adult daughter, as to which he disclaims beneficial ownership. Also does
not include 24,000 shares of Common Stock issuable pursuant to outstanding
stock options that are not currently exercisable.
(4) Includes 36,000 shares of Common Stock issuable pursuant to immediately
exercisable stock options. Also includes 20,000 shares of Common Stock
owned by Mr. Needham's wife. Does not include 24,000 shares of Common Stock
issuable pursuant to outstanding stock options that are not currently
exercisable and 60,000 shares owned by Mr. Needham's adult children, as to
which he disclaims beneficial ownership.
(5) Includes 8,500 shares of Common Stock issuable pursuant to immediately
exercisable stock options. Does not include 4,000 shares of Common Stock
issuable pursuant to outstanding stock options that are not currently
exercisable. Does not include 20,000 shares owned by Mr. Levangie's adult
child, as to which he disclaims beneficial ownership.
(6) Includes 20,000 shares of Common Stock issuable pursuant to immediately
exercisable options. Does not include 15,000 shares of Common Stock
issuable pursuant to outstanding stock options that are not currently
exercisable.
(7) Includes 20,000 shares of Common Stock issuable pursuant to immediately
exercisable stock options. Does not include 15,000 shares of Common Stock
issuable pursuant to outstanding stock options that are not currently
exercisable.
</TABLE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
STOCK ISSUANCES; STOCK OPTIONS; WARRANTS
In connection with its incorporation in 1992, the Company authorized
the issuance at a price of $.01 per share of 338,300 shares of Common Stock to
James F. Barker, the Company's President, 116,700 shares to Cynthia M. Barker,
Mr. Barker's adult daughter and an employee of the Company, 250,000 shares to
Joseph E. Levangie, the Company's Chief Financial Officer, 285,000 shares to
Maurice E. Needham, the Company's Chairman and Chief Executive Officer, and
220,000 shares to Dhananjay G. Wadekar, a principal stockholder. The Company
also issued 44,500 shares to one unaffiliated person. (Hereinafter, these shares
are collectively referred to as "Founders' Shares"). Although stock subscription
agreements for the Founders' Shares were executed, no payment for the Founders'
Shares was received. In August 1994, the Company's Board of Directors voted to
forgive the stock subscriptions receivable in exchange for services rendered by
these persons to the Company during its start-up operations. The Company also
issued 140,000 shares of Common Stock to Budra Management Corp. ("Budra"), at
the time a principal stockholder of the Company, in connection with the loans
made to the Company.
In October 1993, various persons (the "Westfield Holders") who were
affiliates of, or associates of affiliates of, Westfield Financial Corporation
("Westfield"), a registered broker-dealer, purchased an aggregate of 774,000
shares of Common Stock for an aggregate purchase price of $200,000, of which an
aggregate of $75,000 was paid in cash on June 29, 1994 and an aggregate of
$125,000 was paid in the form of two-year 8% promissory notes, with interest
commencing seven months after the date of the notes. In addition, the Westfield
Holders extended a line of credit in the amount of $300,000, which line was not
drawn upon by the Company. Subsequent thereto, the Company entered into a letter
of intent with Westfield for the underwritten initial public offering of the
Company's securities. In October 1994, Westfield discontinued its retail
broker-dealer activities. In January 1995, the Company repurchased and retired
an aggregate of 463,167 shares from the Westfield Holders in consideration for
an aggregate of $55,884 in cash and release of the Westfield Holders from their
obligations under promissory notes totaling $87,317 in the aggregate and from
their obligation to provide the line of credit. In July 1995, Mr. Wadekar
purchased 58,333 shares from one of the Westfield Holders as a condition to the
Company's listing on the NASDAQ SmallCap Market. The Westfield Holders are not
officers, directors or affiliates of the Company.
In July 1994, the Company granted to Mr. Wadekar five year
non-qualified stock options to purchase 125,000 shares of the Company's Common
Stock exercisable at $.29 per share in consideration for services rendered to
the Company. In February 1996, Mr. Wadekar exercised these non-qualified stock
options using a net exercise feature, in exchange for 117,750 shares of Common
Stock.
In April 1995, the Company issued 72,000 shares of Common Stock and
60,000 shares of Common Stock to Mr. Levangie and Mr. Needham, respectively, in
satisfaction of an aggregate of $132,000 in accrued consulting fees owned to
Messrs. Levangie and Needham through May 31, 1995. The Company also granted to
Mr. Levangie, non-qualified options to purchase 2,500 shares of Common Stock.
These options are exercisable at $1.00 and expire on April 26, 2005. In
addition, the Company issued 21,000 shares of Common Stock to Cynthia M. Barker
in consideration for services rendered valued at $21,000.
In April 1995, Mr. Needham loaned the Company $75,000 which was
evidenced by a promissory note that bears interest at 18% per annum due May
1995. Mr. Needham subsequently converted $40,000 in principal of the loan into
40,000 shares of Common Stock and the balance of the loan, together with accrued
interest, was repaid in May 1995.
On October 10, 1995, the Company acquired all of the outstanding common
stock of DuraWear Corporation, a company owed solely by Mr. Wadekar, a principal
stockholder of the Company. The purchase price consisted of $400,000 in cash and
75,000 shares of the Company's Common Stock, valued in the aggregate at $375,000
or $5.00 per share. In connection with the acquisition, the Company entered into
a three-year non-competition agreement with Mr. Wadekar, under which the Company
issued 70,000 shares of the Company's common stock valued in the aggregate at
$350,000 or $5.00 per share.
The Company also entered into a one-year consulting agreement with Mr.
Wadekar in consideration for which the Company will pay a total of $20,000 in
monthly installments of $1,667 commencing in November 1995.
LOANS; PERSONAL GUARANTEES
During the period from September to December 1992, Budra Management
made loans to the Company in the aggregate principal amount of $233,000. The
original terms of the loans provided for payment of interest at the rate of 10%
per annum, the repayment of the loans at the closing of the Company's Initial
Public Offering ("IPO") and the payment of an additional $250,000 in cash one
year from the IPO. In March 1995, the Company and Budra modified the terms of
the note to provide for the issuance to Budra of 100,000 shares of Common Stock,
valued in the aggregate at $500,000 (or $5.00 per share), at the closing of the
IPO in lieu of the $250,000 cash payment. The 100,000 shares of Common Stock are
subject to a lock-up agreement limiting the transfer of the shares to no more
than 15,000 shares per quarter commencing 90 days after the IPO. In October
1995, the Company repaid the $233,000 notes payable plus interest to Budra and
issued the 100,000 shares of Common Stock.
Pursuant to the terms of the DuraWear stock purchase agreement, the
Company succeeded to the obligations of DuraWear relating to the repayment of an
amount ($132,150 as of May 31, 1996) which is evidenced by a promissory note
representing amounts due for advances to DuraWear by Mr. Wadekar who is also a
principal stockholder of the Company. The note is being repaid in 36 equal
monthly installments of principal plus accrued interest at prime plus 1.5%
(10.0% at May 31, 1996), adjusted annually.
Mr. Wadekar has guaranteed payment of DuraWear's loans from a bank,
which have an outstanding principal balance of $579,143 at May 31, 1996. One of
the loans, with an outstanding principal balance of $468,412 at May 31, 1996, is
secured by a mortgage on real estate owned by DuraWear as well as a lien on
substantially all of DuraWear's assets, bears interest at the rate of prime plus
1% ( 9.25% at May 31, 1996) per annum and is due in July 2000. The other loan,
with an outstanding principal balance of $110,731 at May 31, 1996, is secured by
a second lien on substantially all of DuraWear's assets, bears interest at the
rate of prime plus 1% (9.25% at May 31, 1996) and is due in March 1997.
As of May 31, 1995, the Company had loaned a total of $175,000 to
DuraWear. From June 1, 1995 until the acquisition of DuraWear, the Company
loaned DuraWear an additional $57,094. Upon consummation of the acquisition the
outstanding balance was eliminated in consolidation.
In January 1996, the Company made a $500,000 advance under a
non-interest bearing loan agreement to a company owned by one of its directors.
On June 26, 1996, this advance was returned to the Company in its entirety.
During the period of February 1996 to May 1996 the Company borrowed an
aggregate of $1,500,000 from Palomar Medical Technologies, Inc. ("Palomar"). Two
of the Company's directors also hold positions as directors and or officers of
Palomar. These notes payable bear interest at 10% per annum with principal and
interest due in three $500,000 increments at the earlier of (1) the tenth
business day following the consummation by the Company of a minimum $3,000,000
of additional financing or (2) on September 30, 1996, January 1, 1997 and June
1, 1997, respectively. In addition, the Company agreed to grant warrants to
purchase 100,000 shares of the Company's Common Stock at an exercise price of
$3.88 per share and warrants to purchase 100,000 shares of the Company's Common
Stock at an exercise price of $4.00 per share The Company has the right to
prepay any and all installments without penalty. The proceeds of these notes
were used towards the $1,800,000 of cryogenic equipment deposits required to be
paid by the Company.
Subsequent to year-end, the Company borrowed an additional $200,000
from Palomar to be utilized for general working capital purposes. The note
payable bears interest at 10% per annum with principal and interest due at the
earlier of (1) the tenth business day following the consummation by the Company
of a minimum $3,000,000 of additional financing or (2) on January 1, 1997. In
addition, the Company agreed to grant warrants to purchase 100,000 shares of the
Company's Common Stock at an exercise price of $3.88 per share.
In May 1996, the Company borrowed $325,000 from Maurice E. Needham, an
officer of the Company. This unsecured note payable bears interest at a rate of
prime plus 1.5% (9.75 % at May 31, 1996) per annum with principal and interest
due the earlier of September 23, 1996 or the tenth business day following the
consummation of a minimum $3,000,000 of additional financing. The proceeds of
the note were used towards equipment deposits, licensing fees and the issuance
of notes receivable.
From time to time since its inception, the Company has entered into
equipment leases with third parties with respect to certain equipment used by
the Company in its operations. Mr. Barker has personally guaranteed the lease
payments on equipment leases totaling approximately $1,200,000.
All future transactions, including loans, between the Company and its
officers, directors, principal stockholders, and their affiliates will be
approved by a majority of the independent and disinterested outside directors on
the Board of Directors, and will be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
ITEM 13. .........EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
The following exhibits required by Item 601 of Regulation S-B are filed
as part of this Annual Report on Forms 10K-SB. Exhibit numbers, where
applicable, in the left column correspond to these of Item 601 of Regulation SB.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
*3.1 -- Certificate of Incorporation of GreenMan Technologies, Inc.
*3.2 -- Articles of Incorporation of J.W. DuraWear, Inc. (Name changed
to DuraWear Corporation in Certificate of Merger of DuraWear
Corporation into J.W. DuraWear, Inc. dated November 29, 1990).
*3.3 -- Certificate of Stock Designation of GreenMan Technologies, Inc.
dated August 10, 1995.
*3.4 -- By-laws of GreenMan Technologies, Inc.
***3.5 -- Certificate of Amendment to the Certificate of Incorporation of
GreenMan Technologies, Inc.
*4.1 -- Specimen certificate for Common Stock of the Company.
*4.2 -- Specimen certificate for Class A Redeemable Common Stock Purchase
Warrant.
*4.3 -- Form of Warrant Agreement between the Company and OTC Corporate
Transfer Services Co.
*4.4 -- Form of Warrant issued to Landmark International Equities, Inc.
*10.1 -- Lease Agreement dated December 1, 1992 between Universal
Plating, Inc. and GreenMan Technologies, Inc.
*10.2 -- Lease Extension dated September 30, 1994 between Universal
Plating, Inc. and GreenMan Technologies, Inc. (with Stand Still
Agreement of even date).
*10.3 -- Stand Still Agreement between Universal Plating, Inc. and
GreenMan Technologies, Inc., as amended on April 27, 1995.
*10.4 -- Stand Still Agreement between Universal Plating, Inc. and
GreenMan Technologies, Inc., as amended on July 15, 1995.
*10.5 -- 1993 Stock Option Plan.
*10.6 -- Stock Option Letter dated June 10, 1993 issued to James F. Barker.
*10.7 -- Stock Option Letter dated June 10, 1993 issued to Maurice E.
Needham.
*10.8 -- Stock Option Letter dated June 10, 1993 issued to Joseph E.
Levangie.
*10.9 -- Stock Option Letter dated April 25, 1994 issued to Lew F. Boyd.
*10.10 -- Stock Option Letter dated July 1, 1994 issued to Buster C.
Glosson.
*10.11 -- Stock Option Letter dated April 26, 1995 issued to Joseph E.
Levangie.
*10.12 -- Stock Option Letter dated July 1, 1994 issued to Dhananjay G.
Wadekar.
*10.13 -- Form of confidentiality and non-disclosure agreement for executive
employees.
*10.14 -- Form of Employment Agreement with James F. Barker.
*10.15 -- Form of Employment Agreement with Maurice E. Needham.
*10.16 -- Form of Employment Agreement with Joseph E. Levangie.
*10.17 -- Form of Consulting Agreement with Dhananjay G. Wadekar.
*10.18 -- Form of 10% Convertible Promissory Note issued between November
1993 and April 1994 (the "First Bridge") to 17 unaffiliated
lenders of GreenMan Technologies, Inc. representing, in the
aggregate, $575,000.
*10.19 -- Form of 10% Convertible Promissory Note issued in September and
October 1994 (the "Second Bridge") to unaffiliated lenders of
GreenMan Technologies, Inc. representing, in the aggregate,
$300,000.
*10.20 -- Promissory Notes of GreenMan Technologies, Inc. issued from
September to December 1992 to Budra Management Corp. representing,
in the aggregate principal amount, $233,000 and bearing an
effective rate of interest of 53% per annum.
*10.21 -- Letter Agreement dated March 20, 1995 amending the terms of the
Promissory Notes issued by GreenMan Technologies, Inc. to Budra
Management Corp.
*10.22 -- Stock Purchase agreement by and among GreenMan Technologies,
Inc., DuraWear Corporation and Dhananjay G. Wadekar for the
acquisition by GreenMan Technologies, Inc. of all of the
outstanding capital stock of DuraWear Corporation.
*10.23 -- Letter Agreement dated March 10, 1995 amending the terms of the
Stock Purchase Agreement by and among GreenMan Technologies, Inc.,
DuraWear Corporation and Dhananjay G. Wadekar.
*10.24 -- Form of Non-Competition Agreement with Dhananjay G. Wadekar.
*10.25 -- Agreement dated August 16, 1994 between GreenMan Technologies,
Inc. and Crumb Rubber Technology, Inc.
*10.26 -- Exclusivity Agreement dated September 14, 1994 between GreenMan
Technologies, Inc. and Crumb Rubber Technology, Inc.
*10.27 -- Agreement dated September 20, 1994 whereby MC Machinery Systems,
Inc. (Lessor) and MAC Funding Corporation (Assignee) surrendered
default rights under certain capital equipment leases of the
Company.
*10.28 -- Form of Subscription Agreement executed by investors in connection
with April 1995 Private Placement of Class A Convertible Preferred
Stock.
*10.29 -- Form of Registration Rights Agreement executed by investors in
connection with April 1995 Private Placement of Class A
Convertible Preferred Stock.
*10.30 -- Promissory Note issued in April 1995 by GreenMan Technologies,
Inc. to Maurice E. Needham.
*10.31 -- Promissory Notes issued by DuraWear Corp. to GreenMan
Technologies, Inc. in connection with certain loans by the Company
to DuraWear Corporation.
*10.32 -- Form of Stock Purchase Agreement between Salvatore Mazzeo,
Custodian for Mathew J. Mazzeo, UGMA, and Dhananjay G. Wadekar.
**10.33 -- Tire Material Put-or-Pay/Take-or-Pay Agreement dated December
14, 1995 between GreenMan Technologies, Inc. and BFI Tire
Recyclers of Georgia, Inc.
**10.34 -- Facility Lease dated December 14, 1995 between GreenMan
Technologies,Inc.and BFI Tire Recyclers of Georgia, Inc.
**10.35 -- Amended and Restated Term Note dated October 1, 1995 between
DuraWear Corporation and SouthTrust Bank of Alabama, National
Association.
**10.36 -- Loan Modification and Consent Agreement dated October 1, 1995
between DuraWear Corporation and SouthTrust Bank of Alabama,
National Association.
**10.37 -- Commercial Lease dated October 13, 1995 between GreenMan
Technologies, Inc. and Kimball Realty Trust.
***10.38 -- Amendment to Agreement described in Exhibit 10.33.
***10.39 -- Promissory Note issued in May 1996 by GreenMan Technologies, Inc.
to Maurice E. Needham.
***10.40 -- Promissory Note issued in February 1996 by GreenMan
Technologies, Inc. to Palomar Medical Technologies, Inc.
***10.41 -- Promissory Note issued in May 1996 by GreenMan Technologies, Inc.
to Palomar Medical Technologies, Inc.
***23.1 -- Consent of Wolf & Company, P.C. dated September 13, 1996.
***27.1 -- Finacial Data Schedule
***11.1 -- Statement Regarding Computation of Earnings Per Share.
--------
* Filed as an Exhibit to the Company's Registration Statement on Form SB-2 No. 33-86138 and incorporated
herein by reference.
** Filed as an Exhibit to the Company's Form 10-QSB for the Quarter Ended November 30, 1995 and
incorporated herein by reference.
*** Filed herewith.
</TABLE>
(b) Report on Form 8-K
None
GREENMAN TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of May 31, 1995 and 1996 F-3
Consolidated Statements of Loss for the Years Ended May 31, 1994, 1995
and 1996 F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Years Ended May 31, 1994, 1995 and 1996 F-5
Consolidated Statements of Cash Flows for the Years Ended May 31, 1994,
1995 and 1996 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
GreenMan Technologies, Inc.
Lynnfield, Massachusetts
We have audited the accompanying consolidated balance sheets of
GreenMan Technologies, Inc. and subsidiary as of May 31, 1995 and 1996 and the
related consolidated statements of loss, changes in stockholders' equity
(deficit) and cash flows for the years ended May 31, 1994, 1995 and 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of GreenMan
Technologies, Inc. and subsidiary at May 31, 1995 and 1996 and the results of
their operations and cash flows for the years ended May 31, 1994, 1995 and 1996
in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 4 to the
consolidated financial statements, the Company has suffered losses from
operations, and has a working capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 4. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
WOLF & COMPANY, P.C.
Boston, Massachusetts
July 12, 1996
F-2
<TABLE>
<CAPTION>
GREENMAN TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
MAY 31, MAY 31,
1995 1996
---- ----
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................................... $ 109,778 $ 153,172
Accounts receivable, trade, less allowance for doubtful accounts
of $4,834 and $31,751 as of May 31, 1995 and 1996........................... 385,504 605,255
Inventory (Note 5)............................................................ 131,554 525,279
Notes receivable (Note 3)..................................................... 175,000 --
Loan receivable, related party (Note 6)....................................... -- 500,000
Other current assets.......................................................... 68,882 242,607
---------- ---------
Total current assets 870,718 2,026,313
Property and equipment,at cost (Notes 12 and 13):
Land....................................................................... -- 223,785
Buildings.................................................................. -- 910,400
Machinery and equipment.................................................... 1,318,543 2,026,131
Furniture and fixtures..................................................... 26,756 88,276
Motor vehicles............................................................. 14,000 33,932
Leasehold Improvements..................................................... 25,117 895,958
---------- ---------
1,384,416 4,178,482
Less accumulated depreciation and amortization........................... (296,338) (507,991)
---------- ---------
1,088,078 3,670,491
---------- ---------
Other assets:
Equipment deposits (Note 7)................................................... -- 1,883,400
Deferred offering costs (Notes 2 and 15)...................................... 415,028 --
Goodwill, net (Note 3)........................................................ -- 465,246
Non-competition agreement, net (Note 3)....................................... -- 272,222
Note receivable (Note 8)...................................................... -- 150,000
Licensing Fee (Note 9)....................................................... -- 100,000
Other......................................................................... 2,410 71,311
---------- ---------
417,438 2,942,179
---------- ---------
$ 2,376,234 $8,638,983
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable (Note 10)....................................................... $ 1,073,000 $ --
Notes payable, related parties (Note 11)...................................... -- 1,378,253
Notes payable, bank, current portion (Note 12)................................ 4,995 140,289
Accounts payable.............................................................. 583,449 718,770
Accrued interest and late charges............................................. 611,842 30,000
Accrued expenses, other....................................................... 483,189 650,318
Obligations under capital leases, current (Note 13).......................... 193,576 311,679
--------- ---------
Total current liabilities................................................... 2,950,051 3,229,309
Convertible notes payable (Note 10)............................................. 35,000 --
Notes payable, bank, non-current portion (Note 12).............................. 5,522 475,008
Notes payable, related parties, non-current portion (Note 11)................... -- 578,897
Obligations under capital leases (Note 13)...................................... 717,451 819,943
--------- ---------
Total liabilities........................................................... 3,708,024 5,103,157
--------- ---------
Commitments and contingencies (Notes 7 and 14) Stockholders' equity (deficit)
(Notes 2 and 15):
Preferred stock, $1.00 par value, 1,000,000 shares authorized; 500,000 shares of
Class A convertible, authorized, issued and outstanding at May 31, 1995..... 500,000 --
Common stock, $.01 par value, 10,000,000 shares authorized; 2,343,333 and
5,076,083 shares issued and outstanding at May 31, 1995 and 1996............ 23,433 50,761
Additional paid-in capital.................................................... 264,910 7,183,519
Accumulated deficit........................................................... (2,120,133) (3,698,454)
--------- ---------
Total stockholders' equity (deficit).................................... (1,331,790) 3,535,826
--------- ---------
$ 2,376,234 $ 8,638,983
=========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
F-3
<TABLE>
<CAPTION>
GREENMAN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF LOSS
YEARS ENDED MAY 31,
---------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Net sales (Note 16)........................................... $ 1,164,111 $ 2,127,745 $ 4,338,538
Cost of sales................................................. 1,126,120 1,815,682 3,229,998
--------- --------- ---------
Gross profit ................................................. 37,991 312,063 1,108,540
--------- --------- ---------
Operating expenses:
Research and development (Note 14)....................... 45,056 223,061 66,610
Selling, general and administrative (Notes 14 and 18)..... 328,672 619,163 2,406,794
--------- --------- ---------
Total operating expenses.............................. 373,728 842,224 2,473,404
--------- --------- ---------
Operating loss................................................ (335,737) (530,161) (1,364,864)
--------- --------- ---------
Other income (expense):
Interest expense (Notes 10,11,12, and 13)................. (206,878) (449,804) (288,779)
Financing costs (Note 10)................................. (73,250) (74,000) --
Other, net................................................ (44,240) (38,041) 75,322
--------- --------- ---------
Other income (expense), net........................... (324,368) (561,845) (213,457)
--------- --------- ---------
Net loss...................................................... $ (660,105) $ (1,092,006) $ (1,578,321)
============= ============ ============
Net loss per share (Note 1)................................... $ (.16) $ (.27) $ (.34)
======= ======= =======
Shares used in calculation of net loss per share.............. 4,097,333 4,097,333 4,684,260
============ =========== =========
See accompanying notes to consolidated financial statements.
F-4
</TABLE>
<TABLE>
<CAPTION>
GREENMAN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED MAY 31, 1994, 1995 AND 1996
(NOTES 2,3,10 AND 15)
CONVERTIBLE ADDITIONAL STOCK NOTES
PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED SUBSCRIPTIONS RECEIVABLE
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE COMMON STOCK TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, May 31, 1993 -- $ -- 1,784,500 $ 17,845 $ 11,700 $ (368,022) $ (12,545) $ -- $ (351,022)
Shares issued for
services rendered -- -- 30,000 300 6,700 -- -- -- 7,000
Shares issued for cash
and notes receivable -- -- 774,000 7,740 192,260 -- (75,000) (125,000) --
Net loss for year ended
May 31, 1994 -- -- -- -- -- (660,105) -- -- (660,105)
------- ------- --------- -------- -------- ---------- ------- -------- ----------
Balance, May 31, 1994 -- -- 2,588,500 25,885 210,660 (1,028,127) (87,545) (125,000) (1,004,127)
Stock subscription
payments received -- -- -- -- -- -- 75,000 -- 75,000
Stock subscriptions
forgiven for services -- -- -- -- -- -- 12,545 -- 12,545
Shares purchased and
retired -- -- (463,167) (4,632) (138,569) -- -- 87,317 (55,884)
Shares issued for services
rendered and accrued
expenses -- -- 178,000 1,780 176,220 -- -- -- 178,000
Shares issued on conversion
of note payable -- -- 40,000 400 39,600 -- -- -- 40,000
Notes receivable, common
stock payment received -- -- -- -- -- -- -- 37,683 37,683
Sale of preferred stock 500,000 500,000 -- -- (23,001) -- -- -- 476,999
Net loss for year ended
May 31, 1995 -- -- -- -- -- (1,092,006) -- -- (1,092,006)
------- ------- --------- -------- -------- ---------- ------- -------- ----------
Balance, May 31, 1995 500,000 500,000 2,343,333 23,433 264,910 (2,120,133) -- -- (1,331,790)
Sale of preferred stock 300,000 600,000 -- -- -- -- -- -- 600,000
Shares issued at initial
public offering -- -- 1,265,000 12,650 4,570,087 -- -- -- 4,582,737
Shares issued on
conversion of notes
payable -- -- 259,000 2,590 32,410 -- -- -- 35,000
Shares issued on
conversion of interest
payable -- -- 100,000 1,000 499,000 -- -- -- 500,000
Shares issued for purchase
of DuraWear Corporation -- -- 75,000 750 374,250 -- -- -- 375,000
Shares issued for non-
competition agreement -- -- 70,000 700 349,300 -- -- -- 350,000
Conversion of preferred
stock (800,000) (1,100,000) 800,000 8,000 1,092,000 -- -- -- --
Shares issued on exercise
of stock options -- -- 167,750 1,678 12,522 -- -- -- 14,200
Shares purchased and retired -- -- (4,000) (40) (10,960) -- -- -- (11,000)
Net loss for year ended May
31, 1996 -- -- -- -- -- ( 1,578,321) -- -- (1,578,321)
------- ------- --------- -------- --------- ----------- ------- -------- ---------
Balance, May 31, 1996 -- $ -- 5,076,083 $ 50,761 $ 7,183,519 $ (3,698,454) $ -- $ -- $ 3,535,826
======= ======= ========= ======== ========= =========== ======= ======== =========
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<TABLE>
<CAPTION>
GREENMAN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
YEARS ENDED MAY 31,
--------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (660,105) $ (1,092,006) $ (1,578,321)
Adjustments to reconcile net loss to net cash used for
operating activities:
Depreciation and amortization......................... 98,970 136,617 331,920
Loss on disposal of property and equipment............ -- 3,557 --
Issuance of common stock for services................. 7,000 46,045 --
(Increase) decrease in assets:
Accounts receivable................................ (195,660) (136,729) (26,363)
Inventory.......................................... (49,129) (58,306) (198,033)
Deposits........................................... -- -- (500,000)
Other current assets............................... (2,136) (60,710) (161,747)
Deferred offering costs............................ (50,000) (365,028) (391,595)
Increase (decrease) in liabilities:
Accounts payable................................... 317,301 220,192 (12,784)
Accrued expenses................................... 260,934 842,195 (151,911)
--------- --------- ---------
Net cash used for operating activities......... (272,825) (464,173) (2,688,834)
--------- --------- ---------
Cash flows from investing activities:
Increase in notes receivable.............................. (136,000) (39,000) (207,094)
Purchase of property and equipment........................ (47,818) (36,880) (1,081,862)
Equipment deposits........................................ -- -- (1,883,400)
Acquisition of DuraWear, net of cash acquired............ -- -- (370,027)
(Increase)decrease in other assets........................ (800) 250 (163,147)
--------- --------- ---------
Net cash used for investing activities......... (184,618) (75,630) (3,705,530)
--------- --------- ---------
Cash flows from financing activities:
Decrease in cash overdraft................................ (2,988) -- --
Proceeds from notes payable............................... 593,000 390,054 33,932
Repayment of notes payable................................ (19,970) (39,537) (1,176,453)
Proceeds from notes payable - related parties............. -- -- 1,825,000
Repayment of notes payable - related parties.............. -- -- (4,233)
Principal payments on obligations under capital leases.... (44,912) (279,921) (233,048)
Net proceeds on sale of preferred stock................... -- 454,499 600,000
Payments received on stock subscriptions ................. -- 112,683 --
Common stock purchased and retired........................ -- (55,884) (11,000)
Net proceeds on exercise of common stock options.......... -- -- 14,200
Net proceeds from initial public offering................. -- -- 5,389,360
--------- --------- ---------
Net cash provided by financing activities............... 525,130 581,894 6,437,758
--------- --------- ---------
Net increase in cash.......................................... 67,687 42,091 43,394
Cash and cash equivalents at beginning of period.............. -- 67,687 109,778
--------- --------- ---------
Cash and cash equivalents at end of period.................... $ 67,687 $ 109,778 $ 153,172
=========== ========= ============
Supplemental cash flow information:
Machinery and equipment acquired under capital leases..... $ 364,691 $ -- $ 453,643
Common stock issued under stock subscriptions and notes
receivable.............................................. 200,000 -- --
Common stock issued on conversion of accrued expenses... -- 144,500 500,000
Class A preferred stock issued on conversion of accrued expenses -- 22,500 --
Common stock issued on conversion of notes payable........ -- 40,000 35,000
Cancellation of notes receivable, common stock............ -- 87,317 --
Common stock issued for non-competition agreement......... -- -- 350,000
Common stock issued upon conversion of preferred stock -- -- 1,100,000
Interest paid............................................. 23,328 145,470 314,973
(CONTINUED)
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
GREENMAN TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW
(CONCLUDED)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
On October 10, 1995, Company purchased all of the capital stock of
DuraWear Corporation as follows:
Fair value of assets acquired $ 1,704,603
Fair value of liabilities assumed 1,428,081
------------
Fair value of net assets acquired 276,522
Common stock issued (375,000)
Cash paid (400,000)
------------
Excess of cost over fair value of net assets $ 498,478
============
See accompanying notes to consolidated financial statements.
F-7
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company develops, manufactures and markets custom molded plastic
parts. The Company is also developing low-cost sources of crumb rubber recovered
from discarded automobile tires and the consumer products to be manufactured
from these recycled materials.
On October 10, 1995, the Company acquired all of the outstanding common
stock of DuraWear Corporation ("DuraWear"). DuraWear manufactures, installs and
markets a diverse range of high quality ceramic, polymer composite, and alloy
steel materials engineered to resist severe abrasive and corrosive conditions
typically encountered in bulk material handling systems. See Note 3.
Basis of Presentation
The consolidated financial statements include the results of the
Company for the twelve months ended and it's newly acquired wholly-owned
subsidiary, DuraWear for the period of October 10, 1995 to May 31, 1996. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of revenues and expenses recorded during the
reporting period. Actual results could differ from those estimates. Such
estimates relate primarily to the estimated lives of property and equipment, the
value of goodwill and other intangible assets and the value of stock issued in
consideration for service also the amount that the Company may ultimately
realize from loans and notes receivable could differ materially from the value
of these investments recorded in the accompanying financial statements as of May
31, 1996.
Cash Equivalents
Cash equivalents include short-term investments with original
maturities of three months or less.
Inventory
Inventory is valued at the lower of cost or market on a first-in
first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation and
amortization expense is provided on the straight-line method. Depreciation and
amortization expense for the years ended May 31, 1994, 1995 and 1996 was
$98,970, $136,617 and $220,053, respectively. A summary of the estimated useful
lives follows:
Buildings................................... 25 years
Machinery and equipment..................... 5-15 years
Furniture and fixtures...................... 3-10 years
Motor vehicles.............................. 5 years
Leasehold improvements...................... 10-20 years
Expenditures for maintenance, repairs and minor renewals are charged to
expense as incurred. Significant improvements and major renewals are
capitalized.
Deferred Offering Costs
Deferred offering costs represent costs incurred in connection with
raising capital. Upon completion of an offering, the amount of proceeds credited
to additional paid-in capital is reduced by the deferred offering costs.
F-8
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
Income Taxes
Deferred tax assets and liabilities are recorded for temporary
differences between the financial statement and tax bases of assets and
liabilities using the currently enacted income tax rates expected to be in
effect when the taxes are actually paid or recovered. A deferred tax asset is
also recorded for net operating loss and tax credit carryforwards to the extent
their realization is more likely than not. The deferred tax expense for the
period represents the change in the deferred tax asset or liability from the
beginning to the end of the period.
Net Loss Per Share
Net loss per share is based on the weighted average number of common
shares outstanding during the period.
A staff accounting bulletin issued by the Securities and Exchange
Commission requires that common stock, options, warrants and other potentially
dilutive instruments issued within one year prior to the initial filing of a
registration statement for an initial public offering be treated as outstanding
for all periods prior to the effective date of the registration for purposes of
the net loss per share computation.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ("FASB") issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of" in March 1995. SFAS No. 121 requires the Company to review for
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In certain
situations, an impairment of loss would be recognized. SFAS No. 121 will become
effective for the Company's fiscal year ended May 31, 1997. The Company is
evaluating the impact of the new standard for its consolidated financial
position, results of operations and cash flows and expects the impact to be
immaterial.
The FASB issued SFAS No. 123, "Accounting for Stock-Based Compensation"
in October 1995. The Company intends to continue to account for its stock-based
transactions with employees in accordance with Accounting Principals Board
Opinion No. 25, "Accounting for Stock Issued to Employees" and will include the
proforma disclosures required by SFAS No. 123 beginning with its May 31, 1997
consolidated financial statements.
2. INITIAL PUBLIC OFFERING
In October 1995, the Company sold in its initial public offering
("IPO"), 1,265,000 shares of common stock at $5.00 per share and 1,265,000
redeemable Class A common stock purchase warrants ("the Warrants") at $.10 per
warrant and received net proceeds, after underwriter's commissions and
discounts, of approximately $5,390,000. Each Warrant expires on September 28,
2000 and entitles the holder, commencing on September 29, 1996, or sooner with
the underwriter's prior written consent, to purchase one share of common stock
at a price of $5.00 per share, subject to adjustment. The Company also issued to
the underwriter of its IPO, warrants ("Underwriter Warrants") to purchase
110,000 shares of common stock and 110,000 warrants, each Underwriter warrant is
exercisable at a price of $8.25 per share of common stock and $.165 per Warrant
for a period of four years, commencing September 29, 1996. The Warrants issuable
upon exercise of the Underwriter Warrants have an exercise price of $8.25 per
share of common stock.
F-9
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
3. ACQUISITION OF SUBSIDIARY
On October 10, 1995, the Company acquired all of the outstanding common
stock of DuraWear Corporation. The Company purchase price consisted of $400,000
in cash from the proceeds of the IPO and 75,000 shares of the Company's common
stock, valued in the aggregate at $375,000 or $5.00 per share. The acquisition
has been accounted for as a purchase and accordingly, the results of operations
of DuraWear are included in the consolidated financial statements since the date
of acquisition. Goodwill was recorded as the total consideration paid by the
Company exceeded the fair value of the net assets of DuraWear by approximately
$498,000. Goodwill is being amortized over 10 years on a straight line basis.
Amortization expense for the year ended May 31, 1996 was $33,232.
As of May 31, 1995, the Company had loaned a total of $175,000 to
DuraWear. Prior to the acquisition, the Company loaned DuraWear an additional
$57,094. The Company recorded interest income and DuraWear recorded interest
expense of $2,547 and $14,510 for the years ended May 31, 1994 and 1995
respectively. Upon consummation of the acquisition on October 10, 1995, the
outstanding balance of $232,094 was eliminated in consolidation.
In connection with the acquisition, the Company also entered into a
three-year non-competition agreement with the former sole stockholder of
DuraWear, under which the Company issued 70,000 shares of the Company's common
stock valued in the aggregate at $350,000 or $5.00 per share. The amount is
being amortized over the term of the agreement on a straight line basis.
Amortization expense for the year ended May 31, 1996 was $77,778.
The Company also entered into a one-year consulting agreement with the
former sole stockholder of DuraWear in consideration for which the Company will
pay a total of $20,000 in monthly installments of $1,667 commencing in November
1995.
The following unaudited proforma financial information summarizes the
consolidated results of operations of the Company and DuraWear as if the
acquisition had occurred at the beginning of the year ended May 31, 1995. The
unaudited proforma information is not necessarily indicative either of the
results of operations that would have occurred had the purchase been made at the
beginning of the fiscal year or of future results of operations of the combined
companies.
Years Ended May 31,
-------------------
1995 1996
---- ----
Revenue $ 3,869,984 $ 5,068,247
Net Loss (1,221,333) (1,774,410)
Net Loss per Weighted Average Share ($.30) ($.38)
4. NEED FOR ADDITIONAL CAPITAL
The Company has incurred losses since its inception, aggregating
$3,698,454 and has a working capital deficiency of $1,202,996 at May 31, 1996.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. The Company also has a commitment regarding the shredded
waste tire "take or pay" agreement described in Note 14. The Company's continued
existence is dependent on its ability to achieve profitable operations or raise
additional financing. Management plans to resolve the doubt by raising capital
through additional equity financing and attempting to secure lease financing
arrangements for its cryogenic equipment commitments which are described in
Notes 7 and 14. The Company is currently evaluating several equity financing
alternatives that may provide sufficient capital resources to sustain
operations. As a result, management believes that no adjustments or
reclassifications of recorded assets and liabilities is necessary at this time.
F-10
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
5. INVENTORY
Inventory consists of the following: May 31,
-------
1995 1996
---- ----
Raw materials............................... $ 54,716 $ 181,157
Work in process............................. 15,546 5,847
Finished goods.............................. 61,292 338,275
--------- ---------
$ 131,554 $ 525,279
========= =========
6. LOAN RECEIVABLE, RELATED PARTY
In January 1996, the Company made a $500,000 advance under a
non-interest bearing loan agreement to a company owned by one of its directors.
On June 26, 1996, this advance was returned to the Company in its entirety.
7. EQUIPMENT DEPOSITS
In October 1995, the Company placed a purchase order for cryogenic
recycling equipment and was required to place a 50% or $700,000 deposit with the
equipment manufacturer for each cryogenic recycling equipment line ordered. In
March 1996, the Company made a second 50% or $700,000 deposit towards the
purchase of another cryogenic recycling equipment line.
As of May 31, 1996, the first cryogenic recycling equipment line has
been delivered and the required $400,000 payment was made. The Company is
working with the equipment manufacture to finalize installation, operation and
acceptance of the equipment. Accordingly, the Company has not yet remitted the
final $300,000 payment to the vendor for the first line.
The Company also has $83,400 on deposit towards the purchase of
injection molding equipment and a material handling system totaling $250,000 in
aggregate
8. NOTE RECEIVABLE
In May 1996, the Company loaned $150,000 to Air Fenders, LTD ("Air
Fenders") in the form of a three year secured loan, bearing interest at prime
(8.25% at May 31, 1996) with principal and interest due in May 1999. The note is
secured by a second interest in manufacturing molds utilized by Air Fenders.
9. LICENSING FEE
In April 1996, the Company signed a license agreement under which it
acquired the exclusive world-wide right and license to use a proprietary
additive technology for co-mingling (mixing or blending) of dissimilar plastics
and rubber. The Company paid a one-time $100,000 licensing fee at signing of the
agreement and no additional fees are due if the Company uses the licensed
technology in the manufacture of its own products. The Company may be required
to pay a 3% royalty fee on the sale of blended material for use as a raw
material. The Company will amortize the license fee over the estimated ten year
useful life of the technology.
10. NOTES PAYABLE
The Company borrowed $233,000 during the period September 1992 to
December 1992 from Budra Management Corp. ("Budra"). The unsecured notes payable
bear interest at a stated annual rate of 10% with principal and interest due on
the closing of the Company's IPO. In addition, the notes required an additional
payment of $250,000 due one year after the effective date of the initial public
offering. In March 1995, the Company and Budra modified the terms of the note to
grant Budra 100,000 shares of common stock on the closing of the IPO in lieu of
the $250,000 cash payment and to register the shares in the IPO. The 100,000
shares were issued upon the closing of the IPO and valued in the aggregate at
$500,000 or $5.00 per share, which was the IPO price of the common stock. At May
31, 1995, the Company accrued interest and the issuance of common stock at the
closing, using an effective annual rate of 53%. Interest expense for the years
ended May 31, 1994, 1995 and 1996 amounted to $120,852, $295,445 and $94,419
respectively.
F-11
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
10. NOTES PAYABLE - (CONTINUED)
The Company borrowed $875,000 in two transactions through a placement
agent (the "Placement Agent") during the period November 1993 to October 1994
from certain investors. These unsecured notes payable bear interest at 10% per
annum with principal and interest due on the closing of the Company's IPO. In
addition, on completion of the IPO, $35,000 of the notes payable were converted
into 259,000 shares of common stock. Interest expense for the years ended May
31, 1994, 1995 and 1996 amounted to $15,999, $76,960 and $31,644 respectively.
In connection with these notes, the Company paid fees to the Placement
Agent of $112,250 in aggregate and legal fees of $35,000. In addition the
Company granted the Placement Agent warrants to purchase 25,900 shares of common
stock in aggregate. The warrants were subsequently canceled.
11. NOTES PAYABLE, RELATED PARTIES
In May 1996, the Company borrowed $325,000 from an officer of the
Company. This unsecured note payable bears interest at prime plus 1.5% (9.75% at
May 31, 1996) per annum with principal and interest due on the earlier of 120
days after the date of issuance or the tenth business day following the
consummation of a minimum $3,000,000 of additional financing by the Company.
Interest expense for the year ended May 31, 1996 was $1,600.
During the period of February 1996 to May 1996 the Company borrowed
$1,500,000 in aggregate from a related company of which two of the Company's
directors also hold positions as directors and or officers of the related
company. These notes payable bear interest at 10% per annum with principal and
interest due in three $500,000 increments at the earlier of (1) the tenth
business day following the consummation by the Company of a minimum $3,000,000
of additional financing or (2) on September 30, 1996, January 1, 1997 and June
1, 1997, respectively. In addition, the Company granted warrants to purchase
100,000 shares of the Company's common stock at an exercise price of $3.88 per
share and warrants to purchase 100,000 shares of the Company's common stock at
an exercise price of $4.00 per share. The Company has the right to prepay any
and all installments without penalty prior to their scheduled repayment.
Interest expense for the year ended May 31, 1996 was $32,050.
In June 1996, the Company borrowed an additional $200,000 from this
related company. The note payable bears interest at 10% per annum with principal
and interest due at the earlier of (1) the tenth business day following the
consummation by the Company of a minimum $3,000,000 of additional financing or
(2) on January 1, 1997. In addition, the Company agreed to grant warrants to
purchase 100,000 shares of the Company's common stock at an exercise price of
$3.88 per share.
Pursuant to the terms of the DuraWear stock purchase agreement, the
Company succeeded to the obligations of DuraWear relating to the repayment a
promissory note payable to DuraWear's former sole stockholder who is also a
stockholder of the Company. The note is to be repaid in 36 equal monthly
installments of principal plus accrued interest at prime plus 1.5% (10.0% at May
31, 1996), adjusted annually.
At May 31, 1996, the note had a balance of $132,150 and maturities of
the note during the years ended May 31, 1997, 1998 and 1999 amount to $53,253,
$54,526 and $24,371, respectively. Interest expense for the year ended May 31,
1996 was $8,777.
F-12
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
12. NOTES PAYABLE, BANK
<TABLE>
<CAPTION>
Notes payable, bank consists of the following: May 31,
-------
1995 1996
---- ----
<S> <C> <C>
Termnote payable, secured by a mortgage on real estate and a lien on
substantially all other assets of DuraWear, guaranteed by the
Company, due in monthly installments of $5,098 including interest at
prime plus 1% (9.25% at May 31, 1996) and a final installment of the
remaining unpaid principal balance due July 2000 $ -- $ 468,412
$700,000 SBA note payable, due March 1997, secured by a second lien on
substantially all assets of DuraWear, guaranteed by the Company, due
in monthly installments of $12,171 including interest at prime plus
1% (9.25% at May 31, 1996) -- 110,731
Term notes payable, secured by equipment and requiring monthly
installments 10,517 36,154
--------- ---------
10,517 615,297
Less current portion of notes payable,banks (4,995) (140,289)
--------- ---------
Notes payable, banks, non-current portion $ 5,522 $ 475,008
========= =========
</TABLE>
The following is a summary of maturities of notes payable, bank at May
31, 1996:
YEARS ENDING
MAY 31,
1997................................................ $ 140,289
1998................................................ 26,527
1999................................................ 29,467
2000................................................ 32,389
2001................................................ 386,625
-----------
$ 615,297
===========
Interest expense for the year ended May 31, 1995 and 1996 was $1,033
and $40,416, respectively.
13. CAPITAL LEASES
The Company leases machinery and equipment with a cost of $1,251,591
and $1,705,234 under capital lease agreements at May 31, 1995 and 1996,
respectively. Accumulated amortization amounted to $271,184 and $414,232, at May
31, 1995 and 1996, respectively. Amortization expense on assets under capital
leases for the periods ended May 31, 1994, 1995 and 1996 was $92,809, $123,288
and $143,048 respectively. The following is a schedule of the future minimum
lease payments under the capital leases together with the present value of net
minimum lease payments at May 31, 1996:
YEARS ENDING
MAY 31,
1997............................................. $ 394,835
1998............................................. 391,564
1999............................................. 349,347
2000............................................. 152,671
2001............................................. 15,906
------------
Total minimum lease payments....................... 1,304,323
Less amount representing interest.................. (172,701)
------------
Present value of minimum lease payments $ 1,131,622
===========
F-13
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
13. CAPITAL LEASES - (CONTINUED)
Interest expense for the years ended May 31, 1994, 1995 and 1996 was $70,027,
$73,246 and $ 79,873, respectively. The Company's President has personally
guaranteed the payments due under capital leases for assets with a cost of
$1,234,777.
14. COMMITMENTS AND CONTINGENCIES
Crumb Rubber Recycling Facility
On December 14, 1995, the Company entered into a five year lease
agreement with BFI Tire Recyclers of Georgia, Inc. ("BFI") whereby the Company
will lease for $1 per year, approximately 15,000 square feet of land on which a
tire recycling facility has been built at a cost of $862,000 as of May 31, 1996.
The Company is responsible for all improvements and operating costs relating to
the leased premises. This agreement can be extended for up to three additional
five year terms with the consent of both parties.
The Company also has paid $1,800,000 of equipment deposits towards the
purchase of two cryogenic recycling equipment lines to be situated at this
facility. (See Note 7).
Shredded Tire Supply Agreement
On December 14, 1995, the Company also entered into a five year supply
agreement with BFI whereby the Company is obligated to accept, on a "take or
pay" basis, a minimum of approximately 32,000 tons of shredded waste tire
material per year starting October 1, 1996. This obligation is reduced to 7,050
tons of tire material for the period of March 1, 1996 to September 30, 1996. The
Company is obligated to pay for the higher of : (1) the number of tons of crumb
rubber produced at the Company's recycling facility or (2) 75% of the amount of
material accepted, as determined on a monthly basis. The price per ton consists
of a base amount of $37.50 and an additional amount based on the publicly quoted
Benchmark Price of 30 to 40 mesh crumb rubber. This agreement can be extended
for up to three additional five year terms.
Product Development Agreement
In July 1994, the Company entered into an agreement with an unrelated
corporation to jointly test, research and develop a product. Under the agreement
the Company paid the unrelated corporation $50,000 in July and August 1994 and
$100,000 was payable upon the earlier of November 1, 1994 or the closing of the
initial public offering. At May 31, 1995, the $100,000 payment due to the
unrelated corporation was included in accrued expenses. In addition, the Company
paid consulting fees of $5,000 per month through December, 1994. During the year
ended May 31, 1995, research and development expense related to this agreement
amounted to $180,000. The Company has terminated the agreement and made a final
payment of $110,000 in January 1996. There are no further amounts due under this
agreement. The Company also granted the unrelated corporation options to
purchase 35,000 shares of common stock at $.29 per share. The options expired
upon termination of the agreement.
Employment Agreements
On September 29, 1995, the Company entered into three-year employment
agreements with its Chief Executive Officer, President and Chief Financial
Officer, respectively. Any increases or bonuses will be made at the discretion
of the Board of Directors upon the recommendation of the Compensation Committee.
Rental Agreements
On September 30, 1994, the Company extended its lease for its Arkansas
manufacturing and office space to May 31, 1997 at a monthly rental of $5,325.
Rent expense was approximately $31,000, $64,000 and $64,000 for the years ended
May 31, 1994, 1995 and 1996, respectively.
In October 1995, the Company entered into a three year lease for
approximately 2,700 square feet of corporate administrative office space at a
monthly rental of $3,238. Rent expense was $16,190 for the year ended May 31,
1996.
F-14
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
14. COMMITMENTS AND CONTINGENCIES -(CONTINUED)
Contingencies
On October 27, 1994, the Company was served with a lawsuit by a former
consultant seeking, among other things, additional consulting fees, as well as
royalties relating to the Company's alleged use of a cryogenic process for
recovering crumb rubber that the consultant alleges he developed. The Company is
contesting the lawsuit vigorously. Management believes that even if the
consultant were to prevail in this suit, it would not have a material effect on
the Company's financial statements or its business.
15. STOCKHOLDERS' EQUITY
Reincorporation
The Company was reincorporated in the State of Delaware on June 27,
1995. In the reincorporation, the Company increased the par value of its
preferred stock from $.001 per share to $1.00 per share and decreased the
authorized shares of preferred stock from 5,000,000 shares to 1,000,000 shares.
In addition, the Company increased the par value of its common stock from $.001
per share to $.01 per share. The financial statements reflect the
reincorporation as if it had occurred on September 16, 1992. Accordingly, the
par value and additional paid-in capital amounts have been retroactively
restated.
Increase in Authorized Shares of Common Stock
On June 7, 1996, the stockholders of the Company approved an amendment
to the Company's Certificate of Incorporation to increase the number of
authorized shares of Common Stock from 10,000,000 to 20,000,000.
Preferred Stock
In April and May 1995, the Company completed a private placement of
500,000 shares of non-voting Class A convertible preferred stock at $1.00 per
share. Each share is convertible into one share of common stock and two
redeemable common stock purchase warrants and has a liquidation preference of
$1.00 per share.
In August 1995, the Company concluded a private placement of 300,000
shares of non-voting Class B convertible preferred stock at $2.00 per share.
Each share is convertible into one share of common stock and one redeemable
common stock purchase warrant and has a liquidation preference of $2.00 per
share.
In October 1995 with the consent of the Company, all outstanding
preferred stock including, 500,000 shares of the Company's non-voting Class A
convertible preferred stock and 300,000 shares of the Company's non-voting Class
B convertible preferred stock were converted into an aggregate of 800,000 shares
of common stock and 1,300,000 redeemable common stock purchase warrants. The
terms of the warrants are the same as the IPO warrants. The Company registered
the common stock and warrants issued on conversion of the preferred stock and
the common stock issuable upon exercise of the warrants in its IPO.
Common Stock Transactions
On September 16, 1992, the Company issued 1,254,500 shares of common
stock to six individuals for a purchase price of $.01 per share. At May 31,
1994, the balance due from the stockholders, amounting to $12,545, was included
in stock subscriptions receivable. In August 1994, the Company's Board of
Directors voted to forgive these stock subscriptions receivable for services
rendered to the Company.
In August 1993, the Company issued 5,000 shares of common stock to a
financial consultant for services rendered valued at $500.
F-15
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. STOCKHOLDERS' EQUITY - (CONTINUED)
In October 1993, the Company sold 774,000 shares of common stock to
nine investors for a total purchase price of $200,000. The investors were
affiliates or principals of the Placement Agent (see Note 10). The purchase
price required $75,000 in cash and notes receivable in the amount of $125,000.
At May 31, 1994, the $75,000 was included in stock subscriptions receivable and
was paid in cash on June 29, 1994. The notes receivable bear interest at 8% per
annum commencing on May 31, 1994 and both principal and accrued interest were
due on October 31, 1995. In January 1995, the Company purchased and retired
463,167 shares of the common stock in exchange for $55,884 in cash and the
cancellation of $87,317 of the notes receivable. In April 1995, the Company
received payment on the notes receivable in the amount of $37,683. Interest
income on the notes receivable for the year ended May 31, 1995 amounted to
$5,754.
In January 1994, the Company issued 25,000 shares of common stock to a
law firm for services rendered valued at $6,500.
In April 1995, the Company issued 46,000 shares of common stock at a
value of $1.00 per share in consideration for employee services rendered, legal
and consulting fees and as payment for accrued expenses. The Company also issued
132,000 shares of common stock in satisfaction of $132,000 in consulting fees
due through May 31, 1995, payable to its non-salaried chief financial officer
and non-salaried chief executive officer. (See Note 18). Also in April 1995, the
non-salaried chief executive officer loaned the Company $75,000 for working
capital purposes and subsequently agreed to convert $40,000 in loan principal
into 40,000 shares of common stock.
Management valued the common stock issued in April, 1995 and the shares
issuable under common stock options and warrants granted in April, 1995 at $1.00
per share based upon the price of the Class A convertible preferred stock issued
in the private placement completed in April and May, 1995. The preferred stock
issued in the private placement was sold to unaffiliated investors in
arms-length transactions. Each share of the preferred stock is convertible into
one share of common stock and two redeemable common stock purchase warrants and
has rights and preferences that are substantially similar to the rights and
preferences of the common stock.
In October 1995, the Company completed its IPO (See Note 2) and
completed the acquisition of DuraWear Corporation (See Note 3). In addition, the
Company issued 259,000 of Common Stock upon the conversion of $35,000 of
convertible notes payable and 100,000 shares of Common Stock in lieu of $500,000
of interest payable. (See Note 10).
Stock Option Plan
The Board of Directors adopted the 1993 Stock Option Plan (the "Plan")
and the Company's stockholders approved the Plan on June 10, 1993. The Board of
Directors initially reserved 410,000 shares of common stock for issuance to
employees, officers, directors and consultants. On June 7, 1996, the Company's
stockholders voted to increase the number of shares authorized under the Plan to
1,000,000 shares.
Under the Plan, the Board of Directors will grant options and establish
the terms of the grant in accordance with the provisions of the Plan. Stock
options under the Plan are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31
------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year............. -- 224,000 279,000
Granted...................................... 224,000 60,000 170,000
Canceled..................................... -- (5,000) (46,500)
Exercised (at $.27 to $.29 per share)........ -- -- (25,000)
------- ------- -------
Outstanding at end of year................... 224,000 279,000 377,500
======= ======= =======
Exercisable at end of year................... 58,300 58,300 91,500
======= ======= =======
Exercise prices per share at end of year..... $.09 to $.27 $.09 to $1.00 $.09 to $3.38
============= ============= =============
Reserved for future grants at end of year 186,000 131,000 597,500
======== ======= =======
</TABLE>
F-16
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. STOCKHOLDERS' EQUITY - (CONTINUED)
The options granted under the 1993 Plan are exercisable for periods of
five to ten years from the date of issuance. On July 11, 1996, the Company
granted options to purchase 195,800 shares of common stock at an exercise price
of $2.75 per share to certain employees and a consultant.
.Non -Employee Director Stock Option Plan
On January 24, 1996, the Board of Directors of the Company adopted the
1996 Non-Employee Director Stock Option Plan ("Director Plan") and the Company's
stockholders approved the Director Plan on June 7, 1996. The Board of Directors
has reserved 300,000 shares of common stock for issuance and as of May 31, 1996,
options to purchase 30,000 shares of common stock, at prices ranging from $3.38
to $4.50 per share, have been granted under the Director Plan.
Each non-employee director on January 24, 1996, was automatically
granted an option to purchase 10,000 shares of common stock. In addition, on a
non-employee director's initial election to the Board of Directors, they are
automatically granted an option to purchase 10,000 shares of the common stock.
Each non-employee director will automatically be granted on the date of the
Annual Meeting of Stockholders an additional option to purchase 10,000 shares of
common stock. The exercise price per share of options granted under the Director
Plan is 100% of the fair-market value of the common stock on the business day
immediately prior to the date of the grant. Each option granted under the
Director Plan is immediately exercisable for a period of ten years from the date
of the grant.
Other Stock Options
In July 1994, the Company granted non-qualified stock options to
purchase 240,000 shares of common stock at an exercise price of $.29 per share
through July 1999. Subsequently 35,000 options were canceled. As of May 31
,1996, 55,000 of these options were outstanding and exercisable.
In February 1995, the Company granted non-qualified stock options to
purchase 15,000 shares of common stock at an exercise price of $1.00 per share
through February 2000. In April 1995, the Company granted non-qualified stock
options to purchase 56,000 shares of common stock at an exercise price of $1.00
per share through April 2005. Subsequently 35,000 options were canceled. As of
May 31, 1996, 36,000 of these options were outstanding and exercisable
In October 1995, an individual exercised non-qualified stock options to
purchase 25,000 shares of common stock at an exercise price of $.29 per share.
In January 1996, the Company granted non-qualified stock options to purchase
250,000 shares of common stock which are immediately exercisable at exercise
prices ranging from $3.75 to $6.75 through November 1996. As of May 31, 1996,
100,000 of these options were exercisable.
In January 1996, the former sole stockholder of DuraWear exercised
125,000 non-qualified stock options using a net exercise feature, in exchange
for 117,750 shares of Common Stock.
On July 11,1996, the Company granted options to purchase 600,000 shares
of common stock at an exercise price of $2.75 per share through July 2006 to
certain officers and directors. These options vest over a five year period.
Other Warrants
In April 1995, the Company granted warrants to purchase 175,000 shares
of common stock at an exercise price of $1.00 per share through April 2005.
Subsequently 50,000 of the options were canceled. At May 31, 1996, 25,000 of
these warants were exercisable. In January 1996, the Company granted immediate
exercisablewarrants to purchase 67,000 shares of common stock for services
rendered. The exercise price is $3.38 though January 2006.
During the period of February 1996 to June 1996, the Company granted
300,00 warrants in connection with certain borrowings (See Note 11) During June
1996, , the Company granted warrants to purchase 981,233 shares of common stock
at an exercise prices ranging from $3.00 to $3.88 per share through June 2001.
F-17
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
15. STOCKHOLDERS' EQUITY - (CONTINUED
Common Stock Reserved
The Company has reserved common stock at May 31, 1996 as follows:
Initial public offering warrants....................... 1,265,000
Underwriters initial public offering warrants.......... 220,000
Warrants issued on conversion of preferred stock....... 1,300,000
Stock option plans..................................... 1,275,000
Other stock option plans............................... 341,000
Other warrants......................................... 392,000
----------
4,793,000
==========
During the period June 1, 1996 to July 11,1996, the Company reserved
an additional 1,681,223 shares of common stock in connection with other stock
options and other warrants granted (See Notes 11 and 15).
16. MAJOR CUSTOMERS
At May 31, 1995, 55%, 27% and 11% of accounts receivable were from
three customers and at May 31, 1996, 24%, 16%, 15% and 11% of consolidated
accounts receivable were from four customers.
During the year ended May 31, 1994, approximately 67% and 17% of net
sales were from two major customers, during the year ended May 31, 1995,
approximately 62% ,14% and 10% of net sales were from three major customers and
during the year ended May 31, 1996, approximately 38% and 14% of consolidated
net sales were from two major customers.
17. SEGMENT INFORMATION
The Company has three principal operating groups: the injection molding
group, the rubber recycling group and the industrial materials group. The
injection molding group provides injection molding services to customers'
specifications in the production of plastic and thermoplastic rubber parts.
These customers are primarily located in the State of Arkansas. The rubber
recycling group was established to identify processing techniques and
alternative lower-cost sources of supply of crumb rubber and plastic waste for
recycling and to develop rubber and plastic based end-products. The industrial
materials group manufactures and markets ceramic, polymer composite and alloy
steel materials engineered to resist highly abrasive conditions experienced in
material handling systems. During the years ended May 31, 1994 and 1995, the
Company operated solely in the injection molding industry. The following is the
segment information for the year ended May 31, 1996:
<TABLE>
<CAPTION>
Injection Molding Rubber Recycling Industrial Materials
Group Group Group Total
----- ----- ----- -----
<S> <C> <C> <C> <C>
Operating Revenues $ 3,199,641 $ - $ 1,138,897 $ 4,338,538
Operating Loss (227,927) (172,080) (198,538) (598,545)
Identifiable Assets 2,122,786 2,830,832 2,514,181 7,467,799
Depreciation/Amortization 157,702 7,760 163,178 328,640
Capital Expenditures 499,653 909,114 2,723,082 4,131,849
</TABLE>
Operating loss represents net sales less operating expenses for each
segment, and excludes general corporate expenses and other income and expenses
of a general corporate nature. Identifiable assets by segment are those assets
that are used in the Company's operations within that industry. General
corporate assets consist principally of cash, deposits, office furniture and
equipment and license fees.
F-18
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
18. RELATED PARTY TRANSACTIONS
During the years ended May 31, 1994 and 1995, the Company accrued
consulting fees relating to consulting agreements with its non-salaried chief
financial officer and non-salaried chief executive officer amounting to $60,000
and $72,000, respectively. In April 1995, the Company issued common stock in
payment of the accrued consulting fees.
During the year ended May 31, 1996, the Company paid consulting fees
relating to consulting agreements with its non-salaried chief financial officer
and non-salaried chief executive officer amounting to $18,000 each. Effective
with the Company's IPO, the Company executed three year employment agreements
with it's chief executive officer, president and chief financial officer.
19. INCOME TAXES
There was no provision for income taxes for the years ended May 31,
1994, 1995 and 1996 due to the Company's net operating losses and its valuation
reserve against deferred tax assets. The difference between the statutory
federal income tax rate of 34% and the Company's effective tax rates is
primarily due to net operating losses incurred by the Company and the valuation
reserve against the Company's deferred tax assets.
The components of the net deferred tax asset are as follows:
May 31,
----------------------
1995 1996
---- ----
Deferred tax asset:
Federal........................... $ 668,000 $ 1,151,000
State............................. 133,000 232,000
----------- -----------
801,000 1,383,000
Valuation reserve.................... (801,000) (1,383,000)
----------- -----------
Net deferred tax asset............... $ -- $ --
=========== ===========
The following differences give rise to deferred income taxes:
YEARS ENDED MAY 31,
-------------------
1995 1996
---- ----
Net operating loss carryforward........ $ 766,000 $ 1,326,000
Research tax credit carryforward....... 17,000 17,000
Other.................................. 18,000 40,000
----------- ------------
801,000 1,383,000
Valuation reserve...................... (801,000) (1,383,000)
----------- ------------
Net deferred tax asset................. $ -- $ --
=========== ============
The change in the valuation reserve is as follows:
<TABLE>
<CAPTION>
YEARS ENDED MAY 31,
---------------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year....... $ 136,000 $ 379,000 $ 801,000
Increase due to current year net
operating loss.................. 243,000 422,000 582,000
--------- --------- -----------
Balance at end of year............. $ 379,000 $ 801,000 $ 1,383,000
========= ========= ===========
</TABLE>
As of May 31, 1996, the Company has net operating loss carryforwards of
approximately $3,460,000. The Federal and state net operating loss carryforwards
expire in varying amounts beginning in 2008 and 1998, respectively. In addition,
the Company has Federal tax credit carryforwards of approximately $17,000
available to reduce future tax liabilities. The Federal tax credit carryforwards
expire beginning in 2008.
Use of net operating loss and tax credit carryforwards is subject to
annual limitations based on ownership changes in the Company's common stock as
defined by the Internal Revenue Code.
F-19
GREENMAN TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
20. FAIR VALUE OF FINANCIAL INSTRUMENTS.
At May 31, 1996, the Company's financial instruments included the loan
receivable, related party (see Note 6), a note receivable (see Note 8) and notes
payable (see Notes 11 and 12). The carrying amounts of the loan receivable,
related party approximates its fair value based on its collection in full on
June 26, 1996. The carrying amount of the note receivable and the notes payable
approximate their values as these instruments bear interest at market rates.
F-20
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934 , the
Registrant certifies that it has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
By: GreenMan Technologies, Inc.
/s/ Maurice E. Needham
----------------------
MAURICE E. NEEDHAM
CHIEF EXECUTIVE OFFICER AND
CHAIRMAN OF THE BOARD
Pursuant to the requirements of the Securities Act of 1934 , this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE(S) DATE
--------- -------- ----
<S> <C> <C>
/s/ Maurice E. Needham Chief Executive Officer and September 10, 1996
- ---------------------- Chairman of the Board
MAURICE E. NEEDHAM
/s/ James F. Barker President and Director September 10, 1996
- -------------------
JAMES F. BARKER
/s/ Joseph E. Levangie Chief Financial Officer and Director September 10, 1996
- ---------------------- (Principal Financial Officer and
JOSEPH E. LEVANGIE Principal Accounting Officer)
/s/ Lew F. Boyd Director September 10, 1996
- ----------------
LEW F. BOYD
/s/ Buster C. Glosson Director September 10, 1996
- ----------------------
BUSTER C. GLOSSON
</TABLE>
Exhibit 3.5
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
GREENMAN TECHNOLOGIES, INC.
GreenMan Technologies, Inc., a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), pursuant to the
provisions of the General Corporation Law of the State of Delaware (the "DGCL"),
DOES HEREBY CERTIFY as follows:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended by deleting the first paragraph of Section 4 of the Certificate of
Incorporation in its present form and substituting therefor new first and second
paragraphs of Section 4 in the following form:
A. This corporation is authorized to issue two classes of
stock, to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares this corporation is authorized to
issue is Twenty-One Million (21,000,000) shares of capital stock.
B. Of such authorized shares, Twenty Million (20,000,000)
shares shall be designated "Common Stock" and have a par value of $0.01
per share. One Million (1,000,000) shares shall be designated
"Preferred Stock" and have a par value of $1.00 per share.
SECOND: The amendment to the Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment has been duly adopted in
accordance with the provisions of Section 242 of the DGCL by (a) the Board of
Directors of the Corporation having duly adopted a resolution setting forth such
amendment and declaring its advisability and submitting it to the stockholders
of the Corporation for their approval, and (b) the stockholders of the
Corporation having duly adopted such amendment by vote of the holders of a
majority of the outstanding stock entitled to vote thereon at a special meeting
of stockholders called and held upon notice in accordance with Section 222 of
the DGCL.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
hereunto affixed and this Certificate of Amendment to be signed by Maurice E.
Needham, its Chief Executive Officer, and attested to by Joseph E. Levangie, its
Secretary, this _____ day of June, 1996.
GREENMAN TECHNOLOGIES, INC.
By:____________________________
Maurice E. Needham
Chief Executive Officer
ATTEST:
- ---------------------------------------
Joseph E. Levangie
Secretary
FIRST AMENDMENT TO TIRE MATERIAL PUT-OR-PAY/TAKE-OR-PAY AGREEMENT
THIS FIRST AMENDMENT TO TIRE MATERIAL PUT-OR-PAY/TAKE-OR-PAY AGREEMENT (the
"Amendment") is made and entered into as of the 22nd day of May, 1996 by and
between GREENMAN TECHNOLOGIES, INC., a Delaware corporation ("GreenMan") and BFI
TIRE RECYCLERS OF GEORGIA, INC., a Georgia corporation ("BFI").
WHEREAS, the parties hereto desire by this Amendment to amend the Tire Material
Put-or-Pay/Take-or-Pay Agreement (the "Agreement") dated December 14, 1995
between GreenMan and BFI;
NOW, THEREFORE, in consideration of the premises and other good and valuable
consideration, the receipt of which is hereby acknowledged, GreenMan and BFI
agree to amend the Agreement as follows:
1. AMENDMENTS. Reference is hereby made to Section I, subsection (a)
wherein the following amendments are hereby made:
O The reference in subdivision (1) to "May 31, 1996" is hereby
amended to read "July 31, 1996".
o The reference in subdivision (2) to "June 1, 1996 to September
30, 1996" is hereby amended to read "August 1, 1996 to August
31, 1996.
o The reference in subdivision (3) to "October 1, 1996" to read
"September 1, 1996".
2. FULL FORCE AND EFFECT. Except as specifically amended hereby, all other
provisions of the Agreement shall remain in full force and effect and
no waiver, either express or implied, has been made with respect to any
of such provisions.
3. REPRESENTATION AND WARRANTIES. Each of the parties hereto hereby
represents and warrants to the other party that:
A) DUE AUTHORIZATION. It has all requisite power, authority and
capacity to execute and deliver this Amendment, to engage in
the transactions contemplated hereby, and to perform its
obligations hereunder in accordance with the terms hereof and
that the execution, delivery and performance of this Amendment
has been duly and effectively authorized by all necessary
corporation action.
B) ENFORCEABILITY. This Amendment has been duly and validly
executed and delivered on behalf of such party, and assuming
due authorization, execution and delivery of this Amendment by
the other party hereto, this Amendment constitutes the valid
and legally binding obligation of each party hereto,
enforceable against each of them in accordance with its
respective terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally.
C) GOVERNMENTAL PROCEEDINGS. There is no action, proceeding or
governmental investigation pending or, to the knowledge of
either party hereto, threatened against either of them which
could materially and adversely affect the consummation of any
of the transactions contemplated by this Amendment and by the
Agreement as amended by this Amendment.
D) NON-CONTRAVENTION. The execution, delivery and performance of
this Amendment by each party hereto is not in conflict with
and will not result in a breach of, or constitute a default
under any provisions or any indenture, contract, agreement or
other instrument to which such party is a party or by which
such party is bound. The execution, delivery and performance
of this Amendment by each party hereto will not violate any
provisions of law applicable to such party or any order, writ,
injunction, judgment or decree of any court of governmental
authority by which such party is bound.
E) GOVERNMENTAL AUTHORITY. No further order, consent, approval,
authorization of, or declaration or filing with, any
governmental or public body is required in order for each
party hereto to execute and deliver this Amendment and perform
its obligations hereunder.
F) VALIDITY. Each party hereto is a corporation validly existing
and in good standing under and by virtue of the laws of the
state of its organization and is duly authorized to do
business in and is in good standing in the State of Georgia.
4. ENTIRE AGREEMENT. Except for the lease (as defined in the Agreement),
the Agreement as amended by this First Amendment is intended by the
parties to be a final expression of their agreement and a complete and
exclusive statement of the terms of their agreement. The Agreement, as
amended by this First Amendment, may not be modified or amended except
by written instrument duly executed by the authorized representatives
of BFI and GreenMan. Any future reference to the Agreement shall mean
the Agreement as amended by this Agreement.
5. GOVERNING LAW. The Agreement, as amended by this First Amendment, shall
be governed by and construed in accordance with the laws in the State
of Georgia.
IN WITNESS THEREOF, the parties hereto have duly executed this Agreement as of
the date first above written.
GREENMAN TECHNOLOGIES, INC.
By: /s/ Maurice E. Needham
--------------------------------
Name: Maurice E. Needham
Title: Chief Executive Officer
BFI TIRE RECYCLERS OF GEORGIA, INC
By: /S/ James Maust
---------------------------------
Name: James Maust
Title: Vice President
GREENMAN TECHNOLOGIES, INC.
NOTE DUE THE EARLIER OF
(i) ONE HUNDRED AND TWENTY (120) DAYS AFTER THE DATE OF ISSUANCE
OR (ii) THE TENTH BUSINESS DAY FOLLOWING THE
CLOSING OF A MINIMUM OF A $3,000,000 REGULATIONS
OFFERING OF SECURITIES OF GREENMAN
TECHNOLOGIES, INC.
$325,000 MAY 23, 1996
FOR VALUE RECEIVED, GreenMan Technologies, Inc. a Delaware corporation
(the "Company"), with its principal office at 7 Kimball Lane, Lynnfield, MA
01940, promises to pay to the order of Maurice E. Needham (the "Payee" or "the
holder of this Note"), or registered assigns, on the earlier of (i) one-hundred
and twenty (120) days after the date of issuance of this Note or (ii) the tenth
business day following the consummation by the Company of a minimum $3,000,000
regulation S offering of its securities as described in Section 4 hereof (the
"Maturity Date") the principal amount of THREE HUNDRED AND TWENTY FIVE THOUSAND
DOLLARS ($325,000 ), in such coin or currency of the United States of America as
at the time of payment shall be legal tender for the payment of public or
private debts, together with interest at a rate equal to Prime plus 1.5% (as
published in the Wall Street Journal at the date of execution of this note) per
annum until the Note is paid in full.
1. Events of Default.
(a) Upon the occurrence of any of the following events (herein
called "Events of Default") which shall have occurred and be continuing:
(i) The Company shall default in payment of the principal and
interest of this Note after the Maturity Date; or
(ii) (1) The Company shall commence any proceeding or other
action relating to it in bankruptcy or seek reorganization, arrangement,
readjustment of its debts, receivership, dissolution, liquidation, winding-up,
composition or any other relief under the Bankruptcy Act, as amended, or under
any other insolvency, reorganization, liquidation, dissolution, arrangement,
composition, readjustment of debt or any other similar act or law; of any
jurisdiction domestic or foreign, know or hereafter existing; or (2) the Company
shall admit the material allegations of any petition or pleading in connection
with any such proceeding; or (3) the Company applies for, or consents or
acquiesces to, the appointment of a receiver, conservator, trustee or similar
officer for it or for all or substantial part of its property; or (4) the
Company makes a general assignment for the benefit of creditors; or
(iii) (1) Commencement of any proceeding or in the taking of
any other action against the Company in bankruptcy or seeking
reorganization,arrangement, readjustment of its debts, liquidation, dissolution,
arrangement, composition, readjustment of debt or any other similar act of law
of any jurisdiction, domestic or foreign, now or hereafter existing and the
continuance of any of such events for sixty (60) days undismissed, unbonded or
undischarged; or (2) the appointment of a receiver, conservator, trustee or
similar officer of the Company or for all or substantially all of its property
and the continuance of any such events for sixty (60) days undismissed, unbonded
or undischarged, or (3) the issuance of a warrant or attachment, execution or
similar process against substantially all of the property of the Company and the
continuance of such event for thirty (30) undismissed, unbonded and
undischarged; or
(iv) The Company shall default in the payment of any material
amount of its indebtedness and such default shall not be cured or waived within
thirty (30) days after the Company's receipt of written notice of same, then,
and in any such event the holder of this Note may, by written notice to the
Company, declare the entire unpaid principal amount of this Note outstanding
together with accrued interest thereon due and payable, and the same shall,
unless such default shall be cured within ten (10) business days after such
notice, forthwith become due and payable upon the expiration of such ten-day
period, without presentment, demand protest, or other notice of any kind, all of
which are expressly waived.
2. Non-Waiver and Other Remedies. No course of dealing or delay on the
part of the holder of this Note in exercising any right thereunder shall operate
as a waiver thereof or otherwise prejudice the right of the holder of this Note.
No remedy conferred hereby shall be exclusive of any other remedy referred to
herein or now or hereinafter available at law, in equity, by statute or
otherwise.
3. Principal Obligation: Covenants: Except as set forth in Section 1
hereof, no provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, at the rates, and
in the currency herein prescribed.
3.1 Affirmative Covenants. The Company covenants and agrees that, while
this Note is outstanding, it shall:
(a) Pay all material indebtedness and obligations of the
Company in accordance with their respective terms, as the same may be modified
or waived by the lenders or other obligees, and pay and discharge all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income and profits, or upon any properties belonging to it before the same shall
be in default; provided, however, that the Company shall not be required to pay
any such tax, assessment, charge or levy which is being contested in good faith
by proper proceedings;
(b) Do all things necessary to preserve its corporate
existence and continue to engage in business of the same general type as
conducted as of the date hereof;
(c) Promptly notify the holder of this Note of the occurrence
of any event of any default under this Note;
(d) Comply in all materials respects with all statutes, laws,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations and requirements (collectively,
"Requirements(s)") of all governmental bodies, departments, commissions, boards,
companies or associations insuring the premises, courts, authorities, officials,
or officers, which are applicable to the company or its properties, except
wherein the failure to comply would not have a material effect on the Company or
its property; provided that nothing contained herein shall prevent the Company
from contesting the validity or the application of any Requirements; and
(e) Promptly provide the holder of this Note with such reports
as are provided to holders of Common Stock or Warrants as soon as such reports
become available.
3.2 Negative Covenants. The Company covenants and agrees that while
this Note is outstanding it will not directly or indirectly:
(a) Guaranty or otherwise in any way become or be responsible
for indebtedness or borrowed money or obligations of any other person (other
than a subsidiary of the Company), contingently or otherwise;
(b) Declare or pay cash dividends;
(c) Borrow money in an amount exceeding $5,000,000 outstanding
at any time; or
(d) Make or incur an obligation for capital expenditures
outstanding at any one time exceeding $5,000,000, other than in the ordinary
course of business.
4. Prepayment
4.1 Consolidation of Merger. The principal of any accrued interest on
this Note may be prepaid in full without premium in the event the Company
consolidates or merges with another corporation unless the other corporation
controls, is under common control with or is controlled by the Company
immediately prior to the consolidation or merger, in which event this Note shall
remain outstanding as an obligation of the consolidated or surviving
corporation.
4.2 Voluntary Prepayment This Note may be called by the Company at any
time in whole or in part from time to time, without penalty at the principal
amount plus accrued but unpaid interest.
5. Holder as Deemed Owner The Company may deem and treat the registered
holder hereof as the absolute owner of this Note (whether or not this Note shall
be overdue and notwithstanding any notice of ownership of writing hereon made by
anyone other than the Company, for the purpose of receiving payment hereof or
thereof or on account hereof and for all other purposes) and the Company shall
not be affected by notice to the contrary.
6. Corporate Obligation. It is expressly understood that this Note is
solely a corporate obligation of the Company, and that any and all personal
liability, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every promoter, subscriber,
incorporator, shareholder, officer or director, as such, are hereby expressly
waived and released by the holder hereof by the acceptance of this Note and as a
part of the consideration for the issue hereof.
7. Required Consent. The Company may not modify any of the terms of the
Note without the prior written consent of the holder hereof.
8. Lost Documents Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any Note
exchanged for it, and (in the case of loss, theft or destruction) of indemnity
satisfactory to it, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of such Note,
if mutilated, the Company will make and deliver in lieu of such Note a new Note
of like tenor and unpaid principal amount and dated as of the original date of
the Note.
9. Miscellaneous.
(a) Parties in Interest. All covenants, agreements, and
undertakings in this Note by and on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective permitted successors and assigns
of the parties hereto whether so expressed or not.
(b) Notices. All notices, request, consents and demands shall
be made in writing and shall be mailed first class, certified mail, return
receipt requested, to the Company or to the holder of this Note at such
respective addresses as may be furnished in writing to the other party hereto.
(c) Construction. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date specified above by the duly authorized representative of the Company.
GREENMAN TECHNOLOGIES, INC.
By: /s/ Joseph E. Levangie
--------------------------
Joseph E. Levangie, Chief Financial Officer
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR
UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAW OR (ii)
THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO
THE HOLDER OF SUCH NOTE, WHICH OTHER COUNSEL IS REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH NOTE MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE SECURITIES LAWS.
GREENMAN TECHNOLOGIES, INC.
NOTE DUE THE EARLIER OF
(i) $100,000 ON SEPTEMBER 30, 1996, $500,000 ON
JANUARY 1, 1997 AND $500,000 ON JUNE 1, 1997 OR
(ii) THE TENTH BUSINESS DAY FOLLOWING THE
CLOSING OF A MINIMUM OF A $3,000,000 REGULATION S OFFERING
OF SECURITIES OF GREENMAN TECHNOLOGIES, INC.
$ 1,100,000 February 23, 1996
FOR VALUE RECEIVED, GreenMan Technologies, Inc., a Delaware corporation
(the "Company"), with its principal office at 7 kimball Lane, Lynnfield,
Massachusetts 01940, promises to pay to the order of Palomar Medical
Technologies, Inc. , with its principal office at 66 Cherry Hill Drive, Beverly,
Massachusetts 01915 (the "Payee" or "the holder of this Note"), or registered
assigns, on the earlier of (i) $100,000 on September 30, 1996, $500,000 on
January 1, 1997 and $500,000 on June 1, 1997 or (ii) the tenth business day
following the consummation by the Company of a minimum of a $3,000,000
regulation S offering of its securities as described in Section 4 hereof (the
"Maturity Date") the principal amount of One Million One Hundred Thousand
Dollars ($1,100,000), in such coin or currency of the United States of America
as at the time of payment shall be legal tender for the payment of public or
private debts, together with interest at a rate equal to 10% per annum until the
Note is paid in full. The Payee will also be granted a warrant to purchase
100,000 shares of Common Stock of the Company (the "Warrant"). The Warrant shall
be exercisable at $_4.00_ per share and be issued in accordance with the terms
as specifically stated within the actual Warrant Agreement.
1. Events of Default.
(a) Upon the occurrence of any of the following events (herein
called "Events of Default") which shall have occurred and be continuing:
(i) The Company shall default in the payment of the principal
and interest of this Note after the Maturity Date; or
(ii) (1) The Company shall commence any proceeding or other
action relating to it in bankruptcy or seek reorganization,
arrangement, readjustment of its debts, receivership,
dissolution, liquidation, winding-up, composition or any other
relief under the Bankruptcy Act, as amended, or under any
other insolvency, reorganization, liquidation, dissolution,
arrangement, composition, readjustment of debt or any other
similar act or law; of any jurisdiction, domestic or foreign,
now or hereafter existing; or (2) the Company shall admit the
material allegations of any petition or pleading in connection
with any such proceeding; or (3) the Company applies for, or
consents or acquiesces to, the appointment of a receiver,
conservator, trustee or similar officer for it or for all or a
substantial part of its property; or (4) the Company makes a
general assignment for the benefit of creditors; or
(iii) (1) Commencement of any proceeding or in the taking of
any other action against the Company in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts,
liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law of any
jurisdiction, domestic or foreign, now or hereafter existing
and the continuance of any of such events for sixty (60) days
undismissed, unbonded or undischarged; or (2) the appointment
of a receiver, conservator, trustee or similar officer of the
Company or for all or substantially all of its property and
the continuance of any such events for sixty (60) days
undismissed, unbonded or undischarged, or (3) the issuance of
a warrant or attachment, execution or similar process against
substantially all of the property of the Company and the
continuance of such event for thirty (30) undismissed,
unbonded and undischarged; or
(iv) The Company shall default in the payment of any materiel
amount of its indebtedness and such default shall not be cured
or waived within thirty (30) days after the Company's receipt
of written notice of same;
then, and in any such event the holder of this Note may, by
written notice to the Company, declare the entire unpaid
principal amount of this Note outstanding together with
accrued interest thereon due and payable, and the same shall,
unless such default shall be cured within ten (10) business
days after such notice, forthwith become due and payable upon
the expiration of such ten-day period, without presentment,
demand protest, or other notice of any kind, all of which are
expressly waived.
2. Non-Waiver and Other Remedies. No course of dealing or delay on the
part of the holder of this Note in exercising any right thereunder shall operate
as a waiver thereof or otherwise prejudice the right of the holder of this Note.
No remedy conferred hereby shall be exclusive of any other remedy referred to
herein or now or hereinafter available at law, in equity, by statute or
otherwise.
3. Principal Obligation; Covenants. Except as set forth in Section 1
hereof, no provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, at the rates, and
in the currency herein prescribed.
3.1. Affirmative Covenants. The Company covenants and agrees that,
while this Note is outstanding, it shall:
(a) Pay all material indebtedness and obligations of the
Company in accordance with their respective terms, as the same my be modified or
waived by the lenders or other obligees, and pay and discharge all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income and profits, or upon any properties belonging to it before the same shall
be in default; provided, however, that the Company shall not be required to pay
any such tax, assessment, charge or levy which is being contested in good faith
by proper proceedings;
(b) Do all things necessary to preserve its corporate
existence and continue to engage in business of the same general type as
conducted as of the date hereof;
(c) Promptly notify the holder of this Note of the occurrence
of any event of any default under this Note;
(d) Comply in all material respects with all statutes, laws,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations and requirements (collectively,
"Requirement(s)") of all governmental bodies, departments, commissions, boards,
companies or associations insuring the premises, courts, authorities, officials,
or officers, which are applicable to the company or its properties, except
wherein the failure to comply would not have a material effect on the Company or
its property; provided that nothing contained herein shall prevent the Company
from contesting the validity or the application of any Requirements; and
(e) Promptly provide the holder of this Note with such reports
as are provided to holders of Common Stock or Warrants as soon as such reports
become available.
3.2 Negative Covenants. The Company covenants and agrees that while
this Note is outstanding it will not directly or indirectly:
(a) Guaranty or otherwise in any way become or be responsible
for indebtedness or borrowed money or obligations of any other person (other
that a subsidiary of the Company), contingently or otherwise;
(b) Declare or pay cash dividends;
(c) Borrow money in an amount exceeding $5,000,000 outstanding
at any time; or
(d) Make or incur an obligation for capital expenditures
outstanding at any one time exceeding $5,000,000, other than in the ordinary
course of business.
4. Prepayment.
4.1 Consolidation or Merger. The principal of and accrued interest on
this Note shall be prepaid in full without premium in the event the Company
consolidates or merges with another corporation unless the other corporation
controls, is under common control with or is controlled by the Company
immediately prior to the consolidation or merger, in which event this Note shall
remain outstanding as an obligation of the consolidated or surviving
corporation.
4.2 Voluntary Prepayment. This Note may be called by the Company at any
time in whole or in part from time to time, without penalty at the principal
amount plus accrued but unpaid interest.
5. Holder as Deemed Owner. The Company may deem and treat the
registered holder hereof as the absolute owner of this Note (whether or not this
Note shall be overdue and notwithstanding any notice of ownership or writing
hereon made by anyone other than the Company, for the purpose of receiving
payment hereof or thereof or on account hereof and for all other purposes) and
the Company shall not be affected by notice to the contrary.
6. Corporate Obligation. It is expressly understood that this Note is
solely a corporate obligation of the Company, and that any and all personal
liability, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every promoter, subscriber,
incorporator, shareholder, officer or director, as such, are hereby expressly
waived and released by the holder hereof by the acceptance of this Note and as a
part of the consideration for the issue hereof.
7. Required Consent. The Company may not modify any of the terms of the
Note without the prior written consent of the holder hereof.
8. Lost Documents. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any Note
exchanged for it, and (in the case of loss, theft or destruction) of indemnity
satisfactory to it, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of such Note,
if mutilated, the Company will make and deliver in lieu of such Note a new Note
of like tenor and unpaid principal amount and dated as of the original date of
the Note.
9. Miscellaneous.
(a) Parties in Interest. All covenants, agreements, and
undertakings in this Note by and on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective permitted successors and assigns
of the parties hereto whether so expressed or not.
(b) Notices. All notices, requests, consents and demands shall
be made in writing and shall be mailed first class, certified mail, return
receipt requested, to the Company or to the holder of this Note at such
respective addresses as may be furnished in writing to the other party hereto.
(c) Construction. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date specified above by the duly authorized representative of the Company.
GREENMAN TECHNOLOGIES, INC.
By: /s/ James F. Baker
--------------------------
James F. Barker, President
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 NOR
UNDER ANY STATE SECURITIES LAW AND MAY NOT BE PLEDGED, SOLD, ASSIGNED OR
TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT WITH RESPECT THERETO IS EFFECTIVE
UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE SECURITIES LAW OR (ii)
THE COMPANY RECEIVES AN OPINION OF COUNSEL TO THE COMPANY OR OTHER COUNSEL TO
THE HOLDER OF SUCH NOTE, WHICH OTHER COUNSEL IS REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH NOTE MAY BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 OR APPLICABLE
STATE SECURITIES LAWS.
GREENMAN TECHNOLOGIES, INC.
NOTE DUE THE EARLIER OF
(i) SEPTEMBER 30, 1996 OR
(ii) THE TENTH BUSINESS DAY FOLLOWING THE
CLOSING OF A MINIMUM OF A $3,000,000 REGULATION S OFFERING
OF SECURITIES OF GREENMAN TECHNOLOGIES, INC.
$ 400,000 May 7, 1996
FOR VALUE RECEIVED, GreenMan Technologies, Inc., a Delaware corporation
(the "Company"), with its principal office at 7 kimball Lane, Lynnfield,
Massachusetts 01940, promises to pay to the order of Palomar Medical
Technologies, Inc. , with its principal office at 66 Cherry Hill Drive, Beverly,
Massachusetts 01915 (the "Payee" or "the holder of this Note"), or registered
assigns, on the earlier of (i) September 30, 1996 or (ii) the tenth business day
following the consummation by the Company of a minimum of a $3,000,000
regulation S offering of its securities as described in Section 4 hereof (the
"Maturity Date") the principal amount of Four Hundred Thousand Dollars
($400,000), in such coin or currency of the United States of America as at the
time of payment shall be legal tender for the payment of public or private
debts, together with interest at a rate equal to 10% per annum until the Note is
paid in full. The Payee will also be granted a warrant to purchase 100,000
shares of Common Stock of the Company (the "Warrant"). The Warrant shall be
exercisable at $_3.875_ per share and be issued in accordance with the terms as
specifically stated within the actual Warrant Agreement.
1. Events of Default.
(a) Upon the occurrence of any of the following events (herein
called "Events of Default") which shall have occurred and be continuing:
(i) The Company shall default in the payment of the principal
and interest of this Note after the Maturity Date; or
(ii) (1) The Company shall commence any proceeding or other
action relating to it in bankruptcy or seek reorganization,
arrangement, readjustment of its debts, receivership,
dissolution, liquidation, winding-up, composition or any other
relief under the Bankruptcy Act, as amended, or under any
other insolvency, reorganization, liquidation, dissolution,
arrangement, composition, readjustment of debt or any other
similar act or law; of any jurisdiction, domestic or foreign,
now or hereafter existing; or (2) the Company shall admit the
material allegations of any petition or pleading in connection
with any such proceeding; or (3) the Company applies for, or
consents or acquiesces to, the appointment of a receiver,
conservator, trustee or similar officer for it or for all or a
substantial part of its property; or (4) the Company makes a
general assignment for the benefit of creditors; or
(iii) (1) Commencement of any proceeding or in the taking of
any other action against the Company in bankruptcy or seeking
reorganization, arrangement, readjustment of its debts,
liquidation, dissolution, arrangement, composition,
readjustment of debt or any other similar act or law of any
jurisdiction, domestic or foreign, now or hereafter existing
and the continuance of any of such events for sixty (60) days
undismissed, unbonded or undischarged; or (2) the appointment
of a receiver, conservator, trustee or similar officer of the
Company or for all or substantially all of its property and
the continuance of any such events for sixty (60) days
undismissed, unbonded or undischarged, or (3) the issuance of
a warrant or attachment, execution or similar process against
substantially all of the property of the Company and the
continuance of such event for thirty (30) undismissed,
unbonded and undischarged; or
(iv) The Company shall default in the payment of any materiel
amount of its indebtedness and such default shall not be cured
or waived within thirty (30) days after the Company's receipt
of written notice of same;
then, and in any such event the holder of this Note may, by
written notice to the Company, declare the entire unpaid
principal amount of this Note outstanding together with
accrued interest thereon due and payable, and the same shall,
unless such default shall be cured within ten (10) business
days after such notice, forthwith become due and payable upon
the expiration of such ten-day period, without presentment,
demand protest, or other notice of any kind, all of which are
expressly waived.
2. Non-Waiver and Other Remedies. No course of dealing or delay on the
part of the holder of this Note in exercising any right thereunder shall operate
as a waiver thereof or otherwise prejudice the right of the holder of this Note.
No remedy conferred hereby shall be exclusive of any other remedy referred to
herein or now or hereinafter available at law, in equity, by statute or
otherwise.
3. Principal Obligation; Covenants. Except as set forth in Section 1
hereof, no provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Note at the place, at the respective times, at the rates, and
in the currency herein prescribed.
3.1. Affirmative Covenants. The Company covenants and agrees that,
while this Note is outstanding, it shall:
(a) Pay all material indebtedness and obligations of the
Company in accordance with their respective terms, as the same my be modified or
waived by the lenders or other obligees, and pay and discharge all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income and profits, or upon any properties belonging to it before the same shall
be in default; provided, however, that the Company shall not be required to pay
any such tax, assessment, charge or levy which is being contested in good faith
by proper proceedings;
(b) Do all things necessary to preserve its corporate
existence and continue to engage in business of the same general type as
conducted as of the date hereof;
(c) Promptly notify the holder of this Note of the occurrence
of any event of any default under this Note;
(d) Comply in all material respects with all statutes, laws,
ordinances, orders, judgments, decrees, injunctions, rules, regulations,
permits, licenses, authorizations and requirements (collectively,
"Requirement(s)") of all governmental bodies, departments, commissions, boards,
companies or associations insuring the premises, courts, authorities, officials,
or officers, which are applicable to the company or its properties, except
wherein the failure to comply would not have a material effect on the Company or
its property; provided that nothing contained herein shall prevent the Company
from contesting the validity or the application of any Requirements; and
(e) Promptly provide the holder of this Note with such reports
as are provided to holders of Common Stock or Warrants as soon as such reports
become available.
3.2 Negative Covenants. The Company covenants and agrees that while
this Note is outstanding it will not directly or indirectly:
(a) Guaranty or otherwise in any way become or be responsible
for indebtedness or borrowed money or obligations of any other person (other
that a subsidiary of the Company), contingently or otherwise;
(b) Declare or pay cash dividends;
(c) Borrow money in an amount exceeding $5,000,000 outstanding
at any time; or
(d) Make or incur an obligation for capital expenditures
outstanding at any one time exceeding $5,000,000, other than in the ordinary
course of business.
4. Prepayment.
4.1 Consolidation or Merger. The principal of and accrued interest on
this Note shall be prepaid in full without premium in the event the Company
consolidates or merges with another corporation unless the other corporation
controls, is under common control with or is controlled by the Company
immediately prior to the consolidation or merger, in which event this Note shall
remain outstanding as an obligation of the consolidated or surviving
corporation.
4.2 Voluntary Prepayment. This Note may be called by the Company at any
time in whole or in part from time to time, without penalty at the principal
amount plus accrued but unpaid interest.
5. Holder as Deemed Owner. The Company may deem and treat the
registered holder hereof as the absolute owner of this Note (whether or not this
Note shall be overdue and notwithstanding any notice of ownership or writing
hereon made by anyone other than the Company, for the purpose of receiving
payment hereof or thereof or on account hereof and for all other purposes) and
the Company shall not be affected by notice to the contrary.
6. Corporate Obligation. It is expressly understood that this Note is
solely a corporate obligation of the Company, and that any and all personal
liability, either at common law or in equity or by constitution or statute, of,
and any and all such rights and claims against, every promoter, subscriber,
incorporator, shareholder, officer or director, as such, are hereby expressly
waived and released by the holder hereof by the acceptance of this Note and as a
part of the consideration for the issue hereof.
7. Required Consent. The Company may not modify any of the terms of the
Note without the prior written consent of the holder hereof.
8. Lost Documents. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Note or any Note
exchanged for it, and (in the case of loss, theft or destruction) of indemnity
satisfactory to it, and upon reimbursement to the Company of all reasonable
expenses incidental thereto, and upon surrender and cancellation of such Note,
if mutilated, the Company will make and deliver in lieu of such Note a new Note
of like tenor and unpaid principal amount and dated as of the original date of
the Note.
9. Miscellaneous.
(a) Parties in Interest. All covenants, agreements, and
undertakings in this Note by and on behalf of any of the parties hereto shall
bind and inure to the benefit of the respective permitted successors and assigns
of the parties hereto whether so expressed or not.
(b) Notices. All notices, requests, consents and demands shall
be made in writing and shall be mailed first class, certified mail, return
receipt requested, to the Company or to the holder of this Note at such
respective addresses as may be furnished in writing to the other party hereto.
(c) Construction. This Note shall be construed and enforced in
accordance with, and the rights of the parties shall be governed by, the laws of
the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, this Note has been executed and delivered on the
date specified above by the duly authorized representative of the Company.
GREENMAN TECHNOLOGIES, INC.
By: /s/ James F. Baker
--------------------------
James F. Barker, President
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in the Registration Statement
Number 333-04067 dated May 17, 1996 on Form S-8 of our report dated July 12,
1996, appearing in the GreenMan Technologies, Inc. Annual Report on Form 10-KSB
for the fiscal year ended May 31, 1996.
Wolf & Company, P.C.
Boston, Massachusetts
September 13, 1996
EXHIBIT 11
GREENMAN TECHNOLOGIES, INC.
STATEMENT REGARDING NET LOSS PER SHARE
MAY 31, 1996
YEAR ENDED YEAR ENDED
MAY 31, 1994 MAY 31, 1995
Net loss...................................... $ (660,105) $ (1,092,006)
=========== =============
Shares used in calculation of loss per share:
Common shares outstanding (1)............. 2,343,333 2,343,333
Common equivalent shares (2).............. 1,754,000 1,754,000
--------- ---------
4,097,333 4,097,333
Net loss per share............................ $ (.16) $ (.27)
======= =======
YEAR ENDED
MAY 31, 1996
Net loss.......................................... $ (1,578,321)
=============
Shares used in calculation of loss per share:
Weighted Common shares outstanding pre - IPO (1 and 2) 1,376,973
Weighted Common shares outstanding post - IPO 3,307,287
---------
4,684,260
Net loss per share................................ $ (.34)
=======
(1) Includes all common shares outstanding prior to the initial public offering
in accordance with the Staff Accounting Bulletin.
(2) Includes common equivalent shares outstanding as follows: (i) 500,000 shares
of Class A convertible preferred stock convertible into 500,000 shares of
common stock; (ii) 259,000 shares of common stock issued pursuant to
convertible debt at the closing of the initial public offering; (iii)
695,000 shares issuable pursuant to outstanding stock options and warrants;
and (iv) 300,000 shares of Class B convertible preferred stock convertible
into 300,000 shares of common stock. All of these shares were issued or have
exercise prices per share which are less than the initial public offering
price per share. The treasury stock method was not used in calculating
common equivalent shares.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> May-31-1996
<PERIOD-END> May-31-1996
<CASH> 153,172
<SECURITIES> 0
<RECEIVABLES> 605,255
<ALLOWANCES> 31,751
<INVENTORY> 525,279
<CURRENT-ASSETS> 2,026,313
<PP&E> 4,178,482
<DEPRECIATION> 507,991
<TOTAL-ASSETS> 8,638,983
<CURRENT-LIABILITIES> 3,229,309
<BONDS> 1,873,848
0
0
<COMMON> 50,761
<OTHER-SE> 264,910
<TOTAL-LIABILITY-AND-EQUITY> 8,638,983
<SALES> 4,338,538
<TOTAL-REVENUES> 4,338,538
<CGS> 3,229,998
<TOTAL-COSTS> 3,229,998
<OTHER-EXPENSES> 2,473,404
<LOSS-PROVISION> 5,516
<INTEREST-EXPENSE> 288,779
<INCOME-PRETAX> (1,578,321)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,578,321)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,578,321)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
</TABLE>
