U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended AUGUST 31, 1997 Commission File Number 1-13776
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GREENMAN TECHNOLOGIES, INC.
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(Exact name of small business issuer as specified in its charter)
DELAWARE 71-0724248
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(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
7 KIMBALL LANE, BUILDING A, LYNNFIELD, MA 01940
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (781) 224-2411
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(Former name, former address and former fiscal year, if changed
since last report.)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes_X_ No___
Number of shares outstanding as of October 15, 1997
Common Stock, $.01 par value, 8,215,684 shares
GREENMAN TECHNOLOGIES, INC.
FORM 10-QSB
QUARTERLY REPORT
AUGUST 31, 1997
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TABLE OF CONTENTS
PAGE
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PART I - FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements (*)
Unaudited Condensed Consolidated Balance Sheets as of May 31, 1997
and August 31, 1997 3
Unaudited Condensed Consolidated Statements of Loss for the three
months ended August 31, 1996 and 1997 4
Unaudited Condensed Consolidated Statement of Changes in Stockholder's
Equity for the three months ended August 31, 1997 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
three months ended August 31, 1996 and 1997 6
Notes to Unaudited Consolidated Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition and Result
of Operations 11-13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
* The financial information at May 31, 1997 has been taken from audited
financial statements at that date and should be read in conjunction therewith.
All other financial statements are unaudited.
GREENMAN TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MAY 31, AUGUST 31,
1997 1997
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ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................................... $ 104,193 $ 835,367
Accounts receivable, trade, less allowance for doubtful accounts of $23,772
and $105,394 as of May 31, 1997 and August 31,1997.......................... 550,644 1,808,167
Inventory..................................................................... 553,688 612,678
Other current assets.......................................................... 204,155 523,583
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Total current assets 1,412,680 3,779,795
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Property, plant, and equipment,at cost (Note 3):
Land....................................................................... 223,785 857,482
Buildings.................................................................. 910,400 2,480,264
Machinery and equipment.................................................... 3,545,573 4,549,057
Furniture and fixtures..................................................... 89,792 104,466
Motor vehicles............................................................. 64,822 1,594,255
Leasehold improvements..................................................... 975,116 78,168
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5,809,488 9,663,692
Less accumulated depreciation and amortization........................... (888,445) (1,023,157)
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4,921,043 8,640,535
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Other assets:
Equipment deposits (Note 5)................................................... 862,711 372,711
Acquisition deposit (Note 3).................................................. 650,000 --
Deferred financing costs (Notes 6 and 7)...................................... 1,198,899 726,125
Goodwill, net................................................................. 415,398 402,936
Non-competition agreement, net................................................ 155,557 126,389
Licensing fee................................................................. 91,667 89,168
Investment in joint venture (Note 5).......................................... -- 400,000
Other ........................................................................ 77,575 78,935
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3,451,807 2,196,264
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$ 9,785,530 $ 14,616,594
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible note payable,related party (Note 7)............................... $ 1,200,000 $ 1,200,000
Notes payable, related parties................................................ 58,829 65,771
Notes payable, bank, current portion.......................................... 37,910 38,572
Notes payable, current portion (Note 3)....................................... -- 4,696,875
Accounts payable.............................................................. 815,631 1,311,660
Accrued expenses, other....................................................... 1,270,682 1,378,433
Obligations under capital leases, current (Note 8)............................ 1,045,726 1,001,418
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Total current liabilities................................................... 4,428,778 9,692,729
Convertible notes payable (Note 6).............................................. 2,200,000 1,500,000
Convertible notes payable, related parties, non-current portion (Note7)......... 640,000 1,026,000
Notes payable, related parties, non-current portion............................. 24,371 --
Notes payable, bank, non-current portion........................................ 474,678 465,046
Notes payable, non-current portion (Note 3)..................................... -- 83,998
Obligations under capital leases (Note 8)....................................... 894,238 827,546
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Total liabilities.......................................................... 8,662,065 13,595,319
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Stockholders' equity (Note 6):
Preferred stock, $1.00 par value, 1,000,000 shares authorized, no shares
issued and outstanding...................................................... -- --
Common stock, $.01 par value, 10,000,000 shares authorized; 6,873,296 and
8,215,684 shares issued and outstanding at May 31, 1997 and August 31,1997. 68,733 82,157
Additional paid-in capital.................................................... 11,759,665 12,743,793
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Accumulated deficit........................................................... (10,704,933) (11,804,675)
Total stockholders' equity.............................................. 1,123,465 1,021,275
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$ 9,785,530 $ 14,616,594
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</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
GREENMAN TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
Three Months
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Ended August 31,
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1996 1997
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Net sales..................................................... $ 886,866 $ 2,715,330
Cost of sales................................................. 726,039 1,981,737
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Gross profit ................................................. 160,827 733,593
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Operating expenses:
Research and development ................................ 67,085 82,315
Selling, general and administrative ...................... 1,230,146 839,482
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Total operating expenses.............................. 1,297,231 921,797
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Operating loss................................................ (1,136,404) (188,204)
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Other income (expense):
Interest and financing costs (Notes 6 and 7).............. (95,298) (903,253)
Other, net................................................ (33,278) (8,285)
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Other income (expense), net........................... (128,576) (911,538)
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Net loss...................................................... $ (1,264,980) $ (1,099,742)
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Net loss per share (Note 4)................................... $ (.25) $ (.14)
======== ========
Shares used in calculation of net loss per share.............. 5,076,083 7,755,282
============= =============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
GREENMAN TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AUGUST 31, 1997
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Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
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Balance, May 31, 1997...... 6,873,296 $ 68,733 $ 11,759,665 $ (10,704,933) $ 1,123,465
Shares issued on conversion
of notes payable...... 1,243,388 12,434 687,566 -- 700,000
Compensation expense related
to warrants issued in
June and July 1997
convertible debt offering
under SFAS 123........ -- -- 7,800 -- 7,800
Fair value of conversion
discount on convertible
notes payable issued
in June and July 1997.. -- -- 166,002 -- 166,002
Shares issued on exercise
of stock warrants.... 99,000 990 122,760 -- 123,750
Net loss for quarter
ended August 31, 1997. -- -- -- (1,099,742) (1,099,742)
---------- --------- ----------- ------------- -------------
Balance, August 31, 1997 8,215,684 $ 82,157 $ 12,743,793 $ (11,804,675) $ 1,021,275
========== ========= =========== ============= =============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
F-5
GREENMAN TECHNOLOGIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
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<CAPTION>
Three Months Ended August 31,
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1996 1997
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Cash flows from operating activities:
Net loss.................................................. $ (1,264,980) $ (1,099,742)
Adjustments to reconcile net loss to net cash used for
operating activities:
Amortization of deferred financing costs.............. -- 646,577
Depreciation and amortization......................... 131,498 238,841
Common stock warrants and options issued for services
rendered ........................................... 285,203 --
(Increase) decrease in assets:
Accounts receivable................................ (27,873) (170,198)
Inventory.......................................... 94,837 (58,990)
Other current assets............................... 144,070 39,177
(Decrease) increase in liabilities:
Accounts payable................................... (79,149) 721,615
Accrued expenses................................... 137,150 107,751
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Net cash (used) provided for operating
activities.................................. (579,244) 425,031
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Cash flows from investing activities:
Repayment of loan receivable.............................. 500,000 --
Purchase of property and equipment........................ (93,556) (54,848)
Deposit on equipment...................................... -- (10,000)
Decrease (increase) in other assets....................... 6,502 (1,360)
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Net cash provided by/(used for)
investing activities........................ 412,946 (66,208)
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Cash flows from financing activities:
Proceeds from notes payable............................... 46,550 --
Repayment of notes payable................................ (42,190) (8,970)
Proceeds from notes payable related parties............... 200,000 386,000
Repayment of notes payable related parties................ (7,822) (17,429)
Principal payments on obligations under capital leases.... (76,748) (111,000)
Net proceeds on exercise of common stock warrants......... -- 123,750
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Net cash provided by financing activities............... 119,790 372,351
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Net (decrease) increase in cash............................... (46,508) 731,174
Cash and cash equivalents at beginning of period.............. 153,172 104,193
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Cash and cash equivalents at end of period.................... $ 106,664 $ 835,367
============ ===========
Supplemental cash flow information:
Machinery and equipment acquired under capital leases..... $ 124,500 $ --
Common stock issued upon conversion of notes payable...... -- 700,000
Interest paid 44,953 45,200
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
On June 30, 1997, Company purchased all of the capital stock of BFI
Tire Recyclers of Minnesota, Inc. and BFI Tire Recyclers of Georgia, Inc. as
follows:
Fair value of assets acquired $ 5,472,910
Fair value of liabilities assumed 141,393
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Fair value of net assets acquired 5,331,517
Acquisition deposit (650,000)
Note payable issued 4,681,516
============
In addition, during the quarter ended August 31, 1997, $100,000 of
equipment deposits were reclassified to property, plant and equipment and
$400,000 to investment in joint venture.
See accompanying notes to unaudited condensed consolidated financial statements.
GREENMAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
1. 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 and truck tires and the consumer products to be
manufactured from these recycled materials.
The Company's wholly-owned subsidiary, DuraWear Corporation
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.
On June 30, 1997, the Company acquired all of the capital stock of BFI
Tire Recyclers of Minnesota, Inc. ("BTM") and BFI Tire Recyclers of Georgia,
Inc. ("BTG"), both of which are wholly-owned subsidiaries of Browning-Ferris
Industries, Inc. and are in the scrap tire collection and processing business.
BTM and BTG have been renamed GreenMan Technologies of Minnesota, Inc. ("GMTM")
and GreenMan Technologies of Georgia, Inc. ("GMTG"), and together, with the
Company's existing rubber recycling operations will constitute the Company's
tire recycling operations. (See Note 3).
2. BASIS OF PRESENTATION
The consolidated financial statements include the results of the
Company, DuraWear Corporation and GAC for the three months ended August 31, 1997
and the newly acquired wholly-owned subsidiaries, GMTM and GMTG from July 1,
1997 to August 31, 1997. All significant intercompany accounts and transactions
are eliminated in consolidation.
The financial statements are unaudited and should be read in
conjunction with the financial statements and notes thereto for the fiscal year
ended May 31, 1997 included in the Company's Form 10-KSB. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles has been condensed or
omitted pursuant to the Securities and Exchange Commission ("SEC") rules and
regulations, although the Company believes the disclosures which have been made
are adequate to make the information presented not misleading.
The results of operations for the periods reported are not necessarily
indicative of those that may be expected for a full year. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair statement of operating results for the interim
periods presented have been made.
3. ACQUISITION OF SUBSIDIARIES
On June 30, 1997, GreenMan Acquisition Corporation ("GAC"), a
wholly-owned subsidiary of the Company acquired all of the capital stock of BTM
and of BTG, (renamed "GMTM" and "GMTG" respectively), both of which are
wholly-owned subsidiaries of Browning-Ferris Industries, Inc. and are in the
scrap tire collection and processing business. The Company was also granted an
exclusive option to purchase certain assets and agreements of BFI's Ford
Heights, Illinois tire recycling operation which has the capacity to process
between 12 and 15 million tires annually. As a result of the acquisition, the
Company's obligations under the December 14, 1995 Put-or-Pay/Take-or-Pay
agreement for tire chips and Facility Lease were eliminated.
The Company agreed to a purchase price of $5,331,517 for all of the
outstanding capital stock of BTM and BTG of which $650,000 had been previously
paid to BFI as a deposit and the balance of $4,681,517 was financed by a
short-term note, at an interest rate of 10% from BFI to GAC, which loan was
originally due and payable on September 30, 1997. The repayment of such note is
guaranteed by the Company and is secured by all of BTM and BTG's assets and by a
pledge by GAC of all of the capital stock of BTG and BTM. In October 1997, the
Company, GAC and BFI entered into a Forbearance Agreement pursuant to which GAC
agreed to pay $2,000,000 on or before November 6, 1997 and to pay the balance
under the note on or before December 6, 1997. The Company also assumed $99,356
of long term notes payable associated with real estate tax assessments on
property owned by BTM. Amounts are due in semi-annual principal installments of
$15,353 plus interest at 7.29% through the year 2002.
GREENMAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
3. ACQUISITION OF SUBSIDIARIES - (CONTINUED)
The acquisition has been accounted for by the purchase method of
accounting, and accordingly, the net assets and results of operations of GMTM
and GMTG are included in the consolidated financial statements since the date of
acquisition.
The following unaudited proforma financial information summarizes the
consolidated results of operations of the Company and of BTM and BTG as if the
acquisition had occurred at the beginning of fiscal 1997. 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.
Three Months Ended
August, 31, 1996
----------------
Revenue $ 3,079,931
Net Loss (868,322)
Net Loss per Weighted
Average Share ($.17)
4. NET LOSS PER SHARE
Net loss per share is based on the weighted average number of common
shares outstanding during the period.
5. JOINT VENTURE
On August 26, 1997, the Company finalized the formation of a joint
venture ("the joint venture") between the Company and Crumb Rubber Technologies,
Inc. of Jamaica, New York ("CRT"), to collect and process tires in the State of
New York and to market the crumb rubber derived from the tires. The joint
venture will address existing opportunities for larger mesh crumb rubber such as
in rubber mats, ground cover and as a filler in asphalt applications. The
Company will contribute its investment in the cryogenic crumb rubber equipment,
$400,000 and formerly located in Jackson, Georgia into the venture as its
capital contribution while CRT will contribute on its part certain facilities,
equipment, customer contracts, licenses and permits and provide operational and
technical expertise.
Pursuant to the terms of the joint venture agreement, CRT is required
to return $300,000 of equipment deposits previously made by the Company towards
the purchase of additional cryogenic crumb rubber equipment. The Company
received the first $100,000 installment in September 1997. The remaining balance
is to be repaid over a six month period.
6. CONVERTIBLE NOTES PAYABLE
In January 1997, the Company concluded a $1,525,000 offering of 7%
convertible subordinated debentures ("Debentures") and warrants to purchase
762,500 shares of common stock (the "January Offering") at an exercise price of
$1.25 per share. The Debentures are convertible after a sixty day holding period
into shares of common stock at a conversion price equal to the lower of the
closing bid price on the date of the January Offering closing or 70% of the
closing bid price on the date prior to the conversion of such Debentures. The
Debentures automatically convert into shares of common stock one year after
issuance. The net proceeds from the January Offering were approximately
$1,310,000 after deducting commissions and expenses of approximately $214,000.
The Company has recorded a deferred charge of approximately $654,000 associated
with the impact of the 30% discount from market to be realized upon
GREENMAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
6. CONVERTIBLE NOTES PAYABLE -(CONTINUED)
conversion of the debentures. The Company recorded non-cash deferred financing
costs of $75,000 in connection with the issuance of the warrants to purchase
762,500 shares. The Company also recorded non-cash deferred financing costs of
$695,000 in connection with the issuance of warrants to purchase 1,050,000
shares of common stock to the placement agents in accordance with SFAS No. 123.
The deferred charges are being amortized to expense over the estimated life of
the convertible notes.
At August 31, 1997 all Debentures had been converted into 2,493,201
shares of the Company's common stock and all deferred charges had been amortized
to expense. During the quarter ended August 31, 1997, investors from the January
Offering exercised 99,000 warrants resulting in net proceeds to the Company of
$123,750.
In April 1997, the Company concluded a $1,500,000 offering of
convertible notes (the "notes") due eighteen months after closing and warrants
to purchase 300,000 shares of common stock (the "April Offering") at exercise
prices ranging from $.97 to $1.05. The notes are convertible after a sixty day
holding period into shares of common stock at a conversion price equal to the
lower of the average closing bid price on the five trading days preceding the
date of the April Offering closing or 70% of the average closing bid prices on
the five trading days preceding the date of the conversion of such notes. The
note holders will receive 4,000 shares of the Company's common stock upon
conversion in lieu of interest for each $100,000 invested. The net proceeds from
the April Offering were approximately $1,247,000 after deducting commissions and
expenses of approximately $253,000. The Company also issued immediately
exercisable two year warrants to purchase 154,839 shares of common stock at an
exercise price of $.97 per share to the placement agents. The Company recorded a
deferred charge of approximately $643,000 associated with the impact of the 30%
discount from market to be realized upon conversion of the notes. The Company
also recorded deferred financing costs of $64,600 in connection with the
issuance of warrants to purchase 454,839 shares of common stock to the investors
and placement agents in accordance with SFAS No. 123. These deferred charges are
being amortized over the estimated life of the notes. As of August 31, 1997, no
notes had been converted. Pursuant to the terms of the notes, the Company filed
a Registration Statement on Form S-3 in May 1997 to register the shares of
common stock issuable upon conversion of the notes, in payment of interest and
upon the exercise of the warrants to purchase 454,839 shares of common stock.
Effective July 1997, the Company is required to pay the investors 2.5% of their
principal investment per month as a penalty for each month or portion thereof
prior the date the Form S-3 is declared effective. At August 31, 1997 the
Company has recorded $75,000 of additional financing costs pursuant to these
terms. As of October 15, 1997 the Form S-3 had not yet been declared effective
by the Securities and Exchange Commission.
7. NOTES PAYABLE, RELATED PARTIES
During June and July 1997, the Company borrowed an additional $386,000
from four officers of the Company and issued warrants to purchase 77,200 shares
of common stock at exercise prices ranging from $.72 to $.97 per share. The
notes are convertible after a one hundred and twenty day holding period into
shares of common stock at a conversion price equal to the lower of the average
closing bid price on the five trading days preceding the closing or 70% of the
average closing bid price on the five trading days preceding the date of the
conversion of such notes. The Company recognized a deferred charge of $166,002
associated with the impact of the 30% discount from market to be realized upon
conversion and $7,800 of non-cash deferred financing costs in connection with
the issuance to the officers of the warrants to purchase 77,200 shares of common
stock in accordance with SFAS No. 123.
On September 30, 1997 the Company was granted a 15 day extension of the
$1,200,000 convertible note payable due to Palomar Medical Technologies Inc. on
September 30, 1997.
GREENMAN TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
8. CAPITAL LEASES
At August 31, 1997, the Company was five months past due on amounts due
under several injection molding equipment leases. Past due principal payments at
August 31, 1997 amounted to $133,985. Accordingly, the lessor has the right to
demand the payment of all amounts due under the past due lease agreements. The
Company is currently negotiating new payment terms with the lessor for past due
amounts and as of October 15, 1997 has not received any notification of the
lessor's intent to exercise any of the default remedies available. As a result
of the default, the Company has classified all payments due under the affected
leases as current liabilities at August 31, 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following information should be read in conjunction with the
unaudited condensed consolidated financial statements and the notes thereto
included in Item 1 of the Quarterly Report, and the audited consolidated
financial statements and notes thereto and Management's Discussion and Analysis
of Financial Condition and Results of Operations contained in the Company's Form
10-KSB filed for the fiscal year ended May 31, 1997.
OVERVIEW
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 facility also
conducts research and development on the Company's GreenMan Environmental
Materials ("GEM") Stock and tests the use of these materials in the manufacture
of a variety of potential products.
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.
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.
On June 30, 1997, the Company acquired BFI Tire Recyclers of Minnesota,
Inc. and BFI Tire Recyclers of Georgia, Inc., (renamed GreenMan Technologies of
Minnesota, Inc. ("GMTM") and GreenMan Technologies of Georgia, Inc. ("GMTG"),
respectively) which provides the Company access to over 10 million tires
annually. The Company was also granted an exclusive option to purchase certain
assets and agreements of BFI's Ford Heights, Illinois tire recycling operation
which has the capacity to process between 12 and 15 million tires annually. The
acquired operations are in the scrap tire collection and processing business
whereby they charge a fee to dispose of customers' scrap tires and then process
the tires into two inch rubber chips which are then sold as alternative fuel
("TDF" - Tire Derived Fuel) to cement kilns, paper and pulp producers and
electric utilities; or utilized in civil engineering projects such as landfill
construction (leach-bed lining), soil erosion and road stabilization projects.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED AUGUST 31, 1997 COMPARED TO THE THREE MONTHS ENDED
AUGUST 31, 1996
Net sales for the three months ended August 31,1997 were $2,715,330 as
compared to $886,866 for the three months ended August 31, 1996. The increase of
$1,828,464 or 206% is due to the inclusion of revenues from GMTM and GMTG which
collectively totaled $1,661,665. There was also a $150,071 or 36% increase
in contract molding and assembly revenue.
Gross profit for the three months ended August 31,1997 was $733,593 or
27% of net sales as compared to $160,827 or 18% of net sales for the three
months ended August 31, 1996. The improvement in gross profit was primarily due
to the inclusion of GMTM and GMTG operations which averaged 32% of revenues, and
gross profits from DuraWear's operations which generated a 48% gross margin.
Research and development expenditures were $82,315 for the three months
ended August 31, 1997 as compared to $67,085 for the same 1996 period. The
increase is attributable to the Company's continued market and development
efforts in identifying applications for ultra-fine mesh crumb rubber.
Selling, general and administrative expenses were $839,482 for the
three months ended August 31, 1997, or 31% of sales as compared to $1,230,146,
or 139% of sales, for the same 1996 period. The decrease of $390,664 was
primarily attributable to the elimination of certain one-time charges
experienced during the comparable 1996 period. This decrease was offset by the
inclusion of GMTM and GMTG's collective operating expenses of $188,758. During
the quarter ended August 31 1996, the Company initiated a financial public
relations program which resulted in a one time charge of approximately $200,000
and also recorded a $255,070 expense in connection with the issuance of common
stock warrants and options in accordance with SFAS No. 123, "Accounting for
Stock-Based Compensation". The results for the quarter ended August 31, 1996
also reflect $135,231 of costs associated with the Company's recycling operation
which had been operating under limited conditions as the Company refined the
production process of the cryogenic recycling equipment and evaluated the
production capabilities of the facility.
As a result of the foregoing, the operating loss for the three months
ended August 31, 1997 decreased by $948,200 to $188,204 or 7% of sales as
compared to an operating loss of $1,136,404, or 128% of sales for the comparable
1996 period.
Interest and financing costs increased by $807,955 to $903,253 due to
increased borrowings related to the issuance of $3,665,000 in convertible
debentures during fiscal 1997 and an additional $386,000 in fiscal 1998.
Approximately $647,000 of the increase is associated with the impact of
amortizing the 30% discount from market to be realized upon conversion of the
debentures and financing expense amortization associated with the borrowings.
The Company also recognized $75,000 of additional finacing costs associated with
the delay in obtaining registration of the common stock underlying the April
1997 offering.
The Company experienced a net loss of $1,099,742, or $.14 per share for
the quarter ended August 31, 1997 as compared to a net loss of $1,264,980, or
$.25 per share for the quarter ended August 31, 1996.
On August 26, 1997, the Company entered into a joint venture with the
manufacturer of the Company's cryogenic recycling equipment pursuant to which
the equipment was contributed by the Company to the joint venture and will be
relocated from Georgia to New York.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has satisfied its capital requirements
through the sale of common and preferred stock and debt securities to investors,
loans from affiliated and unaffiliated lenders, the acquisition of machinery and
equipment through capital leases and notes payable, and the issuance of common
stock and common stock options and warrants in lieu of cash for services
rendered.
During June and July 1997, the Company borrowed an additional $386,000
from four officers of the Company and issued warrants to purchase 77,200 shares
of common stock at exercise prices ranging from $.72 to $.97 per share. The
notes are convertible after a one hundred and twenty day holding period into
shares of common stock at a conversion price equal to the lower of the average
of the closing bid prices on the five trading days preceding the closing or 70%
of the average of the closing bid prices on the five trading days preceding the
date of the conversion of such notes.
During August 1997, investors from the January Offering exercised
99,000 warrants to purchase common stock at $1.25 per share. An additional
81,000 warrants to purchase common stock were exercised at $1.25 per share in
September 1997.
Pursuant to the terms of the joint venture agreement between the
Company and Crumb Rubber Technologies, Inc. ("CRT"), in September 1997 the
Company received the first of three $100,000 installments towards the refund of
equipment deposits.
At August 31, 1997, the Company had cash of $835,3675, a working
capital deficit of $5,912,934, net capital of $1,021,275 and accumulated losses
of $11,804,675.
Based on the Company's operating plans, management believes that the
available working capital together with revenues from operations,the purchase of
equipment through lease financing arrangements and the successful refinancing of
the BFI short term loan will be sufficient to meet the Company's cash
requirements through the second quarter of fiscal 1998. 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)
refacilitation of the Company's crumb rubber plant 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 refinance the GMTM and GMTG acquisition related short term
loan and and the Company's ability to integrate and manage the operations of
GMTM and GMTG, its recently acquired subsidiaries; (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 it will be successful in integrating
the operations of GMTM and GMTG, 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, 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.
PART II - OTHER INFORMATION
AUGUST 31, 1997
Item 1. Legal Proceedings
There has been no significant changes in legal proceedings
during the quarter ended August 31, 1997.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 -- Statement regarding net loss per share.
Exhibit 27 -- Financial Data Schedule
Exhibit 99 -- Forbearance Agreement between the
Company, GAC and BFI.
(b) Reports on Form 8-K
A report on Form 8-K was filed on July 21, 1997 in connection with the
appointments of Robert H. Davis as Chief Executive Officer of the Company.
A report on Form 8-K was filed on July 15, 1997 describing the
acquisition of BFI Tire Recyclers of Minnesota, Inc. and BFI Tire Recyclers of
Georgia, Inc.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1934, the
Registrant certifies that it has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
By: GreenMan Technologies, Inc.
/s/ Robert H. Davis
-------------------------
ROBERT H. DAVIS
CHIEF EXECUTIVE OFFICER
SIGNATURE TITLE(S) DATE
--------- ------- ----
/s/ Robert H. Davis Chief Executive Officer October 15, 1997
- ------------------- (Principal Executive Officer)
ROBERT H. DAVIS
/s/ Joseph E. Levangie Chief Financial Officer October 15, 1997
- ---------------------- (Principal Financial Officer and
JOSEPH E. LEVANGIE Principal Accounting Officer)
EXHIBIT 11
GREENMAN TECHNOLOGIES, INC.
STATEMENT REGARDING NET LOSS PER SHARE
AUGUST 31, 1997
THREE MONTHS THREE MONTHS
ENDED ENDED
AUGUST 31, 1996 AUGUST 31, 1997
--------------- ---------------
Net loss...................................... $ (1,264,980) $ (1,099,742)
============= =============
Shares used in calculation of loss per share:
Weighted average common shares outstanding 5,076,083 7,775,282
========= =========
Net loss per share............................ $ (.25) $ (.14)
======= =======
EXHIBIT 99
FORBEARANCE AGREEMENT
This Forbearance Agreement ("Agreement") is entered into as of the __ day of
October 1997, by and between GREENMAN ACQUISITION CORP., a Delaware corporation
(the "Maker"), GREENMAN TECHNOLOGIES OF MINNESOTA, INC., a Minnesota corporation
formerly known as BFI Tire Recyclers of Minnesota, Inc. ("GTM"), GREENMAN
TECHNOLOGIES OF GEORGIA, INC., a Georgia corporation formerly known as BFI Tire
Recyclers of Georgia, Inc. (together with GTM "Pledgors"), GREENMAN
TECHNOLOGIES, INC., a Delaware corporation ("Guarantor"), BROWNING-FERRIS
INDUSTRIES OF MINNESOTA, INC., a Minnesota corporation ("BFIM") and
BROWNING-FERRIS INDUSTRIES OF GEORGIA, INC., a Georgia corporation (together
with BFIM "Holders").
RECITALS
A. Maker executed and delivered to Holders that certain Promissory Note
dated June 30, 1997 ("Note") in the principal amount of Four Million
Seven Hundred Fifty Eight Thousand Eight Hundred Thirty Dollars
($4,758,830).
B. The Note is secured by Security Agreements, each dated June 30, 1997 by
Pledgors in favor of Holders, a Pledge Agreement dated June 30, 1997 by
Maker in favor of Holders, and a Guaranty Agreement dated June 30, 1997
by Guarantor in favor of Holders.
C. Such Note, Security Agreement, Pledge Agreement and Guaranty Agreement
were delivered pursuant to a Purchase and Sale Agreement dated June 30,
1997 (the "Purchase Agreement") by and among Maker, Guarantor, Holders
and Browning-Ferris Industries, Inc., a Delaware corporation.
D. The Note, Security Agreement, Pledge Agreement, Guaranty Agreement, and
Purchase Agreement are hereinafter referred to collectively as the
"Documents".
E. The Note is in default and Maker desires that Holders forbear until
December 6, 1997 in the exercise of their rights, powers, benefits and
remedies under the Documents in respect of such default by Maker.
F. Holders have agreed to such forbearance subject to the representations
and covenants contained in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. Forbearance. Maker agrees to make an installment payment of principal
under the Note to Holders in the amount of Two Million Dollars
($2,000,000) in immediately available funds ("Installment") on or
before November 6, 1997. Thereafter, all outstanding principal and
accrued interest under the Note shall be due and payable on or before
December 6, 1997. Holders agree that Holders will not exercise any of
their rights, powers, benefits and remedies arising under the Documents
prior to November 6, 1997 in respect of the default by Maker under the
Note. If Maker pays Holders the Installment on or before November 6,
1997, Holder also agrees that it will not exercise any of its rights,
powers, benefits and remedies arising under the Documents prior to
December 6, 1997 in respect of the default by Maker under the Note. If
such Installment due and payable on or prior to November 6, 1997, is
not paid in full by such date, Holder will be entitled to exercise any
and all of its rights, powers, benefits and remedies arising under the
Documents in respect of the default by Maker under the Note.
2. Post-Closing Adjustment. In the event the Final Working Capital is less
than the Estimated Working Capital (as such terms are defined in the
Purchase Agreement), the outstanding principal balance under the Note
due and payable on December 6, 1997 shall be reduced by such Working
Capital deficiency. No immediately available funds shall accordingly be
due and owing to Maker or Guarantor.
3. Confirmation. The terms, covenants, conditions and warranties contained
in the Documents which are not changed, modified or amended by this
Agreement are unchanged and are hereby ratified, affirmed and held to
be in full force and effect. Makers, Pledgors and the Guarantor jointly
and severally represent and agree that as of the date hereof no fact or
condition exists which would result in any defense, counterclaim or
claim of offset on behalf of Makers, Pledgors or the Guarantor arising
under the Documents. Notwithstanding the foregoing, no provision of
this Agreement shall in any manner affect (a) Makers' rights, if any,
to deliver a substitute promissory note pursuant to Section 1.05 of the
Purchase Agreement, (b) the rights of the parties hereto with the
respect to the litigation entitled Dodger Enterprise Co. and Don E.
Grell v. Josh Smith, et al and (c) Holders' obligations to correct
defects in title, if any, to real or personal property.
4. Miscellaneous.
(i) Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original but all of
which together shall constitute one and the same instrument.
(ii) Amendment and Waiver. this Agreement shall not be modified or
amended except by a writing executed by the party against whom
the modified or amended term or provision is sought to be
enforced. Neither a failure by Holders to exercise any of
their options hereunder, nor failure to enforce their rights
or seek any remedies upon any default shall effect or
constitute a waiver of Holders' right to enforce such right,
or to seek remedy with respect to that default or to any prior
or subsequent default. The remedies provided in this Agreement
shall be cumulative and shall not in any way abridge, modify,
or preclude any other rights or remedies to which Holders may
be entitled either at law or in equity.
(iii) Governing Law. This Agreement shall be construed in accordance
with, and governed by, the laws of the State of Massachusetts.
(iv) Savings Clause. If any one or more of the provisions contained
in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect
any other provisions of this Agreement but this Agreement
shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
(v) Captions. The Captions of the Sections and Paragraphs of this
Agreement are for convenience of reference only and shall not
be utilized in construing the terms of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
GREENMAN ACQUISITION CORP. GREENMAN TECHNOLOGIES, INC.
By: ______________________________ By: __________________________________
Title: ___________________________ Title: ______________________________
GREENMAN TECHNOLOGIES OF BROWNING-FERRIS INDUSTRIES
MINNESOTA, INC. OF MINNESOTA, INC.
By: ______________________________ By: __________________________________
Title: ___________________________ Title: ______________________________
GREENMAN TECHNOLOGIES OF BROWNING-FERRIS INDUSTRIES
GEORGIA, INC. OF GEORGIA, INC.
By: ______________________________ By: __________________________________
Title: ___________________________ Title: ______________________________
2
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