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
For the fiscal year ended May 31, 1998
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANG
ACT OF 1934
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 of (I.R.S. Employer Identification No.)
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 (781) 224-2411
Securities registered pursuant to Section 12 (b) of the Exchange Act:
Title of each class Name of each exchange on which registered
Common Stock, $ .01 par value Boston Stock Exchange
(Title of each class)
Class A Common Stock Purchase Warrants Boston Stock Exchange
(Title of each class)
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)
<PAGE>
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, 1998 were $11,011,519.
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, 1998 was $5,136,228.
As of September 10, 1998, 6,566,865 shares of Common Stock of issuer were
outstanding. The aggregate market value of the shares of Common Stock was
$6,960,877.
Transitional Small Business Disclosure Format (check one) Yes [ ] No [X]
2
<PAGE>
PART 1
Item 1. Description of Business
General
GreenMan Technologies, Inc. (the "Company" or "GreenMan") was initially
formed to develop, manufacture and sell "environmentally friendly" plastic and
thermoplastic rubber feedstocks, rubber parts and products manufactured using
recycled materials and/or are themselves partially or wholly recyclable.
Although successful in the technical development of commercial and proprietary
products through May 31, 1997, the Company determined during fiscal 1998 that
concentration on raw materials management would be more profitable in the near
term. Accordingly, most valued-added initiatives involving product
development/manufacturing were curtailed in order to concentrate on operations
that would yield profits and enhance shareholder value. The Company currently
operates two business segments, the recycling operations located in Jackson,
Georgia; Savage, Minnesota and St. Francisville, Louisiana and the industrial
material operation located in Birmingham, Alabama. Until closure in January
1998, the Company also operated an injection molding operation (the "Molding
operation") located in Malvern, Arkansas.
History
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's wholly-owned subsidiary, DuraWear Corporation ("DuraWear")
located in Birmingham, Alabama 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 as wholly owned subsidiaries,
all of the capital stock of BFI Tire Recyclers of Minnesota, Inc. ("BTM") and
BFI Tire Recyclers of Georgia, Inc. ("BTG"), both of which were 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"), respectively.
On November 19, 1997, the Company acquired as a wholly owned
subsidiary, all of the capital stock of Cryopolymers, Inc., ("Cryopolymers") a
processor of scrap tire chips into crumb rubber located in St. Francisville,
Louisiana. Cryopolymers has been renamed GreenMan Technologies of Louisiana,
Inc. ("GMTL") and together with GMTM and GMTG will constitute the Company's tire
recycling operations (the "Recycling operations").
Recent Developments
In January 1998, the Company closed its Molding operations in order to
eliminate continued operating losses. The Molding operations were previously
engaged in providing injection molding manufacturing services to customer
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. Management believes that third
party contract manufacturers could provide the Company with equivalent injection
molding capability at equal or less cost on an as-needed basis should there be a
necessity to meet market demands in the future.
On March 12, 1998, the stockholders of the Company approved an amendment
to the Company's Certificate of Incorporation to effect a reverse split (the
"Reverse Split") of the Company's Common Stock, pursuant to which each five
shares of Common Stock then outstanding were automatically converted into one
share, effective March 23, 1998. All share and per share data in this Form
10-KSB have been adjusted to give retroactive effect of the Reverse Split .
In June 1998, the Company signed a letter of intent to acquire all of
the capital stock of Mac's Tire Recyclers ("Mac's") a privately-held tire
recycler located in Saltillo, Mississippi. In addition to scrap tire processing
capacity of more than 4 million tires per year, Mac's also operates a
state-permitted disposal site on about 40 acres of land. The Company began
operating the Mac's facility effective, June 1, 1998 and anticipates completing
a purchase and sale agreement that is effective on that date.
3
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In June 1998, the Board of Directors of the Company adopted a change of
its fisal year from May 31 to September 30. The Company's next fiscal year will
end on September 30, 1998.
In August 1998, GMTL's facility was damaged by a fire. The Company
believes that the damage will be adquately covered by insurance and is still
assessing the full extent of the damage and developing plans for replacing
equipment and re-establishing its crumb rubber capabilities. The Company is
currently purchasing crumb rubber to supplement its internal needs for modified
asphalt.
In September 1998, the Company acquired all of the scrap tire
collection and processing assets of United Waste Service, Inc. ("United"), a
wholly owned subsidiary of Republic Services, Inc.. The Company paid $4,050,000
for the acquired assets in the form of $850,000 in cash and $3,200,000 of
preferred stock. The preferred stock is convertible into the Company's common
stock beginning in February 2001 based upon the trailing 15 day average closing
bid (as reported by NASDAQ) prices prior to the conversion date. The acquired
assets are located in Lawrenceville, Georgia and Batesburg, South Carolina and
collectively, the two operations process over 5 million tires annually.
Recycling Operations
The Company's Recycling operations collect, transport and process scrap
tires into feedstock for tire derived fuel ("TDF"), civil engineering projects
and/or for further processing into crumb rubber. GMTM and GMTG are paid a fee to
collect, transport and process scrap tires from two sources: (1) local, regional
and national tire stores (termed "current generation tires") and (2) abatement
sites where governmental entities intervene to clean up unwanted tire piles. The
tires are processed (shredded) into two-inch chips for sale to consumers that
use the chips for TDF (alternative fuel), civil engineering (e.g., septic field
or landfill cap drainage to replace aggregate) or for further processing into
crumb rubber. The acquisition of GMTL marked the Company's entry into fine mesh
crumb rubber manufacturing. The crumb rubber is sold to consumers for use in
manufacturing and/or for polymer modification to be used in the asphalt
industry. The Recycling operations processed over 10 million tires during fiscal
1998.
DuraWear
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, 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
Recycling Operation
In April 1996, the Company signed a perpetual license agreement with a
privately-held R&D company for the exclusive world-wide rights and license to
use its proprietary additive technology for co-mingling (mixing or blending) of
dissimilar plastics and rubber. The technically successful production of a 34
gallon GEM-Stock trash container in May 1997, validated the Company's position
that products made using GEM-Stock have properties that are comparable to those
products made incorporating virgin rubber or plastic. The additional investment
required to achieve commercialization of the product, however, was determined to
be excessive and, in January 1998, production was discontinued and the Malvern,
Arkansas plant closed.
The Company conducted extensive market research over the past several
years and concluded that significant market opportunities could exist for crumb
rubber to be used as chemical feedstocks or for incorporation in products. Crumb
rubber can be produced either through the use of mechanical grinding methods
("ambiently") or through the use of cryogenic (freezing) methods
("cryogenically") using a feedstock of tire chips. There is also research being
conducted in the areas of rubber modified asphalt and the re-incorporation of
crumb rubber into new automobile and truck tires. The Company believes that the
largest areas of growth are in applications where fine mesh crumb rubber is used
to enhance the characteristics of existing product formulations, thereby
commanding premium pricing. As a result, a decision was made to focus Company
resources on addressing these "high value added" crumb rubber opportunities.
This redirection in strategic market targeting, along with certain limitations
of the Company's previous cryogenic recycling equipment to produce sufficient
quantities of fine mesh crumb rubber, resulted in the Company redeploying the
cryogenic recycling equipment into a joint venture with the original equipment
manufacturer in August 1997 and the subsequent acquisition of GMTL in
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November 1997. The joint venture is addressing existing opportunities for larger
mesh crumb rubber such as in rubber mats and ground cover. The acquisition of
GMTL provided the Company with a cryogenic capability from which to produce
ultra fine crumb rubber and to perfect a modification process for application in
the asphalt industry. On June 3, 1998 the Company received certification of its
crumb rubber modification technology by the Federal Highway Administration under
an exclusive commercialization agreement. The certified product will be
field-tested and is anticipated to be commercialized in fiscal 1999.
The acquisition of GMTM and GMTG provides the Company access to over 10
million tires annually. Both companies are in the scrap tire collection and
processing business whereby they charge a fee to collect and process customers'
scrap tires and then process the tires into two inch rubber chips which are then
sold as TDF to cement kilns, pulp and paper producers and electric utilities, or
utilized in civil engineering projects such as landfill construction or road
stabilization projects. The Company also utilizes a portion of the rubber chip
flow for the production of ultra-fine mesh crumb rubber at its GMTL facility.
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 pulp and paper, 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).
Polymer Composites. DuraWear distributes two polymer composites for
abrasion-wear applications. Xylethon(R) has a high molecular weight cellular
chain structure which makes it a highly dense plastic material. This alloyed
matrix structure provides 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.
MANUFACTURING/PROCESSING
Recycling Operations
GMTM and GMTG collectively have the capacity to process between 15 and
17 million tires annually and processed approximately 10 million tires in fiscal
1998. The method used to process tires is a series of commercially available
shredders that sequentially reduce tires from whole-size to two-inch chips.
Bead-steel is removed magnetically yielding a "95% wire-free chip". The process
recovers about 65% of the incoming tire with about 35% being disposed as
processing residual. The Company is evaluating technology which would recycle
the processing residual into saleable components.
The Recycling operation's plant in St. Francisville, Louisiana utilizes
a two-inch rubber tire chip as feedstock to cryogenically produce crumb rubber.
The Company refined the production process of its cryogenic recycling equipment
and evaluated the production capabilities of the facility in order to maximize
the facility's ultra fine mesh crumb rubber. The operation also developed the
process to chemically modify crumb rubber for application in the asphalt
industry. The raw material (two-inch chip) is supplied from internal and
external sources thereby assuring continuous supply at competitive pricing.
5
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DuraWear
DuraWear manufactures its ceramic products at its facility located on
five acres of land in Birmingham, Alabama. DuraWear's polymer composites and
other products are manufactured by third parties on a contract-basis. DuraWear's
polymer composites are currently produced to DuraWear's specifications under a
confidentiality agreement by two suppliers; the number of alternative suppliers
is limited. Management has identified several alternative suppliers for
DuraWear's polymer composites in the event there are any adverse changes in its
existing relationship. 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 these suppliers
could sever their relationships with DuraWear at any time. 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 Recycling Operations
The Company believes it will have access to a supply of tires sufficient
to meet the Company's requirements for TDF, civil engineering and crumb rubber
for the foreseeable future. GMTM supplements its in-house tire collection fleet
with subcontracted haulers in order to collect scrap tires. GMTG exclusively
utilizes subcontracted haulers to collect scrap tires to be processed. GMTG and
GMTM collectively own and operate key pieces of heavy equipment to provide
services to governmental agencies seeking contractors to clean up tire piles.
Specialized equipment for unique contracts is rented on an as-needed basis. GMTM
and GMTG collectively, are capable of processing between 15 and 17 million tires
annually. 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. Accordingly, there is more than
ample supply of non-recycled tires to meet the Company's growth plan and to
utilize the collective processing capacities.
DuraWear
DuraWear obtains on a purchase order (rather than a contract basis) its
primary raw materials, consisting of alumina and nickel oxides, from a number of
sources. The price and other terms upon which such materials are obtained
therefore are also subject to change over which DuraWear has no control.
Management believes that alternate sources of such raw materials are available
on an economically competitive basis, 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 February 1998, the Company entered into an exclusive technology
commercialization agreement with the U.S. Department of Transportation/ Federal
Highway Administration ("USDOT/FHWA"), whereby the Company will work with major
asphalt manufacturers and contractors to incorporate patented USDOT/FHWA binder
technology -- together with the Company's ultra-fine crumb rubber -- to create a
high-performance, cost-effective asphalt blend. Designated "Chemically Modified
Crumb Rubber Asphalt" (CMCRA), this advanced material formulation addresses
on-going highway problems of: aging, rutting, low-temperature cracking, fatigue
cracking, moisture sensitivity, and adhesion between asphalt and aggregate
material. These six performance factors are among the most common causes of
pavement failure. The new technology that GreenMan is helping to commercialize
provides improvements to all these factors. The Company's research and
development efforts at the St. Francisville facility resulted in FHWA
certification on June 3, 1998.
CUSTOMERS
Recycling Operations
There were no customers which accounted for 10% or more of consolidated
net sales during the fiscal years ended 1997 and 1998. The Recycling operations
have a very diversified collection and product sales program which minimizes
their vulnerability to the loss of any one customer. The diverse base of
customers includes Goodyear, Firestone, Continental, Michelin, Cooper Tire and
many local and regional tire outlets.
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DuraWear
DuraWear did not have any customers which accounted for 10% or more of
consolidated net sales during the fiscal years ended 1997 and 1998. DuraWear's
customers include Georgia Pacific, Boise Cascade, Container Corp. of America,
Champion International, Longview Fiber Company, Union Camp, and various power
utilities and pulp an paper producers 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 individual
customer would not have a materially adverse effect on the business of the
Company as a whole.
Sales and Marketing
The Recycling operations utilize in-house sales staffs for securing new
accounts and marketing processed materials. This strategy maximizes revenue and
concentrates sales/marketing efforts on highly focused initiatives.
Sales/marketing personnel are highly trained in the tire industry and in
industries where processed materials are consumed. 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.
DuraWear markets its products primarily to industries where material
movement typically causes abrasion resulting in wear of the process equipment.
Applications for DuraWear's products span many industries such as pulp and
paper, mining, mineral processing, coal handling, grain storage and
transportation, cement and fertilizers.
COMPETITION
Recycling Operations
Historically, companies in the tire collection and processing industry
have generated significant quantities of tires to satisfy the growing needs for
TDF to be sold as alternative fuel to cement kilns, pulp and paper producers or
electric utilities or utilized in civil engineering projects such as landfill
construction or road stabilization projects. There are also several companies
that break down the tire material into its elemental components ("Pyrolysis")
and sell the components individually. Few, if any companies are completely
vertically integrated with operations that encompass tire collection through end
product manufacture. The Company believes that the limited success experienced
by these companies is due to industry disaggregation among small and
under-capitalized companies and limited success in identifying and producing a
strategy for recycling tires. Consequently, the Company firmly believes there is
an opportunity for industry consolidation and strategic value-added vertical
integration. Research being conducted in the areas of rubber modified asphalt
and the re-incorporation of crumb rubber into automobile and truck tires
exemplifies the opportunities.
As a result of the Company's acquisition of GMTM and GMTG in June 1997
and GMTL in November 1997, the Company has positioned itself as a leader in tire
recycling operations. Collectively, the Company's current operations process
approximately 5% of tires currently generated in the U.S.
DuraWear
DuraWear has several competitors for its products, many of whom have
greater 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 on a life cycle costing basis, DuraWear products offer customers
significant cost advantages, notwithstanding DuraWear's products' higher prices.
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GOVERNMENT REGULATION
The Company's tire recycling and manufacturing activities may be subject
to extensive and rigorous government regulation designed to protect the
environment (as is the case with other tire recycling processes such as
pyrolysis). 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. The establishment and operation of plants for
tire recycling, however, are subject to obtaining numerous permits and complying
with environmental and other government regulations. The process of obtaining
required regulatory approvals can be lengthy and expensive. 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
Company keeps abreast of changed or new regulations for immediate
implementation.
PROTECTION OF INTELLECTUAL PROPERTY RIGHTS AND PROPRIETARY RIGHTS
None of the equipment or machinery that the Company currently uses or
intends to use in its 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. The Company has acquired
exclusive perpetual world-wide rights to a proprietary additive technology which
in the future could 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 has exclusively licensed several proprietary
modification technologies for modifying crumb rubber for use in the asphalt
industry. 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.
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, 1998, the Company had approximately 104 employees.
Neither the Company nor its subsidiaries are a party to any collective
bargaining agreements, and each consider the relationship with their employees
to be satisfactory.
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Item 2. Description of Properties
The Company leases approximately 2,700 square feet of corporate
administrative office space in Lynnfield, Massachusetts at a monthly rental of
$3,238 under a three year lease. In June 1998, the Company renegotiated the
lease to include an additional 680 square feet and extended the lease term for
five years at $4,366 per month.
GMTM owns two industrial buildings and an office building in Savage,
Minnesota, located on approximately 8 acres of land zoned for industrial
expansion. GMTG owns an industrial building and an office building in Jackson,
Georgia, located on approximately 21 acres of land zoned for industrial
expansion. Both locations have adequate space to accommodate expansion if
required to meet ongoing growth.
GMTL occupies approximately 145,000 square feet of combined
industrial/manufacturing space in St. Francisville, Louisiana and is currently a
tenant at will. There is adequate space available to expand capacity. In August
1998, GMTL's facility was damaged by a fire. The Company believes that the
damage will be adquately covered by insurance and is still assessing the full
extent of the damage and developing plans for replacing equipment and
reestablishing its crumb rubber capabilities.
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. In June 1998, the court ruled in favor of the Company and dismissed
the case.
Item 4. Submission of Matters to a Vote of Security Holders
The Company conducted a Special Meeting in lieu of an Annual Meeting of
Stockholders on March 12, 1998. The matters considered at the meeting were (1)
election of six members of the Board of Directors; (2) approval of amendments to
the Company's Certificate of Incorporation and By-Laws to create three classes
of directors to serve for staggered terms; (3) approval of an amendment to the
Company's Certificate of Incorporation to effect a reverse split of the
Company's Common Stock, $.01 par value per share (the "Common Stock"), pursuant
to which each five shares of Common Stock then outstanding will be converted
into one share; (4) 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 20,000,000 to 50,000,000; and (5) a proposal to ratify the
selection of the firm of Wolf & Company, P.C. as independent auditors for the
fiscal year ending May 31, 1998. The results of each vote were as follows:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non Votes
--- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Vote 1 - Election of six (6) members of the Board of
Directors 1,863,341 -- 7,637 --
Vote 2 - Amendment to the Certificate of Incorporation
and By-Laws to create three classes of directors
to serve for staggered terms 830,073 22,333 11,463 1,007,110
9
<PAGE>
<CAPTION>
Broker
For Against Abstain Non Votes
--- ------- ------- ---------
<S> <C> <C> <C> <C> <C>
Vote 3 - Amendment to the Certificate of Incorporation to
effect a reverse split of Common Stock pursuant
to which each five shares of Common Stock then
outstanding will be converted into one share 1,619,412 89,062 18,740 143,764
Vote 4 - Amendment to the Certificate of Incorporation
to increase the authorized number of shares of
Common Stock to 50,000,000 1,750,946 104,418 15,614 --
Vote 5 - Proposal to ratify the selection of the firm of
Wolf & Company, P.C. as independent auditors
for the fiscal year ending May 31, 1998 1,821,220 11,292 38,466 --
</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. 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 1997
Quarter Ended August 31, 1996 $20.65 $11.25 $6.90 $.65
Quarter Ended November 30, 1996 16.10 6.70 3.90 1.25
Quarter Ended February 29, 1997 8.15 5.00 1.55 .65
Quarter Ended May 31, 1997 10.00 3.45 1.40 .45
<CAPTION>
Class A Common Stock
Common Stock Purchase Warrants
------------ -----------------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal 1998
Quarter Ended August 31, 1997 $8.91 $2.81 $1.72 $0.65
Quarter Ended November 30, 1997 8.28 4.53 1.72 0.63
Quarter Ended February 28, 1998 4.22 1.41 0.94 0.31
Quarter Ended May 31, 1998 4.44 0.94 0.59 0.16
Fiscal 1999
Quarter Ended August 31, 1998 $2.44 $0.94 $0.38 $0.16
</TABLE>
10
<PAGE>
On September 10, 1998, the closing bid price of the Common Stock was
$1.06 and the closing bid price for the Class A Common Stock Purchase Warrants
was $.31.
As of September 10, 1998, the Company estimated that the approximate
number of stock holders of record of the Company's Common Stock were 2,500.
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.
There are currently in excess of 20 registered market makers of the
Company's securities and the Company 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. (the "Company" or "GreenMan") was initially
formed to develop, manufacture and sell "environmentally friendly" plastic and
thermoplastic rubber feedstocks, rubber parts and products manufactured using
recycled materials and/or are themselves partially or wholly recyclable.
Although successful in the technical development of commercial and proprietary
products through May 31, 1997, the Company determined in fiscal 1998 that
concentration on raw materials management would be more profitable in the near
term. Accordingly, most valued-added initiatives involving product
development/manufacturing were curtailed in order to concentrate on operations
that would yield profits and enhance shareholder value. The Company currently
operates two business segments, the recycling operations located in Jackson,
Georgia; Savage, Minnesota and St. Francisville, Louisiana and the industrial
material operation located in Birmingham, Alabama. Until closure in January
1998, the Company also operated an injection molding operation (the "Molding
operation") located in Malvern, Arkansas. The consolidated financial schedules
of the Company have been restated to reflect the net operating results of the
molding operation as a separate line item for all periods presented.
The Company's wholly-owned subsidiary, DuraWear Corporation ("DuraWear")
located in Birmingham, Alabama 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 as wholly owned subsidiaries,
all of the capital stock of BFI Tire Recyclers of Minnesota, Inc. ("BTM") and
BFI Tire Recyclers of Georgia, Inc. ("BTG"), both of which were 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"), respectively.
On November 19, 1997, the Company acquired as a wholly owned
subsidiary, all of the capital stock of Cryopolymers, Inc., ("Cryopolymers") a
processor of scrap tire chips into crumb rubber located in St. Francisville,
Louisiana. Cryopolymers has been renamed GreenMan Technologies of Louisiana,
Inc. ("GMTL") and together with GMTM and GMTG will constitute the Company's tire
recycling operations ( the "Recycling operations").
Information contained or incorporated by reference in this document
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which statements can be identified by
the use of forward-looking terminology such as "may," "will," "would," "can,"
"could," "intend," "plan," "expect," "anticipate," "estimate" or "continue" or
the negative thereof or other variations thereon or comparable terminology. The
following matters constitute cautionary statements identifying important factors
with respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.
Results of Operations
Year ended May 31, 1998 Compared to Year ended May 31, 1997
Net sales for the year ended May 31, 1998 were $11,011,519 as compared
to $2,084,220 for the year ended May 31, 1997. The increase of $8,927,299 is
primarily due to the inclusion of revenues from the Company's tire recycling
operations which were acquired in June 1997 from Browning-Ferris Industries,
Inc.. The tire recycling operations experienced over 10% internal growth in
business as compared to same period in 1997.
Gross profit for the year ended May 31, 1998 was $3,516,757 or 32% of
net sales as compared to $644,971 or 31% of net sales for the year ended May 31,
1997. The slight improvement in gross profit was primarily due to the inclusion
of GMTM and GMTG operations.
11
<PAGE>
Research and development expenditures were $675,252 for the year ended
May 31, 1998 as compared to $319,726 for the same period in 1997. The Company
accelerated its crumb rubber research and development efforts during fiscal 1998
through the acquisition of Cryopolymers in November 1997. This facility operated
during the year as the Company's research and development operations for crumb
rubber production and applications research and was instrumental in obtaining
Federal Highway Administration certification in June 1998 of the Company's crumb
rubber modification technology for use in the asphalt industry. Approximately
$428,000 of the current year's research and development expenditures were
attributable to these efforts.
Selling, general and administrative expenses were $4,524,488 for the
year ended May 31, 1998 as compared to $3,721,223 for the same 1997 period. The
results reflect increased headcount and operations, acquisition and integration
costs including approximately $90,000 of costs associated with the Company's
former Georgia rubber recycling operation which was integrated into the Georgia
tire recycling operations during fiscal 1998.
As a result of the foregoing, the operating loss for the year ended May
31, 1998 decreased by 63% or $2,712,995 to $1,682,983 compared to an operating
loss of $4,395,978 for the comparable period in 1997. The decrease reflects the
elimination of non-recurring fiscal 1997 charges and a five-fold increase in
gross profit for the year ended May 31, 1998. Approximately 40% of the operating
loss is attributable to the Company's crumb rubber research and development
efforts.
Interest and financing costs increased by $870,395 to $2,886,386 due to
costs associated with the issuance of convertible debentures during fiscal 1997
and fiscal 1998 and the inclusion of approximately $435,000 of interest
associated with the acquisition of GMTM and GMTG. Approximately $1,782,000 of
the 1998 expense is associated with the impact of amortizing the discount from
market to be realized upon conversion of the debentures and financing expense
amortization associated with the borrowings. The Company also recognized
$210,500 of additional financing costs pursuant to the terms of the certain
debentures as result of the delay in registering under the Securities Act of
1933 the common stock issuable upon conversion of the debentures.
The Company experienced a loss from continuing operations of $4,564,032
for the year ended May 31, 1998 as compared to $6,417,385 for the year ended May
31, 1997.
The Company reported a $660,954 loss from discontinued operations for
the year ended May 31, 1998 as compared to a $589,094 loss from discontinued
operations for the same 1997 period. The Company also reported a $1,100,000
estimated loss on the disposal of the discontinued operations.
The Company experienced a net loss of $6,324,986, or $2.44 per share
for the year ended May 31, 1998 as compared to a net loss of $7,006,479, or
$6.24 per share for the year ended May 31, 1997.
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.
Loans from Related Company
During the period of February 1996 to June 1996 the Company borrowed
$1,700,000 in aggregate from Palomar Medical Technologies, Inc. ("Palomar") a
company that was related to a director of the Company. These notes payable bore
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) $500,000 on September 30, 1996,
$700,000 on January 1, 1997 and $500,000 on June 1, 1997, respectively. In
addition, the Company granted warrants to purchase 40,000 shares of the
Company's common stock at an exercise price of $19.40 per share and warrants to
purchase 20,000 shares of the Company's common stock at an exercise price of
$20.00 per share. In September 1996, the Company repaid $500,000 of the amounts
owed the lender.
On December 30, 1996, the Company renegotiated the remaining principal
balance of $1,200,000 due Palomar, under the 10% notes payable. The outstanding
principal balance was converted into a 10% secured convertible note payable (the
"Note"), due July 1, 1997 and convertible into the Company's common stock, at
the holder's option, at a conversion price of $5.00 per share. The Note was
secured by an interest in the Company's cryogenic tire recycling equipment. The
Company also reduced the exercise price of the 60,000 warrants granted in
connection with this borrowing
12
<PAGE>
to $5.65 per share. The Company recorded a non cash expense of $36,000 in
connection with the reduction in the exercise price in accordance with SFAS No.
123.
As of May 31, 1998, Palomar had converted its entire $1,200,000 note
payable and $164,741 of accrued interest into 297,257 shares of common stock
pursuant to the terms of the convertible note payable. A portion of the
conversion included a one time 15% reduction in the conversion price as a an
inducement to convert the balance due under the Note.
Crumb Rubber Equipment
During the year ended May 31, 1996, the Company purchased a cryogenic
recycling line for $1,500,000 and placed an additional $300,000 deposit towards
the purchase of an additional cryogenic recycling equipment line.
During the first half of fiscal 1997, the Company refined the production
process of the cryogenic recycling equipment and evaluated the production
capabilities of the facility. Based upon the cryogenic recycling equipment's
capacity to produce ultra-fine mesh crumb rubber in the amounts required, the
Company decided to redeploy the cryogenic recycling equipment into a joint
venture with Crumb Rubber Technologies, Inc. ("CRT"), the original equipment
manufacturer.
In August 1997, the Company finalized the formation of the joint
venture between the Company and 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 addresses existing opportunities for larger mesh crumb rubber such as in
rubber mats, ground cover and as a filler in asphalt applications. The Company
has contributed a portion of its investment in the cryogenic crumb rubber
equipment ($400,000) which was formerly located in Jackson, Georgia into the
venture as its capital contribution while CRT contributed certain facilities,
equipment, customer contracts, licenses and permits and will provide operational
and technical expertise. Pursuant to the terms of the joint venture agreement,
CRT has returned $100,000 of equipment deposits previously made by the Company
and is currently determining a payment schedule for the remaining $200,000. The
joint venture began operating on a limited basis in April 1998 and has not yet
generated significant revenues.
Effective October 1997, the Company entered into a fifteen-year
cryogenic equipment lease agreement. Under the terms of the agreement, GMTL will
pay $25,500 per month rental plus an additional rent of $100,000 per year for
the first six years of the agreement to be payable in the Company's common stock
with the number of shares determined using the closing bid price of the common
stock on each December 31. The lease has been classified as a capital lease at
May 31, 1998 with an equipment value of $2,771,876.
Loans From Officers
In May 1996, the Company borrowed $325,000 from Maurice Needham, the
Company's Chairman. This unsecured note payable bears interest at prime plus
1.5% 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. From September 1996
to May 1997 the Company borrowed collectively, an additional $624,300 from Mr.
Needham and Joseph Levangie, the Company's Vice Chairman and repaid $345,000 in
aggregate during January 1997 and May 1997.
On May 30, 1997, the Company refinanced the remaining principal balance
and accrued interest plus accrued business expenses owed to these officers and
issued each officer 10% convertible notes, due October 30, 1998 in the amount of
$640,000 and warrants to purchase 25,600 shares of common stock at an exercise
price of $4.40 per share. The notes are convertible after 120 days into shares
of common stock at a conversion price equal to the lower of the average closing
bid prices on the five trading days preceding May 30, 1997 or 70% of the average
closing bid prices on the five trading days preceding the date of the conversion
of such notes.
During June and July 1997, the Company borrowed an additional $386,000
from Messrs. Needham, Levangie, Robert Maust, the Company's Vice President of
Operations and another officer of the Company and issued warrants to purchase
15,440 shares of common stock at exercise prices ranging from $3.60 to $4.85 per
share. The notes are convertible after a one hundred and twenty day holding
period into shares of common stock at a conversion prices 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. On March 24, 1998, the
officers converted $1,026,000 of principal and $75,711 of accrued interest into
1,260,193 shares of unregistered common stock.
Debenture Offerings
January 31, 1997 Debentures
13
<PAGE>
In January 1997, the Company concluded a $1,525,000 offering of 7%
convertible subordinated debentures ("Debentures") and immediately exercisable,
one year warrants to purchase 152,500 shares of common stock (the "January
Offering") at an exercise price of $6.25 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 net proceeds from the January Offering
were approximately $1,310,000 after deducting commissions and expenses of
approximately $214,000.
As of May 31, 1998, all Debentures had been converted into 502,181
shares of the Company's common stock and all deferred charges had been amortized
to expense. Investors from the January Offering have exercised 36,000 warrants
during the year ended May 31, 1998 resulting in net proceeds to the Company of
$225,000.
April 1997 Notes
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 60,000 shares of common stock (the "April Offering") at exercise
prices ranging from $4.85 to $5.25. 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 prices 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 the Notes. The
Note holders receive 800 shares of the Company's common stock 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. Approximately $650,000 of the proceeds were paid towards
the acquisition of GMTM and GMTG. The Company also issued immediately
exercisable two year warrants to purchase 30,968 shares of common stock at an
exercise price of $4.85 per share to the placement agents. During the year ended
May 31, 1998, all Notes had been converted into 1,089,449 shares of common stock
including 49,813 shares associated with accrued interest.
December 1997 Debentures
In December 1997, the Company entered into securities purchase
agreements (the "Debenture Agreements") with two investors (the "Debenture
Holders") and pursuant thereto, the Company issued debentures in the aggregate
principal amount of $1,600,000 (the "Initial Debentures") and immediately
exercisable two-year warrants to purchase 32,000 shares of Common Stock at an
exercise price of $3.13 per share. Each Initial Debenture bears interest at 8%
and is due December 15, 2000. The Initial Debentures are convertible at the
election of the holder at any time commencing upon the earlier to occur of (i)
the effective date of the registration statement covering the shares issuable
upon conversion of the Initial Debentures, or (ii) 60 days following the date of
issuance at a conversion price equal to the lower of the average closing bid
prices on the five trading days preceding the date of the closing of the
December Offering or 75% of the average closing bid prices on the five trading
days preceding the date of the conversion of the Debentures. The Initial
Debentures automatically convert into shares of common stock upon maturity. The
Company also issued immediately exercisable two year warrants to purchase 32,000
shares of common stock at an exercise price of $3.13 per share to the placement
agent. As of May 31, 1998, $240,433 of the Initial Debentures and $7,127 of
accrued interest have been converted into 98,984 shares of common stock. During
the period of June to July 1998, an additional $594,664 of Initial Debentures
and $25,867 of accrued interest were converted into 466,454 shares of common
stock.
The net proceeds from the December Offering were approximately
$1,350,000 after deducting commissions and expenses of approximately $250,000.
The Company used $750,000 of the proceeds to paydown the outstanding loan
payable to BFI for the purchase of GMTM and GMTG.
Pursuant to the Debenture Agreements, the Debenture Holders have agreed
to purchase up to an additional $2,000,000 in the aggregate of debentures
("Additional Debentures") in multiple tranches during 12 months following the
effective date of the registration statement covering the shares issuable upon
conversion of the Initial Debentures. Each tranche shall be for the purchase of
between $75,000 and $175,000 in Additional Debentures and may be completed at
the election of the Company subject to certain conditions. Each Additional
Debenture shall bear similar terms to the Initial Debentures including the
issuance of warrants per Additional Debenture to both the Debenture Holders and
the placement agent. The Additional Debentures are convertible at the holders
option, within two days of issuance. Pursuant to the terms of the Debenture
Agreements, the Company is obligated to borrow at least $1,000,000 in Additional
Debentures or the Company must provide the Debenture Holders and placement
agents warrants to purchase an additional 40,000 shares of Common Stock in the
aggregate. The Company has issued $250,000 of Additional Debentures during the
period of June to July 1998.
Acquisition of GMTM and GMTG
14
<PAGE>
On June 30, 1997, the Company acquired as wholly owned subsidiaries,
all of the capital stock of BTM and of BTG, (renamed "GMTM" and "GMTG"
respectively), both of which were wholly-owned subsidiaries of Browning-Ferris
Industries, Inc. ("BFI") and whose business is scrap tire collection and
processing. The Company agreed to a pay $5,331,516 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 $4,681,516 was financed by a short-term note, at
an interest rate of 10% from BFI. The note was originally due and payable on
September 30, 1997. In return for payments in November and December 1997 the
Company obtained an extension of the due date until February 1998. In February
1998, the Company secured a $5.0 million asset-based credit facility and used
approximately $3.9 million to repay the balance due on the notes plus interest.
On February 5, 1998, GMTM and GMTG collectively secured a $5.0 million
asset-based credit facility (the "Credit Facility") from Heller Financial Inc.
("Heller"). The Credit Facility consisted of : (i) $1,400,000 of three year term
notes secured by the real estate of GMTM and GMTG, payable in monthly principal
installments of $23,333 plus interest at prime plus 1.75% (10.25% at May 31,
1998) with a balloon payment of $583,380 due in February 2001; (ii) $1,900,000
of three year term notes secured by the machinery and equipment of GMTM and
GMTG, payable in monthly principal installments of $31,667, plus interest at
prime plus 1.75% (10.25% at May 31, 1998) with a balloon payment of $791,620 due
in February 2001 and (iii) a working capital line of credit of up to $1,700,000
secured by the eligible accounts receivable, as defined, of GMTM and GMTG. The
line of credit bears interest at prime plus 1.5% (10% at May 31, 1998).
The Company has granted Heller a security interest in the capital stock
of GMTM and GMTG in addition to providing a Company guarantee and the personal
guarantee of three officers of the Company. The Credit Facility contains certain
covenants including minimum net worth and certain restrictions on intercompany
cash transactions. The Company is either in compliance with the terms of the
Credit Facility or has received a waiver of compliance at May 31, 1998.
Acquisition of GMTL Inc.
On November 19, 1997, the Company acquired all of the outstanding
common stock of Crypolymers, Inc. (renamed "GMTL") a privately-held crumb rubber
producer located in St. Francisville, Louisiana. The purchase price consisted of
(1) $774,000 in shares of common stock (153,402 shares); (2) warrants to
purchase 240,000 shares of common stock exercisable commencing April 1, 1998 for
period of five years at prices ranging from $15.00 to $35.00 per share; and (3)
additional warrants to purchase 20,000 shares of common stock exercisable at
$4.85 per share for a period of five years and vesting over a two-year period.
The Company has determined the total purchase price to be $775,000 based upon
the value of the common stock and a $31,000 value ascribed to the warrants to
purchase 260,000 shares of common stock.
Working Capital
At May 31, 1998, the Company had cash of $180,963, a working capital
deficit of $2,147,915, net capital of $3,136,228 and accumulated losses of
$17,029,919.
Based on the Company's operating plans management believes that the
available working capital together with revenues from operations, the equity
financing commitment secured in December 1997, the purchase of equipment through
lease financing arrangements and the remaining availability under the Heller
Credit Facility, will be sufficient to meet the Company's cash requirements
through fiscal 1999. The Company expects that additional financing may be
required after this time in order to fund continued growth. 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)
the production of crumb rubber in commercial quantities at a price that will be
competitive in the market; (ii) the impact of the Company's ongoing merger and
acquisition activities; (iii) the Company's ability to reestablish or relocate
the operations of GMTL subsequent to the August 1998 fire; (iv) the Company's
ability to reach satisfactory settlement with the remaining creditors of its
closed injection molding operation; (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 production of 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.
15
<PAGE>
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.
Environmental Liability
The Company has no known material environmental violations or
assessments.
Recent Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. Accounting principles generally require all recognized revenue, expenses,
gains and losses to be included in net income. Various FASB statements, however,
require companies to report certain changes in assets and liabilities as a
separate component of the equity section of the balance sheet such as unrealized
gains and losses on available for sale securities, foreign currency items and
minimum pension liability adjustments. These items along with net income are
components of comprehensive income.
It is required under SFAS No. 130 that all items of comprehensive
income are to be reported in a "financial statement" that is displayed with the
same prominence as other financial statements. Additionally, SFAS No. 130
requires the classification of items comprising other comprehensive income by
their nature, and the accumulated balance of other comprehensive income must be
displayed separately from retained earnings and additional paid in capital in
the equity section of the balance sheet. Management will adopt this new
disclosure requirement beginning with the next fiscal year.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 is effective
for financial statements for fiscal years beginning after December 15, 1997.
SFAS No. 131 establishes standards for the way that public companies report
information about operating segments in annual and interim financial statements
and selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments.
SFAS No. 131 also requires companies to report information about the way
that operating segments were determined, the product and services provided by
the operating segments, differences between the measurements used in reporting
segment information and those used by the Company in its general purpose
financial statements, and changes in the measurement of segment amounts from
period to period. Management has not yet determined the impact that adoption of
SFAS No. 131 will have on its financial statement presentation.
Item 7. Financial Statements
For information required with respect to this Item 7, see "Consolidated
Financial Statements" on pages F-1 through F-24 of this report.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
16
<PAGE>
Item 9. Directors, Executive Officers and Key Employees
<TABLE>
<CAPTION>
The Directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
<S> <C> <C>
Maurice E. Needham ............................... 58 Chairman of the Board of Directors
Joseph E. Levangie ............................... 53 Vice Chairman; Director
Robert H. Davis .................................. 55 Chief Executive Officer; President; Director
Charles E. Coppa ................................. 35 Acting Chief Financial Officer; Treasurer; Assistant Secretary
Robert D. Maust .................................. 60 Vice President of Operations; Director
Lew F. Boyd ...................................... 53 Director
Jagruti Oza ...................................... 37 Director
</TABLE>
Each director is elected for a period of one year at the Company's
annual meeting of stockholders and serves until his or her 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. In fiscal
1998, the Board of Directors approved a $2,500 per board meeting fee to be paid
to each outside director commencing with the March 12, 1998 meeting. Each
outside director also participates in the Non-Employee Director Stock Option
Plan.
The Company has established an Audit Committee consisting of Ms. Oza,
Mr. Boyd and Mr. Levangie and a Compensation Committee consisting of Messrs.
Needham, Levangie and Boyd.
MAURICE E. NEEDHAM has been Chairman of the Company since June 1993.
From June 1993 to July 21, 1997, Mr. Needham also served as Chief Executive
Officer of the Company. He also serves as Chairman of Electronic Packaging
Interconnect Corporation ("EPIC"), an electronics contract manufacturer since
October 1997. He previously served as Chairman of Dynaco Corporation, a
manufacturer of flexible printed circuit boards which he founded in 1987. 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.
JOSEPH E. LEVANGIE has been Vice Chairman of the Company since March
1998 and a Director of the Company since its inception. From June 1993 until
March 1998 he served as Chief Financial Officer, Treasurer and Secretary of the
Company. 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 Nexar, Inc., publicly traded company.
ROBERT H. DAVIS has been Chief Executive Officer and a Director of the
Company since July 1997. Prior to joining the Company, Mr. Davis served as Vice
President of Recycling for Browning-Ferris Industries, Inc. of Houston, Texas
("BFI") since 1990. As an early leader of BFI's recycling division, Mr. Davis
grew that operation from startup to $650 million per year in profitable
revenues. A 25-year veteran of the recycling industry, Mr. Davis has also held
executive positions with Fibres International, Garden State Paper Company, and
SCS Engineers, Inc.
CHARLES E. COPPA has served as the Company's Acting Chief Financial
Officer, Treasurer and Assistant Secretary since March 1998. From October 1995
to March 1998, he served as Corporate Controller. Mr. Coppa 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.
17
<PAGE>
ROBERT D. MAUST has been Vice President of Operations and a Director
since July 1997 and was President of the Company's Recycling Operation from
December 1996 to July 1997 and a Director of the Company since July 30, 1997.
Prior to joining the Company, Mr. Maust was Vice President for BFI's tire
recycling operations from July 1991 to 1996 and was instrumental in growing that
operation from 5 million tires/year to 22 million tires/year over a five year
period. An entrepreneur/manager with over ten years experience in tire
recycling, Mr. Maust was President of Maust Tire Recycling from 1988 to 1991,
when he sold the business to BFI and joined BFI as Vice President.
LEW F. BOYD has been a Director of the Company since August 1994. Mr.
Boyd is the founder and since 1985 has been the Chief Executive Officer of
Coastal International, Inc., an international business development and executive
search firm, specializing in the energy and environmental sectors. Previously,
Mr. Boyd had been Vice President/General Manager of the Renewable Energy
Division of Butler Manufacturing Corporation and had served in academic
administration at Harvard and Massachusetts Institute of Technology.
JAGRUTI OZA has been a Director of the Company since March 12, 1998.
Ms. Oza is Vice President - Strategy and Acquisitions for VNU Marketing
Information Services, a subsidiary of VNU, a $3 billion international publishing
and marketing information service company. Previously, Ms. Oza was Vice
President - Corporate Planning for Public Service Enterprise Group ("PSEG") from
March 1995 to March 1998, a holding company with $6 billion in annual revenues
whose businesses include electric and gas utility, international power
development and retail energy services. From 1991 to 1995, Ms. Oza held various
managerial positions at PSEG including Regional Manager - Fossil Generation,
overseeing the operation of three power plants. Prior to joining PSEG, Ms. Oza
was a management consultant with Bain and Company (from 1987 to 1990) providing
strategic management services to multinational companies in the chemical
consumer products and retail service industries.
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 Chief
Executive Officer and its Vice President of Operations. 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 (1) Securities
Name and Ended Other Annual Underlying All Other
Principal Position May 31 Salary Bonus Compensation Options (3) Compensation (2)
------------------ ------ ------- ------ ------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Davis ............ 1998 $ 188,000 $ -- $ 7,740 415,000 $ --
Chief Executive Officer 1997 -- -- -- -- --
1996 -- -- -- -- --
Robert D. Maust ............ 1998 $ 125,000 $ -- $ 11,940 170,000 $ 19,000
Vice President 1997 57,089 -- -- -- --
1996 -- -- -- -- --
18
<PAGE>
- ----------
<FN>
(1) Represents payments made to or on behalf of Messrs. Davis and Maust in fiscal 1997 and 1998 for health insurance and auto
allowances.
(2) Represents payments made to Mr. Maust for relocation expenses.
(3) Represents options granted in July 1997 and March 1998 for Mr. Davis and options granted in December 1996 and March 1998 to Mr.
Maust. Does not include 20,000 warrants to purchase shares of common stock granted to Mr. Davis pursuant to a stock purchase
agreement and 6,400 warrants to purchase shares of common stock granted to Mr. Maust pursuant to the terms of loans made to the
Company by Mr. Maust.
</FN>
</TABLE>
The following table sets forth information concerning the value of
unexercised options as of May 31, 1998 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, 1998.
<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, 1998 (1) at May 31, 1998 (2)
--------------------------- -------------------
Name Exercisable Unexercisable Exercisable Unexercisable
<S> <C> <C> <C> <C>
Robert H. Davis ............ -- 415,000 $ -- $ 588,750
Robert D. Maust ............ 6,000 164,000 $ -- $219,800
- ----------
<FN>
(1) There were no options exercised by any of the executive officers named in the Summary Compensation Table during the twelve
months ended May 31, 1998. The options granted to the executive officers became exercisable commencing July 17, 1998 in the
case of Mr. Davis and December 30, 1997 in the case of Mr. Maust at an annual rate of 20% of the underlying shares of Common
Stock.
(2) Assumes that the value of shares of Common Stock is equal to $2.66 per share, which was the closing bid price of the Company's
Common Stock as listed by NASDAQ on May 31, 1998.
</FN>
</TABLE>
Employment Agreements
The Company has employment agreements with five officers which provide
for base salaries, participation in employee benefit plans and severance
payments for termination without cause.
Stock Option Plan
The Company's 1993 Stock Option Plan, the "Plan", was established to
provide stock options to employees, officers, directors and consultants.
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. In June 1996,
the Company's stockholders approved an increase to the number of shares
authorized under the Plan to 200,000 shares. On June 24, 1998, the Board of
Directors approved an increase to the number of shares authorized under the Plan
to 2,000,000 shares, subject to shareholder approval.
19
<PAGE>
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, 1998, there were 1,274,500 options granted and
outstanding under the Plan of which 41,940 options were exercisable at prices
ranging from $0.45 to $5.65.
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 60,000 shares of Common Stock for
issuance and as of May 31, 1998, options to purchase 8,000 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 2,000 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 2,000 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, 1998: (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, 1998, there were issued and outstanding 5,858,019
shares of Common Stock.
Name (1) Number of Shares Percentage of
Beneficially Owned (2) Class
---------------------- -------------
Maurice E. Needham (3)................. 969,880 16.42%
Joseph E. Levangie (4) ................. 477,893 8.09%
Robert D. Maust (5)..................... 207,556 3.54%
Robert H. Davis (6)..................... 139,111 2.36%
Charles E. Coppa (7).................... 59,000 1.01%
Lew F. Boyd (8)......................... 27,667 *
Jagruti Oza (9)......................... 4,000 *
All officers and directors as a group 1,885,107 31.30%
(7 persons) ......................
- -----------------------------------------
* 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.
(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.
20
<PAGE>
(3) Includes 48,040 shares of Common Stock issuable pursuant to immediately
exercisable stock options and warrants. Also includes 59,556 shares of
Common Stock and 10,000 shares of Common Stock issuable pursuant to
immediately exercisable outstanding warrants owned by Mr. Needham's wife.
Does not include 650,500 shares of Common Stock issuable pursuant to
outstanding stock options that are not currently exercisable.
(4) Includes 51,300 shares of Common Stock issuable pursuant to immediately
exercisable stock options and warrants. Does not include 575,200 shares of
Common Stock issuable pursuant to outstanding stock options that are not
currently exercisable.
(5) Includes 12,400 shares of Common Stock issuable pursuant to immediately
exercisable stock options and warrants. Does not include 164,000 shares of
Common Stock issuable pursuant to outstanding stock options that are not
currently exercisable.
(6) Includes 28,000 shares of Common Stock issuable pursuant to immediately
exercisable stock options and warrants. Does not include 407,000 shares of
Common Stock issuable pursuant to outstanding stock options that are not
currently exercisable.
(7) Includes 9,000 shares of Common Stock issuable pursuant to immediately
exercisable stock options and warrants. Does not include 130,000 shares of
Common Stock issuable pursuant to outstanding stock options that are not
currently exercisable.
(8) Includes 11,000 shares of Common Stock issuable pursuant to immediately
exercisable stock options and warrants. Does not include 121,000 shares of
Common Stock issuable pursuant to outstanding stock options that are not
currently exercisable.
(9) Includes 4,000 shares of Common Stock issuable pursuant to immediately
exercisable stock options. Does not include 3,000 shares of Common Stock
issuable pursuant to outstanding stock options that are not currently
exercisable.
Item 12. Certain Relationships and Related Transactions
Stock Issuances; Stock Options; Warrants
On May 30, 1997, the Company granted Mr. Needham and Mr. Levangie, two
officers of the Company, warrants to purchase 22,200 and 3,400 shares of common
stock, respectively, pursuant to the terms of loans made to the Company. The
warrants have an exercise price of $4.40 per share.
During June and July 1997, the Company granted Messrs. Needham, Levangie,
Robert Maust, the Company's Vice President of Operations and another officer of
the Company, warrants to purchase 15,440 shares, in aggregate of common stock
pursuant to the terms of loans made to the Company. The warrants have exercise
prices ranging from $3.60 to $4.85 per share.
In March 1998, Messrs. Davis, Levangie, Coppa, and Boyd purchased an
aggregate of 334,334 unregistered shares of Common Stock and were granted
immediately exercisable, two-year warrants to purchase 74,000 shares of Common
Stock pursuant to the terms of the March 1998 Private Offering (See Note 14).
The warrants are exercisable at $1.75 per share.
Loans; Personal Guarantees
In May 1996, the Company borrowed $325,000 from Maurice Needham, the
Company's Chairman. This unsecured note payable bears interest at prime plus
1.5% 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. From September 1996
to May 1997 the Company borrowed collectively, an additional $624,300 from Mr.
Needham and Joseph Levangie, the Company's Vice Chairman and repaid $345,000 in
aggregate during January 1997 and May 1997.
On May 30, 1997, the Company refinanced the remaining principal balance
and accrued interest plus accrued business expenses owed to these officers and
issued each officer 10% convertible notes, due October 30, 1998 in the amount of
$640,000 and warrants to purchase 25,600 shares of common stock at an exercise
price of $4.40 per share. The notes are convertible after 120 days into shares
of common stock at a conversion price equal to the lower of the average closing
bid prices on the five trading days preceding May 30, 1997 or 70% of the average
closing bid prices on the five trading days preceding the date of the conversion
of such notes.
During June and July 1997, the Company borrowed an additional $386,000 from
Messrs. Needham, Levangie, Robert Maust, the Company's Vice President of
Operations and another officer of the Company and issued warrants to purchase
15,440 shares of common stock at exercise prices ranging from $3.60 to $4.85 per
share. The notes are convertible after a one hundred and twenty day holding
period into shares of common stock at a conversion prices 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
21
<PAGE>
the closing bid prices on the five trading days preceding the date of the
conversion of such notes. On March 24, 1998, the officers converted $1,026,000
of principal and $75,711 of accrued interest into 1,260,193 shares of
unregistered common stock.
In January 1998, the Company advanced $104,000 to an officer of the
Company under an 8.5% secured loan agreement with both principal and interest
due January 2001. The loan is secured by 111,111 shares of the Company's common
stock owned by the officer.
Messrs. Needham, Levangie and Davis have personally guaranteed the $5.0
million asset-based credit facility that was provided by Heller Financial Inc.
in February 1998.
All transactions, including loans, between the Company and its officers,
directors, principal stockholders, and their affiliates are 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 10-KSB. 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.
(6) 3.5 -- Certificate of Amendment to the Certificate of Incorporation of GreenMan Technologies, Inc.
(8) 3.6 -- 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.
*10.5 -- 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 -- Intentially Omitted.
*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.
22
<PAGE>
*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.
23
<PAGE>
**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.
(1) 10.42 -- Promissory Note issued in June 1996 by GreenMan Technologies, Inc. to Palomar
Medical Technologies, Inc.
(1) 10.43 -- Common Stock Purchase Warrant issued in June 1996 to Palomar Medical
Technologies, Inc.
(1) 10.44 -- Form of Offshore Stock Subscription Agreement dated September 16, 1996 between
GreenMan Technologies, Inc. and certain foreign investors.
(2) 10.45 -- Promissory Note issued September 2,1996 by GreenMan Technologies, Inc. to Maurice E. Needham.
(2) 10.46 -- Promissory Note issued September 25, 1996 by GreenMan Technologies, Inc. to Maurice E. Needham.
(2) 10.47 -- Promissory Note issued October 25, 1996 by GreenMan Technologies, Inc. to Joseph E. Levangie.
(2) 10.48 -- Promissory Note issued November 27, 1996 by GreenMan Technologies, Inc. to Maurice E. Needham.
(4) 10.49 -- 10% Secured Convertible Promissory Note, issued December 31, 1996, by GreenMan Technologies,
Inc. to Palomar Medical Technologies, Inc.
(4) 10.50 -- Security Interest, dated December 31, 1996, issued by GreenMan Technologies, Inc. to Palomar
Medical Technologies, Inc.
(3) 10.51 -- Form of Subscription Agreement, dated January 1997, issued by GreenMan Technologies,
Inc. to various investors.
(3) 10.52 -- Form of 7% Convertible Debenture, dated January 1997, issued by GreenMan Technologies,
Inc. to various investors.
(3) 10.53 -- Form of Common Stock Purchase Warrant, dated January 1997, issued by GreenMan
Technologies, Inc. to various investors.
(6) 10.54 -- Employment Agreement between the Company and Robert D. Maust.
(5) 10.55 -- Form of Securities Purchase Agreement between the Company and various investors in
connection with the April 1997 Offering of Convertible Notes due October 1998 and Warrants.
(5) 10.56 -- Form of Registration Rights Agreement between the Company and various investors in
connection with the April 1997 Offering of Convertible Notes due October 1998 and Warrants.
(5) 10.57 -- Form of Convertible Notes due October 1998.
(5) 10.58 -- Form of Common Stock Purchase Warrant.
(6) 10.59 -- Letter from Palomar Medical Technologies, Inc. to the Company extending the maturity date
of the December 1996 Note.
(6) 10.60 -- Form of Securities Purchase Agreement between the Company and Messrs. Needham and Levangie
dated May 30, 1997.
(6) 10.61 -- Form of Convertible Note due October 1998 issued by the Company and Messrs. Needham and
Levangie on May 30, 1997.
24
<PAGE>
(6) 10.62 -- Form of Warrant issued by the Company to Messrs. Needham and Levangie on May 30, 1997.
(7) 10.63 -- Forebearance Agreement between the Comapny, GAC and BFI
(8) 10.64 -- Act of sale of Common Stock of Cryopoymers, Inc. between Messer Griesheim Inductries,
Inc. and GreenMan Technologies, Inc.
(8) 10.65 -- Agreement of Settlement and Release between Messer Griesheim Inductries, Inc. and
GreenMan Technologies, Inc.
(8) 10.66 -- Act of sale of Common Stock of Cryopoymers, Inc. between Cryopolymers Leasing,
Inc. and GreenMan Technologies, Inc.
(8) 10.67 -- Act of sale of Common Stock of Cryopoymers, Inc. between Cryopolymers Management
Inc. and GreenMan Technologies, Inc.
(8) 10.68 -- Equipment Lease between Cryopolymers Leasing, Inc. and GreenMan Technologies, Inc.
(8) 10.69 -- Letter from Palomare Medical Technologies, Inc. to the Company extending the
maturity date of the December 1996 Note
(8) 10.70 -- Form of Securities Purchase Agreement between the Company and various investors
in connection with the December 1997 Offering of Convertible Notes due December
2000 and Warrants.
(8) 10.71 -- Form of Registration Rights Agreement between the Company and various investors
in connection with the December 1997 Offering of Convertible Notes due December
2000 and Warrants.
(8) 10.72 -- Form of Convertible Notes due December 2000
(8) 10.73 -- Form of Common Stock Purchase Warrant
(9) 10.74 -- Loan and Security Agreement by and among GreenMan Technologies of Minnesota, Inc.
("GMTM"), GreenMan Technologies of Georgia, Inc. ("GMTG") and Heller Financial Inc. ("Heller").
(9) 10.75 -- Promissory Note - Real Estate issued by GMTM and GMTG in favor of Heller.
(9) 10.76 -- Promissory Note - Equipment issued by GMTM and GMTG in favor of Heller.
(9) 10.77 -- Form of Stock Pledge and Security Agreement delivered by the Company and GreenMan
Acquisition Corp. to Heller.
(9) 10.78 -- Form of Guaranty delivered by the Company and certain officers of the Company in favor of Heller.
***11.1 -- Statement Regarding Computation of Earnings Per Share.
***23.1 -- Consent of Wolf & Company, P.C. dated September 14, 1998.
***27.1 -- Financial Data Schedule
- --------
<FN>
* 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 or the Form 10-KSB for the Year Ended
May 31, 1996 and incorporated herein by reference.
*** Filed as an Exhibit to the Company's Form 10-KSB on September 15, 1998 and incorporated herein by reference.
(1) Filed as an Exhibit to the Company's Form 10-QSB for the Quarter Ended August 31,1996, and incorporated herein by reference.
25
<PAGE>
(2) Filed as an Exhibit to the Company's Form 10-QSB for the Quarter Ended November 30, 1996, and incorporated herein by reference.
(3) Filed as an Exhibit to the Company's Form 8-K dated January 29, 1997 and incorporated herein by reference.
(4) Filed as an Exhibit to the Company's Form 10-QSB for the Quarter Ended February 28, 1997, and incorporated herein by reference.
(5) Filed as an Exhibit to the Company's Form 8-K dated May 5, 1997 and incorporated herein by reference.
(6) Filed as an Exhibit to the Company's From 10-KSB for the year ended May 31, 1998, as amended.
(7) Filed as an Exhibit to the Company's Form 10-QSB for the Quarter Ended August 31,1997, and incorporated herein by reference
(8) Filed as an Exhibit to the Company's Form 10-QSB for the Quarter Ended November 30, 1997 and incorporated herein by reference
(9) Filed as an Exhibit to the Company's Form 10-QSB for the Quarter Ended February 28, 1998 and incorporated herein by reference
</FN>
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
GreenMan Technologies, Inc.
Index to Consolidated Financial Statements
Page
<S> <C>
Independent Auditors' Report F-2
Consolidated Balance Sheets as of May 31, 1997 and 1998 F-3
Consolidated Statements of Loss for the Years Ended May 31, 1997 and 1998 F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
May 31, 1997 and 1998 F-5
Consolidated Statements of Cash Flows for the Years Ended May 31, 1997 and 1998 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
<PAGE>
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 subsidiaries as of May 31, 1997 and 1998 and the
related consolidated statements of loss, changes in stockholders' equity and
cash flows for the years ended May 31, 1997 and 1998. 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 subsidiaries at May 31, 1997 and 1998 and the results of
their operations and cash flows for the years ended May 31, 1997 and 1998 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
August 7, 1998, except for Note 19 as to which the date is September 4, 1998.
F-2
<PAGE>
<TABLE>
<CAPTION>
GreenMan Technologies, Inc.
Consolidated Balance Sheet
May 31, May 31,
1997 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................................... $ 104,193 $ 180,963
Accounts receivable, trade, less allowance for doubtful accounts of $23,772 and
$63,737 as of May 31, 1997 and May 31, 1998 ................................... 550,644 1,475,064
Inventory (Note 5) ............................................................ 553,688 328,578
Other current assets .......................................................... 204,155 392,119
------------ ------------
Total current assets ..................................................... 1,412,680 2,376,724
------------ ------------
Property and equipment, net (Notes 10 and 12) ...................................... 4,921,043 9,874,079
------------ ------------
Other assets:
Equipment deposits (Note 8) ................................................... 800,000 200,000
Acquisition deposit (Note 2) .................................................. 650,000 --
Deferred financing costs (Note 9) ............................................ 1,198,899 441,465
Deferred loan costs (Note 10) ................................................. -- 286,218
Goodwill, net (Note 2) ........................................................ 415,398 460,552
Investment in joint venture (Note 8) ......................................... -- 400,000
Other (Note 7) ................................................................ 387,510 468,504
------------ ------------
3,451,807 2,256,739
------------ ------------
$ 9,785,530 $ 14,507,542
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible notes payable,related party (Note 11) ............................. $ 1,200,000 $ --
Notes payable, related party (Note 11) ........................................ 58,829 24,371
Notes payable, current portion (Note 10) ..................................... 37,910 1,053,676
Accounts payable (Note 3) ..................................................... 815,631 1,515,371
Accrued expenses, other (Note 3) .............................................. 1,270,682 1,717,599
Obligations under capital leases, current (Note 12) ........................... 1,045,726 213,622
------------ ------------
Total current liabilities ................................................ 4,428,778 4,524,639
Convertible notes payable (Note 9) ............................................ 2,200,000 1,359,567
Convertible notes payable, related parties (Note 11) .......................... 640,000 --
Notes payable, related party, non-current portion (Note 11) .................. 24,371 --
Notes payable,non-current portion (Note 10) .................................. 474,678 3,062,283
Obligations under capital leases (Note 12) .................................... 894,238 2,424,825
------------ ------------
Total liabilities ........................................................ 8,662,065 11,371,314
------------ ------------
Commitments and contingencies (Notes 13 and 19)
Stockholders' equity (Notes 2, 9, 11, 12 and 14):
Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued .... -- --
Common stock, $.01 par value, 20,000,000 shares authorized; 1,374,659
and 5,858,019 shares issued and outstanding at May 31, 1997 and May 31, 1998 .. 13,747 58,580
Additional paid-in capital .................................................... 11,814,651 20,107,567
Accumulated deficit ........................................................... (10,704,933) (17,029,919)
------------ ------------
Total stockholders' equity ............................................... 1,123,465 3,136,228
------------ ------------
$ 9,785,530 $ 14,507,542
============ ============
See accompanying notes to consolidated financial statements.
F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GreenMan Technologies, Inc.
Consolidated Statements of Loss
Years Ended May 31,
1997 1998
------------ ------------
<S> <C> <C>
Net sales .................................................. $ 2,084,220 $ 11,011,519
Cost of sales .............................................. 1,439,249 7,494,762
------------ ------------
Gross profit ............................................... 644,971 3,516,757
------------ ------------
Operating expenses:
Research and development .............................. 319,726 675,252
Selling, general and administrative ................... 3,721,223 4,524,488
Impairment loss (Note 8) .............................. 1,000,000 --
------------ ------------
Total operating expenses ......................... 5,040,949 5,199,740
------------ ------------
Operating loss ............................................. (4,395,978) (1,682,983)
------------ ------------
Other income (expense):
Interest and financing costs (Notes 9, 10, 11 and 12) . (2,015,971) (2,886,366)
Other, net ............................................ (5,436) 5,317
------------ ------------
Other (expense), net ............................. (2,021,407) (2,881,049)
------------ ------------
Loss from continuing operations ............................ (6,417,385) (4,564,032)
------------ ------------
Discontinued operations (Note 3):
Loss from discontinued operations ..................... (589,094) (660,954)
Loss on disposal of discontinued operations ........... -- (1,100,000)
------------ ------------
(589,094) (1,760,954)
------------ ------------
Net loss ................................................... $ (7,006,479) $ (6,324,986)
============ ============
Loss from continuing operations per share - basic (Note 1) . $ (5.72) $ (1.76)
Loss from discontinued operations per share - basic (Note 1) (0.52) (0.26)
Loss on disposal of discontinued operations - basic (Note 1) -- (0.42)
------------ ------------
Net loss per share - basic (Note 1) ........................ $ (6.24) $ (2.44)
============ ============
Weighted average shares outstanding ........................ 1,122,788 2,596,776
============ ============
See accompanying notes to consolidated financial statements.
F-4
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
GreenMan Technologies, Inc.
Consolidated Statements of Changes In Stockholders' Equity
Years Ended May 31, 1997 and 1998
(Notes 2, 9, 11, 12 and 14)
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance May 31, 1996 ........................................... 1,015,216 $ 10,152 $ 7,224,128 $ (3,698,454) $ 3,535,826
Compensation expense related to warrants issued to non-
employees under SFAS No. 123 ................................. -- -- 646,203 -- 646,203
Sale of common stock ........................................... 109,000 1,090 705,370 -- 706,460
Shares issued on exercise of stock options ..................... 480 5 331 -- 336
Compensation expense related to warrants issued in January
1997 convertible debt offering under SFAS No. 123 ............ -- -- 770,000 -- 770,000
Fair value of conversion discount on convertible notes payable
issued in January 1997 ....................................... -- -- 654,000 -- 654,000
Shares issued on conversion of notes payable ................... 249,963 2,500 821,519 -- 824,019
Compensation expense related to warrants issued in April 1997
convertible debt offering under SFAS No. 123 ................. -- -- 64,600 -- 64,600
Fair value of conversion discount on convertible notes payable
issued in April 1997 ......................................... -- -- 643,000 -- 643,000
Compensation expense related to warrants issued in May 1997
to investors under SFAS No. 123 .............................. -- -- 11,500 -- 11,500
Fair value of conversion discount on convertible notes payable
issued in May 1997 ........................................... -- -- 274,000 -- 274,000
Net loss for year ended May 31, 1997 ........................... -- -- -- (7,006,479) (7,006,479)
----------- -------- ------------ ------------ -----------
Balance, May 31, 1997 .......................................... 1,374,659 13,747 11,814,651 (10,704,933) 1,123,465
Shares issued upon conversion of notes payable and accrued
interest ..................................................... 2,998,101 29,981 4,967,060 -- 4,997,041
Fair value of warrants issued in June and July 1997 convertible
debt offering under SFAS No. 123 ............................. -- -- 7,800 -- 7,800
Fair value of conversion discount on convertible notes payable
issued in June and July 1997 ................................. -- -- 166,000 -- 166,000
Shares issued on exercise of stock warrants .................... 36,000 360 224,640 -- 225,000
Shares issued for purchase of GMTL.............................. 153,402 1,534 742,466 -- 744,000
Fair value of warrants issued for the purchase of GMTL
under SFAS No. 123 ........................................... -- -- 31,000 -- 31,000
Fair value of warrants issued in December 1997 convertible
debt offering under SFAS No. 123 ............................. -- -- 32,000 -- 32,000
Fair value of conversion discount on convertible notes payable
issued in December 1997 ...................................... -- -- 533,000 -- 533,000
Shares issued pursuant to capital lease agreement .............. 33,333 333 99,667 -- 100,000
Sale of common stock ........................................... 1,257,734 12,577 1,487,423 -- 1,500,000
Shares issued on exercise of stock options ..................... 4,790 48 1,860 -- 1,908
Net loss for year ended May 31, 1998 ........................... -- -- -- (6,324,986) (6,324,986)
----------- -------- ------------ ------------ -----------
Balance, May 31, 1998 .......................................... 5,858,019 $ 58,580 $ 20,107,567 $(17,029,919) $ 3,136,228
=========== ======== ============ ============ ===========
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
GreenMan Technologies, Inc.
Consolidated Statements of Cash Flows
Years Ended May 31,
-------------------
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................................................... $(7,006,479) $(6,324,986)
Adjustments to reconcile net loss to net cash
used for operating activities:
Impairment loss ................................................................ 1,000,000 --
Amortization of deferred financing costs ....................................... 1,685,201 1,746,234
Allowance for uncollectible note receivable .................................... 150,000 --
Depreciation and amortization .................................................. 555,300 1,313,454
Common stock warrants and options issued for services .......................... 646,203 --
Loss on disposal of discontinued operations .................................... -- 1,100,000
(Increase) decrease in assets:
Accounts receivable ....................................................... 54,611 486,914
Inventory ................................................................. (28,409) 269,901
Loan receivable, related party ............................................ 500,000 --
Other current assets ...................................................... 38,452 172,279
Increase (decrease) in liabilities:
Accounts payable .......................................................... 96,861 202,468
Accrued expenses .......................................................... 590,364 553,661
----------- ----------
Net cash used for operating activities ............................... (1,717,896) (480,075)
----------- ----------
Cash flows from investing activities:
Acquisition deposit ............................................................ (650,000) --
Purchase of property and equipment ............................................. (637,944) (1,146,177)
Proceeds on disposal of property and equipment.................................. -- 810,000
Refund of equipment deposits.................................................... -- 100,000
Cash acquired upon purchase of GMTL............................................. -- 172,064
Deferred loan costs............................................................. -- (322,000)
Decrease (increase) in other assets ............................................ 14,425 (246,547)
----------- ----------
Net cash used for investing activities .................................... (1,273,519) (632,660)
----------- ----------
Cash flows from financing activities:
Net proceeds from convertible note payable ..................................... 2,557,019 1,350,000
Proceeds from notes payable .................................................... 46,550 3,511,379
Repayment of notes payable ..................................................... (149,259) (4,989,869)
Net advances under line of credit............................................... -- 279,309
Proceeds from notes payable - related parties .................................. 860,000 386,000
Repayment of notes payable - related parties .................................. (893,950) (58,829)
Principal payments on obligations under capital leases ......................... (184,720) (1,015,393)
Net proceeds on exercise of common stock options and warrants................... 336 226,908
Net proceeds on the sale of common stock ....................................... 706,460 1,500,000
----------- -----------
Net cash provided by financing activities ................................. 2,942,436 1,189,505
----------- -----------
Net (decrease) increase in cash ..................................................... (48,979) 76,770
Cash and cash equivalents at beginning of year ...................................... 153,172 104,193
----------- -----------
Cash and cash equivalents at end of year ............................................ $ 104,193 $ 180,963
=========== ===========
(Continued)
F-6
<PAGE>
<CAPTION>
GreenMan Technologies, Inc.
Consolidated Statements of Cash Flows
(Concluded)
Years Ended May 31,
-------------------
1997 1998
----------- -----------
<S> <C> <C>
Supplemental cash flow information:
Machinery and equipment acquired under capital leases .......................... $ 993,062 $ 2,771,876
Common stock issued upon conversion of notes payable and accrued interest ...... 825,000 4,997,041
Common stock issued pursuant to capital lease agreement......................... -- 100,000
Value of conversion discounts and warrants issued in connection with convertible
notes payable .................................................................. 2,417,100 738,800
Interest paid .................................................................. 232,987 672,996
</TABLE>
Supplemental Schedule of Noncash Investing and Financing Activities:
On June 30, 1997, the 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 141,394
-----------
Fair value of net assets acquired 5,331,516
Acquisition deposit (650,000)
-----------
Note payable issued $ 4,681,516
===========
On November 19, 1997, Company purchased all of the capital stock of
Cryopolymers, Inc. as follows:
Fair value of assets acquired $ 1,016,597
Fair value of liabilities assumed 341,597
-----------
Fair value of net assets acquired 675,000
Common stock issued (744,000)
Value ascribed to warrants issued under SFAS No. 123 (31,000)
-----------
Excess of cost over fair value of net assets $ 100,000
===========
During the year ended May 31, 1998, $100,000 of equipment deposits was
reclassified to property, plant and equipment and $400,000 was reclassified to
investment in joint venture.
In connection with the discontinued operations, the Company transferred
equipment with a net book value of $477,000 and related capital lease
obligations of $777,000 to accounts payable.
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Business
GreenMan Technologies, Inc. (the "Company" or "GreenMan") was initially
formed to develop, manufacture and sell "environmentally friendly" plastic and
thermoplastic rubber feedstocks, rubber parts and products manufactured using
recycled materials and/or are themselves partially or wholly recyclable.
Although successful in the technical development of commercial and proprietary
products through May 31, 1997, the Company determined in fiscal 1998 that
concentration on raw materials management would be more profitable in the near
term. The Company currently operates two business segments, the recycling
operations located in Jackson, Georgia; Savage, Minnesota and St. Francisville,
Louisiana and the industrial material operation located in Birmingham, Alabama.
Until closure in January 1998, the Company also operated an injection molding
operation (the "Molding operation") located in Malvern, Arkansas.
The Company's wholly-owned subsidiary, DuraWear Corporation ("DuraWear")
located in Birmingham, Alabama 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 as wholly owned subsidiaries,
all of the capital stock of BFI Tire Recyclers of Minnesota, Inc. ("BTM") and
BFI Tire Recyclers of Georgia, Inc. ("BTG"), both of which were 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"), respectively.
On November 19, 1997, the Company acquired as a wholly owned subsidiary,
all of the capital stock of Cryopolymers, Inc., ("Cryopolymers") a processor of
scrap tire chips into crumb rubber located in St. Francisville, Louisiana.
Cryopolymers has been renamed GreenMan Technologies of Louisiana, Inc. ("GMTL")
and together with GMTM and GMTG will constitute the Company's tire recycling
operations (the "Recycling operations").
Basis of Presentation
The consolidated financial statements include the results of the Company
and DuraWear for the year ended May 31, 1998, GMTM and GMTG since July 1, 1997
and GMTL since November 19, 1997. All significant intercompany accounts and
transactions are eliminated in consolidation.
The Company discontinued operations at the Malvern, Arkansas molding
operation effective January 1998. Management adopted a formal plan to dispose of
the facility on January 31, 1998 and as a result, the consolidated financial
statements of the Company have been restated to reflect the operating results of
the facility as a separate line item for all periods presented.
Change in Fiscal Year
On June 24,1998, the Board of Directors of the Company adopted a change
of its fiscal year from May 31 to September 30. The change will become effective
immediately. The Company's next fiscal year will end on September 30, 1998.
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 equity
instruments issued. The amount that the Company may ultimately realize from
joint ventures and notes receivable could differ materially from the value of
these investments recorded in the accompanying financial statements as of May
31, 1998.
F-8
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies - (Continued)
Cash Equivalents
Cash equivalents include short-term investments with original maturities
of three months or less.
Reverse Stock Split
All share and per share data in the financial statements have been
adjusted to give retroactive effect to a reverse split of the Company's Common
Stock pursuant to which each five shares of Common Stock then outstanding were
converted into one share. The reverse split became effective on March 23, 1998.
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. Expenditures for
maintenance, repairs and minor renewals are charged to expense as incurred.
Significant improvements and major renewals are capitalized.
Deferred Financing Costs
Deferred financing costs represent costs incurred in connection with
raising capital through the issuance of convertible debentures. The amount is
amortized to expense over the estimated life of the debenture.
Deferred Loan Costs
Deferred loan costs represent costs incurred in connection with securing
financing for the GMTM and GMTG acquisitions. The amount is amortized to expense
over the life of the notes payable.
Revenue Recognition
Revenues from product sales are recognized when the products are
shipped. Revenues from tire processing are recognized when processing of the
tires has occurred.
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.
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting
for Stock-Based Compensation". This statement encourages all entities to adopt a
fair value based method of accounting for employee stock compensation plans,
whereby compensation cost is measured at the grant date based on the value of
the award and is recognized over the service period, which is usually the
vesting period. However, it also allows an entity to continue to measure
compensation cost of those plans using the intrinsic value based method of
accounting prescribed by Accounting Principles Board Opinion ("APB") No. 25,
"Accounting for Stock Issued to Employees", whereby compensation cost is the
excess, if any, of the quoted market price of the stock at the grant date (or
other measurement date) over the amount an employee must pay to acquire the
stock. Stock options issued under the Company's stock option plans generally
have no intrinsic value at the grant date, and under Opinion No. 25 no
compensation cost is recognized for them. The Company has elected to continue to
apply the accounting in APB Opinion No. 25 and, as a result , must make pro
forma disclosures of net income and earnings per share and other disclosures, as
if the fair value based method of
F-9
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies - (Continued)
accounting had been applied. The pro forma disclosures include the effects of
all awards granted after May 31, 1995. (See Note 14)
Net Loss Per Share
In February 1997, FASB issued SFAS No. 128, "Earnings per Share" which
requires that earnings per share be calculated on a basic and dilutive basis.
Basic earnings per share represents income available to common stock divided by
the weighted average number of common shares outstanding during the period.
Diluted earnings per share reflects additional common shares that would have
been outstanding if potential dilutive common shares had been issued, as well as
any adjustment to income that would result from the assumed conversion.
Potential common shares that may be issued by the Company relate to outstanding
stock options and warrants, (determined using the treasury stock method) and
convertible debt. The assumed conversion of outstanding dilutive stock options
and warrants would increase the shares outstanding but would not require an
adjustment to income as a result of the conversion. The statement is effective
for interim and annual periods ending after December 15, 1997, and requires the
restatement of all prior period earnings per share data presented. Accordingly,
the Company has restated all earnings per share date presented herein. For the
years ended May 31, 1997 and 1998, options, warrants and convertible debt were
anti-dilutive and excluded from the net loss per share computation.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income". SFAS No. 130 is effective for fiscal years beginning after December 15,
1997. Accounting principles generally require all recognized revenue, expenses,
gains and losses to be included in net income. Various FASB statements, however,
require companies to report certain changes in assets and liabilities as a
separate component of the equity section of the balance sheet such as unrealized
gains and losses on available for sale securities, foreign currency items and
minimum pension liability adjustments. These items along with net income are
components of comprehensive income.
It is required under SFAS No. 130 that all items of comprehensive income
are to be reported in a "financial statement" that is displayed with the same
prominence as other financial statements. Additionally, SFAS No. 130 requires
the classification of items comprising other comprehensive income by their
nature, and the accumulated balance of other comprehensive must be displayed
separately from retained earnings and additional paid-in capital in the equity
section of the balance sheet. Management will adopt this new disclosure
requirement beginning with the next fiscal year.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 131 is effective
for financial statements for fiscal years beginning after December 15, 1997.
SFAS No. 131 establishes standards for the way that public companies report
information about operating segments in annual and interim financial statements
and selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. Generally,
financial information is required to be reported on the basis that it is used
internally for evaluating segment performance and deciding how to allocate
resources to segments.
SFAS No. 131 also requires companies to report information about the way
that operating segments were determined, the product and services provided by
the operating segments, differences between the measurements used in reporting
segment information and those used by the Company in its general purpose
financial statements, and changes in the measurement of segment amounts from
period to period. Management has not yet determined the impact that adoption of
SFAS No. 131 will have on its financial statement presentation.
F-10
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
2. Acquisition of Subsidiaries
On June 30, 1997, the Company acquired, as wholly owned subsidiaries,
all of the capital stock of BFI Tire Recyclers of Minnesota, Inc. ("BTM") and
BFI Tire Recyclers of Georgia, Inc. ("BTG"), both of which were 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"), respectively.
The Company agreed to pay $5,331,516 for all of the outstanding capital
stock of GMTM and GMTG of which $650,000 was paid as a deposit and the balance
of $4,681,516 was financed by a short-term note, at an interest rate of 10% from
BFI. The note was originally due and payable on September 30, 1997. In return
for payments in November and December 1997 the Company obtained an extension of
the due date until February 1998. In February 1998, the Company secured a $5.0
million asset-based credit facility and used approximately $3,900,000 to repay
the balance due on the note plus interest. (See Note 10)
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 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.
On November 19, 1997, the Company acquired as a wholly owned subsidiary
all of the outstanding common stock of Cryopolymers Inc., (renamed "GMTL") a
privately-held crumb rubber producer located in St. Francisville, Louisiana. The
purchase price consisted of (1) $744,000 in shares of common stock (153,402
shares); (2) warrants to purchase 240,000 shares of common stock exercisable
commencing April 1, 1998 for period of five years at prices ranging from $15.00
to $35.00 per share; and (3) additional warrants to purchase 20,000 shares of
common stock exercisable at $4.85 per share for a period of five years and
vesting over a two-year period. The Company has determined the total purchase
price to be $775,000 based upon the value of the common stock and a $31,000
value ascribed to the 260,000 warrants.
The acquisition has been accounted for as a purchase and accordingly,
the operations of GMTL are included in the consolidated financial statements
since November 19, 1997. Goodwill was recorded as the total consideration paid
by the Company exceeded the fair value of the net assets acquired by $100,000.
The following unaudited proforma financial information summarizes the
consolidated results of operations of the Company and the subsidiaries as if the
acquisitions had occurred at the beginning of fiscal 1997. The unaudited
proforma information is not necessarily indicative 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,
1997 1998
---- ----
Revenue $11,261,442 $11,762,051
Net loss from continuing operations (7,233,199) (4,607,194)
Net loss (7,822,293) (6,368,148)
Net loss per weighted average share (6.97) (2.45)
The Company also recorded $498,000 of Goodwill associated with the
October 1995 acquisition of DuraWear. Goodwill recorded in connection with the
acquisition of subsidiaries is being amortized over 10 years on a straight line
basis. Amortization expense for the years ended May 31, 1997 and 1998 was
$49,848 and $54,846, respectively.
F-11
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
3. Discontinued Operations
In January 1998, the Company discontinued operations at its Malvern,
Arkansas facility (the "Facility"). The Facility was previously engaged in
providing injection molding manufacturing services to customer 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. During the years ended May 31, 1997 and 1998, the
Facility's revenues totaled $1,936,450 and $1,126,627 respectively.
Management adopted a formal plan to dispose of the Facility on January
31, 1998. As a result, the Company recorded an estimated loss on disposal of the
Facility of $1,100,000 and wrote down the Facility's net assets to their
estimated fair market value. The consolidated financial statements of the
Company have been restated to reflect the net operating results of the Facility
as a separate line item for all periods presented. The Company reported a loss
from discontinued operations for the years ended May 31, 1997 and 1998 of
$589,094 and $660,954, respectively. As of May 31, 1998, the Company has
disposed of a majority of the Facility's assets and has approximately $598,000
of net obligations remaining which are included in accounts payable and accrued
expenses. In July 1998, the Company disposed of the remaining assets and
converted $300,000 of the net obligations into a $300,000, 10% convertible note
payable. The note is payable in 36 monthly payments of $9,680 and is convertible
into common stock at the holder's option, at $1.38 per share. The Company is
currently negotiating payment terms with the remaining creditors.
4. Need for Additional Capital
The Company has incurred losses since its inception aggregating
$17,029,919, and has a working capital deficiency of $2,147,915 at May 31, 1998.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern. 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 evaluating existing financing
alternatives, negotiating with existing secured creditors, attempting to
refinance existing long term debt and achieving profitable operations. As a
result, management believes that no adjustments or reclassifications of recorded
assets and liabilities is necessary at this time.
5. Inventory
Inventory consists of the following at May 31:
1997 1998
---- ----
Raw materials ................................ $ 164,589 $ 29,000
Work in process .............................. 15,670 12,805
Finished goods ............................... 373,429 286,773
--------- --------
$ 553,688 $328,578
========= ========
F-12
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
6. Property, Plant and Equipment
Property, plant and equipment consists of the following at May 31:
Estimated
1997 1998 Useful Lives
--------- ---------- ------------
Land ........................... $223,785 $ 879,162
Buildings ...................... 910,400 2,490,980 5-25 years
Machinery and equipment ........ 3,545,573 5,552,609 3-20 years
Furniture and fixtures ......... 89,792 79,184 3-7 years
Motor vehicles ................. 64,822 1,779,541 3-10 years
Leasehold improvements ......... 975,116 52,626 5 years
--------- ----------
5,809,488 10,834,102
Less accumulated depreciation
and amortization (888,445) (960,023)
--------- ----------
Property, plant and equipment (net) $4,921,043 $ 9,874,079
========== ===========
Depreciation and amortization expense for the years ended May 31, 1997 and 1998
was $380,454 and $1,057,273 respectively.
7. Other Assets
Other assets consists of the following at May 31:
1997 1998
--------- ---------
Non-competition agreement, net ............... $ 155,557 $ --
Licensing fee, net............................ 91,667 81,671
Note receivable and accrued interest.......... -- 107,787
Joint venture deposit......................... -- 150,000
Deposits and miscellaneous.................... 140,286 129,046
------- -------
$ 387,510 $468,504
========= ========
In conjunction with the 1995 acquisition of Durawear, the Company
entered into a three year non-competition agreement with the former sole
shareholder of Durawear valued at $350,000. Amortization expense for the years
ended May 31, 1997 and 1998 were $116,667 and $155,557, respectively.
In April 1996, the Company paid a one-time $100,000 license fee for a
perpetual license agreement with a privately-held R&D company under which it
acquired the exclusive world-wide rights and license to use a proprietary
additive technology for co-mingling (mixing or blending) of dissimilar plastics
and rubber. In connection with this license 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 is amortizing the license fee over an estimated ten year useful life of
the technology. Amortization expense for the years ended May 31, 1997 and 1998
was $8,333 and $9,996, respectively.
In January 1998, the Company advanced $104,100 to an officer of the
Company under an 8.5% secured loan agreement with both principal and interest
due January 2001. The loan is secured by 111,111 shares of the Company's common
stock owned by the officer.
F-13
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
In April 1998, the Company paid a $150,000 deposit towards the formation
of a joint venture intended to address the process of extracting high value
chemical commodities from scrap tires. The joint venture had not commenced
operations as of May 31, 1998.
8. Equipment Deposits/Joint Venture
During the year ended May 31, 1996, the Company purchased a cryogenic
recycling line for $1,500,000 and placed an additional $300,000 deposit towards
the purchase of an additional cryogenic recycling equipment line.
During the first half of fiscal 1997, the Company refined the production
process of the cryogenic recycling equipment and evaluated the production
capabilities of the facility. Based upon the cryogenic recycling equipment's
capacity to produce ultra-fine mesh crumb rubber, the Company decided to
redeploy the cryogenic recycling equipment into a joint venture with Crumb
Rubber Technologies, Inc. ("CRT"), the original equipment manufacturer.
As a result of the Company's decision to refocus its resources on the
production of "high-value-added" crumb rubber, the limitations of the existing
cryogenic recycling equipment to produce sufficient quantities of fine mesh
crumb rubber, the risks associated with a startup venture, and the Company's
minority interest in the joint venture, the Company decided to write-down the
carrying value of the equipment to the equipment's estimated liquidation value.
Accordingly, the Company recorded a $1,000,000 impairment loss in fiscal 1997
against the Company's investment in the cryogenic recycling equipment pursuant
to SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of".
In August 1997, the Company finalized the formation of the joint
venture between the Company and 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 has contributed a portion of its investment in the cryogenic crumb
rubber equipment ($400,000) which was formerly located in Jackson, Georgia into
the venture as its capital contribution while CRT contributed certain
facilities, equipment, customer contracts, licenses and permits and will provide
operational and technical expertise. Pursuant to the terms of the joint venture
agreement, CRT has returned $100,000 of equipment deposits previously made by
the Company and is currently determining a payment schedule for the remaining
$200,000. The joint venture began operating on a limited basis in April 1998 and
has not yet generated significant revenues.
9. Convertible Notes Payable
January 1997 Debentures
In January 1997, the Company concluded a $1,525,000 offering of 7%
convertible subordinated debentures ("Debentures") and immediately exercisable,
one year warrants to purchase 152,500 shares of common stock (the "January
Offering") at an exercise price of $6.25 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 net proceeds from the January Offering
were approximately $1,310,000 after deducting commissions and expenses of
approximately $214,000. The Company has recorded non-cash deferred financing
costs of $75,000 in connection with the issuance of the warrants to purchase
152,500 shares. The Company has recorded a deferred charge of approximately
$654,000 associated with the 30% discount from market to be realized upon
conversion of the Debentures. The Company also recorded non-cash deferred
financing costs of $695,000 in connection with the issuance of warrants to
purchase 210,000 shares of common stock to the placement agents in accordance
with SFAS No. 123. These warrants are immediately exercisable at prices ranging
form $.25 to $6.25 per share with 120,000 warrants expiring in December 1999 and
90,000 expiring in January 1998. The deferred charges are being amortized to
expense over the estimated life of the Debentures. Amortization and interest
expense on the Debentures for the year ended May 31, 1997 and 1998 was
$1,396,953 and $271,484, respectively.
F-14
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
As of May 31, 1998, all Debentures had been converted into 502,181
shares of the Company's common stock and all deferred charges had been amortized
to expense. Investors from the January Offering have exercised 36,000 warrants
during the year ended May 31, 1998 resulting in net proceeds to the Company of
$225,000.
April 1997 Notes
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 60,000 shares of common stock (the "April Offering") at exercise
prices ranging from $4.85 to $5.25. 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 prices 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 the Notes. The
note holders receive 800 shares of the Company's common stock 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 30,968 shares of common stock at an exercise price of $4.85
per share to the placement agents. The Company has recorded a deferred charge of
approximately $643,000 associated with the 30% discount from market to be
realized upon conversion. The Company also recorded non-cash deferred financing
costs of $64,600 in connection with the issuance of warrants to purchase 90,968
shares of common stock to the investors and placement agents in accordance with
SFAS No. 123. These deferred charges are being amortized to expense over the
estimated life of the Notes. Amortization expense and interest expense on the
Notes for the year ended May 31, 1997 and May 31, 1998 was $323,742 and
$696,633. During the year ended May 31, 1998, all Notes had been converted into
1,089,449 shares of common stock including 49,813 shares associated with accrued
interest and all deferred charges had been amortized to expense.
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, payment of interest and upon exercise of
the warrants to purchase 90,968 shares of common stock. Commencing July 1997,
the Company was required to pay the investors 2.5% of their principal investment
per month as a penalty for each month or portion thereof prior to the date the
Form S-3 was declared effective. The Form S-3 was declared effective by the
Securities and Exchange Commission on November 12, 1997. At May 31, 1998, the
Company has recorded $162,500 of additional financing costs pursuant to these
terms.
December 1997 Debentures
In December 1997, the Company entered into securities purchase
agreements (the "Debenture Agreements") with two investors (the "Debenture
Holders") and pursuant thereto, the Company issued debentures in the aggregate
principal amount of $1,600,000 (the "Initial Debentures") and immediately
exercisable two-year warrants to purchase 32,000 shares of Common Stock at an
exercise price of $3.13 per share. Each Initial Debenture bears interest at 8%
and is due December 15, 2000. The Initial Debentures are convertible at the
election of the holder at any time commencing upon the earlier to occur of (i)
the effective date of the registration statement covering the shares issuable
upon conversion of the Debentures, or (ii) 60 days following the date of
issuance at a conversion price equal to the lower of the average closing bid
prices on the five trading days preceding the date of the closing of the
December Offering or 75% of the average closing bid prices on the five trading
days preceding the date of the conversion of the Debentures. The Debentures
automatically convert into shares of common stock upon maturity. The Company
also issued immediately exercisable two year warrants to purchase 32,000 shares
of common stock at an exercise price of $3.13 per share to the placement agent.
As of May 31, 1998, $240,433 of the Initial Debentures and $7,127 of accrued
interest have been converted into 98,984 shares of common stock. During the
period of June through July 1998, an additional $594,664 of Initial Debentures
and $25,867 of accrued interest were converted into 466,454 shares of common
stock.
The net proceeds from the December Offering were approximately
$1,350,000 after deducting commissions and expenses of approximately $250,000.
The Company used $750,000 of the proceeds to paydown the outstanding loan
payable to BFI for the purchase of GMTM and GMTG. The Company recorded a
deferred charge of $533,000 associated with the 25% discount from market to be
realized upon conversion
F-15
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
9. Convertible Notes Payable - (continued)
of the Debentures. The Company also recorded deferred financing costs of $32,000
in connection with the issuance of warrants to purchase 64,000 shares of common
stock to the investors and placement agents in accordance with SFAS No. 123. The
deferred charges are being amortized over the estimated life of the Debentures.
Amortization expense for the year ended May 31, 1998 was $373,535. Interest
expense for the year ended May 31, 1998 was $104,700.
Pursuant to the Debenture Agreements, the Debenture Holders have agreed
to purchase up to an additional $2,000,000 in the aggregate of debentures
("Additional Debentures") in multiple tranches during 12 months following the
effective date of the registration statement covering the shares issuable upon
conversion of the Debentures. Each tranche shall be for the purchase of between
$75,000 and $175,000 in Additional Debentures and may be completed at the
election of the Company subject to certain conditions. Each Additional Debenture
shall bear similar terms to the Initial Debentures including the issuance of
warrants per Additional Debenture to both the Debenture Holders and the
placement agent. The Additional Debentures are convertible at the holders
option, within two days of issuance. Pursuant to the terms of the Debenture
Agreements, the Company is obligated to borrow at least $1,000,000 in Additional
Debentures or the Company must provide the Debenture Holders and placement
agents warrants to purchase an additional 40,000 shares of Common Stock in the
aggregate. The Company has issued $250,000 of Additional Debentures during the
period of June to July 1998.
10. Notes Payable
On February 5, 1998, GMTM and GMTG collectively secured a $5.0 million
asset-based credit facility (the "Credit Facility") from Heller Financial Inc.
("Heller"). The Credit Facility consisted of : (i) $1,400,000 of three year term
notes secured by the real estate of GMTM and GMTG, payable in monthly principal
installments of $23,333 plus interest at prime plus 1.75% (10.25% at May 31,
1998) and a balloon payment of $583,380 due in February 2001; (ii) $1,900,000 of
three year term notes secured by the machinery and equipment of GMTM and GMTG,
payable in monthly principal installments of $31,667, with interest at prime
plus 1.75% (10.25% at May 31, 1998) and a balloon payment of $791,620 due in
February 2001 and (iii) a working capital line of credit of up to $1,700,000
secured by the eligible accounts receivable, as defined, of GMTM and GMTG. The
line of credit bears interest at prime plus 1.5% (10% at May 31, 1998).
The Company granted Heller a security interest in the capital stock of
GMTM and GMTG in addition to providing a Company guarantee and the personal
guarantee of three officers of the Company. The Credit Facility contains certain
covenants including minimum net worth and certain restrictions on intercompany
cash transactions. The Company is either in compliance with the terms of the
Credit Facility or received a waiver of compliance at May 31, 1998.
The Company used the proceeds from the Credit Facility, to repay the
balance of $3,906,071, including interest, due under the short-term note payable
to BFI for the purchase of GMTM and GMTG (See Note 2). The Company also incurred
approximately $322,000 of deferred loan costs associated with securing the
Credit Facility. These deferred charges are being amortized over the life of the
term notes. Amortization expense for the year ended May 31, 1998 was $35,782.
<TABLE>
<CAPTION>
Notes payable consists of the following at:
May 31, May 31,
1997 1998
---- ----
<S> <C> <C>
Term note payable to a bank, 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% (9.5% at
May 31, 1998) and a final installment of the remaining unpaid principal
balance due July 2000 ........................................................ $ 450,654 $ 432,300
Term note payable, secured by all real estate of GMTM and GMTG, guaranteed by
the Company and three officers, due in monthly installments of $23,333
including interest at prime plus 1.75% (10.25% at May 31, 1998) and a final
installment of the remaining unpaid principal balance due February 2001....... -- 1,330,000
F-16
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
10. Notes Payable - (continued)
Term note payable, secured by all machinery and equipment of GMTM and GMTG,
guaranteed by the Company and three officers, due in monthly installments
of $31,667 including interest at prime plus 1.75% (10.25% at May 31, 1998)
and a finalinstallment of the remaining unpaid principal balance due
February 2001................................................................. -- 1,805,000
Line of credit, secured by eligible accounts receivable of GMTM and GMTG,
guaranteed by the Company and three officers, and bearing interest at prime
plus 1.5% (10% at May 1, 1998). .......................... .................. -- 279,309
Other term notes payable and assessments, secured by equipment and requiring
monthly installments.......................................................... 61,934 269,350
--------- ---------
512,588 4,115,959
Less current portion ........................................................... (37,910) (1,053,676)
--------- -----------
Notes payable, non-current portion $ 474,678 $ 3,062,283
========= ===========
</TABLE>
The following is a summary of maturities of notes payable,at May 31,
1998:
Years Ending
May 31,
1999 ....................................... $ 1,053,676
2000 ....................................... 745,394
2001 ....................................... 2,267,828
2002 ....................................... 38,860
2003........................................ 10,201
-----------
$ 4,115,959
===========
Interest expense for the years ended May 31, 1997 and 1998 was $ 56,195
and $478,497.
11. Related Party Debt Agreements
Convertible Notes Payable, Related Parties
On December 30, 1996, the Company renegotiated the remaining principal
balance of $1,200,000 due to Palomar Medical Technologies, Inc. ("Palomar") a
company that was related to a director of the Company, under 10% notes payable.
The outstanding principal balance was converted into a 10% secured convertible
note payable (the "Note"), due July 1, 1997 and convertible into the Company's
common stock, at the holder's option, at a conversion price of $5.00 per share.
The Note was secured by an interest in the Company's cryogenic tire recycling
equipment. The Company also reduced the exercise price of the 60,000 warrants
granted in connection with this borrowing to $5.65 per share. The Company
recorded a non cash expense of $36,000 in connection with the reduction in the
exercise price in accordance with SFAS No. 123. Interest expense for the years
ended May 31, 1997 and 1998 amounted to $135,890 and $115,658, respectively.
As of May 31, 1998, Palomar had converted its entire $1,200,000 note
payable and $165,741 of accrued interest into 297,257 shares of common stock
pursuant to the terms of the convertible note payable. A portion of the
conversion included a one time 15% reduction in the conversion price as a an
inducement to convert the balance due under the note.
Convertible Notes Payable, Officers
In May 1996, the Company borrowed $325,000 from an officer of the
Company. This unsecured note payable bore interest at prime plus 1.5% 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. From September 1996 to May
1997 the Company borrowed an additional $624,300 from this officer
F-17
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
11. Related Party Debt Agreements - (Continued)
and another officer of the Company. During January 1997 and May 1997 the Company
repaid $345,000 to these officers.
On May 30, 1997, the Company refinanced the remaining principal balance
and accrued interest plus accrued business expenses owed to these officers and
issued each officer 10% convertible notes, due October 30, 1998 in the amount of
$640,000 and warrants to purchase 25,600 shares of common stock at an exercise
price of $4.40 per share. The notes are convertible after 120 days into shares
of common stock at a conversion price equal to the lower of the average closing
bid prices on the five trading days preceding May 30, 1997 or 70% of the average
closing bid prices on the five trading days preceding the date of the conversion
of such notes. The Company has recorded a deferred charge of approximately
$274,000 associated with the 30% discount from market to be realized upon
conversion. The Company also recorded non-cash deferred financing costs of
$11,500 in connection with the issuance of the warrants to purchase 25,600
shares of common stock in accordance with SFAS No. 123.
During June and July 1997, the Company borrowed an additional $386,000
from four officers of the Company under similar terms to the May 30, 1997
convertible notes and issued warrants to purchase 15,440 shares of common stock
at exercise prices ranging from $3.60 to $4.85 per share. The Company recognized
a deferred charge of approximately $166,000 associated with the 30% discount
from market to be realized upon conversion and $7,800 of non-cash deferred
financing costs in connection with the issuance of the warrants to purchase
15,440 shares of common stock to the officers in accordance with SFAS No. 123.
In March 1998, the four officers converted $1,026,000 of principal and $75,711
of accrued interest into 1,260,193 shares of unregistered common stock. Interest
expense for the years ended May 31, 1997 and 1998 was $54,304 and $76,045,
respectively. Amortization of deferred financing costs for the year ended May
31, 1998 was $459,300.
Notes Payable, Related Party
Pursuant to the terms of the DuraWear stock purchase agreement, the
Company succeeded to the obligations of DuraWear relating to the repayment of 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, 1998), adjusted annually.
At May 31, 1997 and 1998, the note had a balance of $ 83,200 and
$24,371, respectively. The note matures in September 1998. Interest expense for
the years ended May 31, 1997 and 1998 was $11,012 and $5,435.
12. Capital Leases
The Company leases machinery and equipment with a cost of $2,698,336 and
$2,831,477 under capital lease agreements at May 31, 1997 and 1998,
respectively. Accumulated amortization amounted to $615,504 and $128,163, at May
31, 1997 and 1998, respectively. Amortization expense on assets under capital
leases for the periods ended May 31, 1997 and 1998 was $201,272 and $299,857
respectively.
As a result of the January 1998 shutdown of the injection molding
operations (See Note 3), the Company sold miscellaneous assets and leased
machinery and equipment for $810,000 in May 1998. The Company remitted the
proceeds plus an additional $100,000 to the equipment lessors in full settlement
of all amounts due under the corresponding lease obligations. In June 1998, the
Company sold the remaining injection molding assets for $477,000. The Company
paid $450,000 of the proceeds and issued a $300,000 convertible note payable to
the lessor in full settlement of all amounts owed under the leases.
F-18
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
12. Capital Leases - (Continued)
Effective October 1997, the Company entered into a fifteen-year
cryogenic equipment lease agreement. Under the terms of the agreement, GMTL will
pay $25,500 per month plus an additional $100,000 of bonus rent per year for the
first six years of the agreement. The bonus rents are payable in the Company's
common stock with the number of shares determined using the closing bid price of
the common stock on each December 31. The lease has been classified as a capital
lease at May 31, 1998 with an equipment value of $2,771,876.
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, 1998:
Years Ending
May 31,
1999 ................................... $ 425,781
2000 ................................... 406,000
2001 ................................... 406,000
2002 ................................... 406,000
2003 and thereafter .................... 2,369,500
-----------
Total minimum lease payments ............... 4,013,281
Less amount representing interest .......... (1,374,834)
-----------
Present value of minimum lease payments $ 2,638,447
===========
Interest expense for the years ended May 31, 1997 and 1998 was $99,103
and $200,681 respectively.
13. Commitments and Contingencies
Employment Agreements
The Company has employment agreements with five officers which provide
for base salaries, participation in employee benefit programs and severance
payments for termination without cause.
Rental Agreements
The Company leases approximately 2,700 square feet of corporate
administrative office space at a monthly rental of $3,238 under a three year
lease. In June 1998, the Company renegotiated the lease to include an additional
680 square feet and extended the lease term for five years at $4,366 per month.
Rent expense was $38,856 for the years ended May 31, 1997 and 1998.
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. In June 1998,
the court ruled in favor of the Company and dismissed the case.
F-19
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
14. Stockholders' Equity
Reverse Split of Common Stock
On March 12, 1998, the stockholders of the Company approved two
amendments to the Company's Certificate of Incorporation; 1) to effect a reverse
split (the "Reverse Split") of the Company's Common Stock, pursuant to which
each five shares of Common Stock then outstanding were automatically converted
into one share, effective March 23, 1998 and 2) to increase the number of
authorized shares of Common Stock from 20,000,000 to 50,000,000. The Board of
Directors of the Company chose to implement the Reverse Split and decided not to
increase the authorized shares. All share and per share data in the financial
statements have been adjusted to give retroactive effect to the Reverse Split of
the Company's Common Stock.
Common Stock Transactions
On September 26, 1996, the Company sold 109,000 shares of common stock
to three foreign investors at $7.55 per share. Net proceeds were $706,460 after
deducting commissions and expenses of $116,490.
During the year ended May 31, 1997, $825,000 of the January 1997
debentures were converted for 249,963 shares of common stock.
During the year ended May 31, 1998, the following shares of common
stock were issued pursuant to convertible notes and debentures:
<TABLE>
<CAPTION>
Principal Interest Total
Offering Converted Converted Share Issued
-------- --------- --------- ------------
<S> <C> <C> <C> <C>
January 1997.............................. $ 675,000 $ -- 252,218 See Note 9
April 1997 ............................... 1,500,000 107,029 1,089,449 See Note 9
Related Party............................. 1,200,000 165,741 297,257 See Note 11
Officers.................................. 1,026,000 75,711 1,260,193 See Note 11
December 1997............................. 240,433 7,127 98,984 See Note 9
----------- ---------- ---------
$ 4,641,433 $ 355,608 2,998,101
=========== ========== =========
</TABLE>
Investors from the January Offering exercised 36,000 warrants resulting
in net proceeds to the Company of $225,000.
Private Offering of Common Stock and Warrants
During the period of March 1998 to May 1998, the Company sold 1,257,734
shares of unregistered common stock and warrants to purchase 325,000 shares of
common stock at exercise prices ranging from $1.75 to $3.88 per share to
investors including officers and directors of the Company (the "Investors") for
approximately $1,500,000. The Company granted the Investors piggy-back
registration rights to register the common stock and the common stock issuable
upon exercise of the warrants. The Investors have agreed not to sell or transfer
the shares for a period of at least twelve months after issuance. The Company
also granted warrants to purchase 8,332 shares of common stock at an exercise
price of $3.88 per share to a third party in conjunction with the offering. The
weighted average fair value of the warrants under SFAS No. 123 on the date of
grant was $ 0.50 per share
Stock Option Plan
The 1993 Stock Option Plan (the "Plan") was established to provide stock
options to employees, officers, directors and consultants. In June 1996, the
Company's stockholders approved an increase to the number of shares authorized
under the Plan to 200,000 shares. On June 24, 1998, the Board of Directors
approved an increase to the number of shares authorized under the Plan to
2,000,000 shares, subject to shareholder approval.
F-20
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
14. Stockholders' Equity - (Continued)
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 (assuming the June 24, 1998 increase in authorized shares is
approved) are summarized as follows:
<TABLE>
<CAPTION>
Years Ended May 31,
1997 1998
--------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------- --------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 75,500 $ 6.45 143,340 $ 4.05
Granted 133,960 8.00 1,182,600 1.21
Canceled (65,640) 14.90 (46,200) 5.53
Exercised (480) .70 (5,240) .62
--------- -------
Outstanding at end of year 143,340 4.05 1,274,500 1.37
========= =========
Exercisable at end of year 27,500 .85 41,940 1.91
========= =========
Reserved for future grants at end of year 51,180 714,780
========= =========
Weighted average fair value of options granted $1.35 $ 0.31
during the period
</TABLE>
Information pertaining to options outstanding under the Plan at May 31,
1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
- ------ ----------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .45 29,000 5.0 $ .45 23,200 $ .45
$ 1.09 1,142,600 9.8 1.09 -- --
$ 1.35 - $ 1.45 12,400 6.0 1.41 8,440 1.40
$ 4.70 - $ 5.00 40,500 9.0 4.70 300 5.00
$ 5.65 50,000 8.6 5.65 10,000 5.65
--------- ----------
1,274,500 9.6 $ 1.37 41,940 $ 1.91
========= ==========
</TABLE>
Non -Employee Director Stock Option Plan
Under the terms of the 1996 Non-Employee Director Stock Option Plan
("Director Plan") on a non-employee director's initial election to the Board of
Directors, they are automatically granted an option to purchase 2,000 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
2,000 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.
The Board of Directors has reserved 60,000 shares of common stock for
issuance and as of May 31, 1998, options to purchase 8,000 shares of common
stock, at prices ranging from $1.09 to $16.90 per share, have been granted under
the Director Plan.
F-21
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
14. Stockholders' Equity - (Continued)
Other Stock Options
The Company granted options to purchase 11,000 shares of common stock
at $1.45 per share through July 1999, 3,000 shares of common stock at $5.00 per
share through February 2000 and 4,000 shares of common stock at $5.00 per share
through April 2005 in the year ended May 31, 1995.
On July 11,1996, the Company granted options to purchase 120,000 shares
of common stock at an exercise price of $13.75 per share through July 2006 to
certain officers and directors. These options vest over a five year period. On
December 30, 1996, the Company canceled 15,000 of these options, repriced
105,000 options to $5.65 and granted options to purchase 202,500 shares of
common stock at an exercise price of $5.65 to certain officers, directors and
outside individuals. The weighted average fair value of the repriced options
under SFAS No. 123 on the date of grant was $1.40 per share.
On March 23, 1998, the Company cancelled 242,500 options previously and
granted options to purchase 1,487,500 shares of common stock at an exercise
price of $1.09 per share through March 2008 to certain officers, directors and
outside individuals. These options vest over a five year period.
Other Warrants
In January 1996, the Company granted warrants to purchase 13,400 shares
of common stock for services rendered. The exercise price is $16.90 through
January 2006. On December 30, 1996, these warrants were repriced to $5.65 which
was the closing bid price of the Company's common stock on December 30,1996. The
weighted average fair value of the repriced warrants under SFAS No. 123 on the
date of grant was $1.40 per share.
During June 1996, the Company granted warrants to purchase 196,247
shares of common stock at an exercise prices ranging from $15.00 to $19.40 per
share through June 2001. On December 30, 1996, 136,247 of the original 196,247
warrants were repriced to $5.65 per share. The weighted average fair value of
the repriced warrants under SFAS No. 123 on the date of grant was $1.40 per
share.
On December 30, 1996, the Company granted 80,000 three year warrants to
one of its investment bankers at an exercise price of $.25 per share. The
Company recorded a non-cash expense of $400,000 in accordance with SFAS No. 123
for the year ended May 31, 1997.
Stock-Based Compensation
At May 31, 1998, the Company has two stock-based compensation plans and
stock options issued outside of the plans, which are described above. The
Company applies APB Opinion No. 25 and related interpretations in accounting for
stock options issued to employees and directors. Had the compensation cost for
the Company's stock options issued to employees and directors been determined
based on the fair value at the grant dates consistent with SFAS No. 123, the
Company's net loss and net loss per share would have been adjusted to the pro
forma amounts indicated below:
Year Ended May 31,
---------------------------------
1997 1998
---- ----
Net loss:
As reported $7,006,479 $6,324,986
Pro forma 7,091,400 6,457,825
Net loss per share - basic:
As reported $ (6.24) $ (2.44)
Pro forma (6.32) $ (2.49)
F-22
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
14. Stockholders' Equity - (Continued)
Common stock equivalents have been excluded from all calculations of net loss
per share because the effect of including them would be anti-dilutive.
The fair value of each option grant under the Plan is estimated on the
date of grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for grants during the year ended May31, 1997
and 1998, respectively; dividend yield of 0%; risk-free interest rate of 5.5%;
expected volatility of 20% and 40%, respectively, and expected lives of 5 years.
Weighted average assumptions used in valuing stock options issued
outside of the plans during the year ended May 31, 1997 and 1998, respectively,
were dividend yield of 0%; risk-free interest rate of 5.5%; expected volatility
of 20% and 40% respectively, and expected lives of 5 years.
Common Stock Reserved
The Company has reserved common stock at May 31, 1998 as follows:
Initial public offering warrants .................... 253,000
Warrants issued on conversion of preferred stock .... 260,000
Convertible debentures and notes .................... 741,600
Stock option plans .................................. 2,049,280
Other stock options ................................. 1,590,500
Other warrants ...................................... 1,283,987
---------
6,178,367
The number of shares of common stock reserved in connection with the
convertible debentures and notes are subject to adjustment. (See Notes 9 and
11).
15. Segment Information
The Company has two principal operating groups: the rubber recycling
group and the industrial materials group. The rubber recycling group collects,
transports and processes scrap tires into feedstock for tire derived fuel
("TDF"), civil engineering projects and/or for further processing into crumb
rubber. 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. Information with respect to
industry segments as of and for the years ended is as follows:
<TABLE>
<CAPTION>
For the Year Ended May 31, 1998
---------------------------------------------------------
Rubber Recycling Industrial Materials
Group Group Total
----- ----- -----
<S> <C> <C> <C>
Operating Revenues $ 9,135,487 $ 1,876,032 $ 11,011,519
Operating Profit (Loss) 652,955 (139,688) (513,267)
Identifiable Assets 10,513,681 1,991,649 12,505,330
Depreciation/Amortization 741,023 284,922 1,025,945
Capital Expenditures 1,095,721 22,501 1,118,222
F-23
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
15. Segment Information - (Continued)
<CAPTION>
For the Year Ended May 31, 1998
---------------------------------------------------------
Rubber Recycling Industrial Materials
Group Group Total
----- ----- -----
<S> <C> <C> <C>
Operating Revenues $ 38,201 $ 2,046,019 $ 2,084,220
Operating Loss (1,995,047) (20,481) (2,015,528)
Identifiable Assets 1,825,595 2,325,785 4,151,380
Depreciation/Amortization 69,176 253,684 322,860
Capital Expenditures 53,067 10,765 63,832
</TABLE>
16. Major Customers
At May 31, 1997, 29%, 16% and 12% of consolidated accounts receivable
were from three customers and at May 31, 1998, 11% and 11% of consolidated
accounts receivable were from two customers
During the year ended May 31, 1997 and 1998, no customer accounted for
10% or more of consolidated net sales.
17. Income Taxes
There was no provision for income taxes for the years ended May 31, 1997
and 1998 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 at May 31:
1997 1998
---- ----
Deferred tax asset:
Federal ......................... $ 2,646,000 $ 4,380,000
State ........................... 538,000 870,000
----------- -----------
3,184,000 5,250,000
Valuation reserve ................. (3,184,000) (5,250,000)
----------- -----------
Net deferred tax asset ............ $ -- $ --
=========== ===========
The following differences give rise to deferred income taxes at May 31:
1997 1998
---- ----
Net operating loss carryforward ... $ 2,666,000 $ 4,583,000
Research tax credit carryforward .. 17,000 17,000
Non-deductible write-down of assets 390,000 390,000
Other ............................. 111,000 260,000
----------- -----------
3,184,000 5,250,000
Valuation reserve ................. (3,184,000) (5,250,000)
----------- -----------
Net deferred tax asset ............ $ -- $ --
=========== ===========
The change in the valuation reserve is as follows:
Years Ended May 31,
1997 1998
---- ----
Balance at beginning of year ...... $ 1,383,000 $ 3,184,000
Increase due to current year net
operating loss .................... 1,801,000 2,066,000
----------- -----------
Balance at end of year ............ $ 3,184,000 $ 5,250,000
=========== ===========
F-24
<PAGE>
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
17. Income Taxes - (Continued)
As of May 31, 1998, the Company has net operating loss carryforwards of
approximately $11,750,000. 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.
18. Fair Value of Financial Instruments
At May 31, 1997, the Company's financial instruments consist of note
payable to related parties and banks and convertible notes payable to related
parties and other investors. Notes payable to related parties and banks
approximate their fair values as these instruments bear interest at market
rates. The fair value of the $4,040,000 in convertible notes payable outstanding
is approximately $5,103,000 based on the fair value of the common stock issuable
on conversion of the notes.
At May 31, 1998, the Company's financial instruments consist of notes
payable to banks and to related parties, and convertible notes payable. Notes
payable approximate their fair values as these instruments bear interest at
market rates. The fair value of the $1,359,567 in convertible notes payable
outstanding is approximately $1,813,000 based on the fair value of the common
stock issuable on conversion of the notes.
19. Subsequent Events
In June 1998, the Company signed a letter of intent to acquire all of
the capital stock of Mac's Tire Recyclers ("Mac's") a privately-held tire
recycler located in Saltillo, Mississippi. In addition to scrap tire processing
capacity of more than 4 million tires per year, Mac's also operates a
state-permitted disposal site on about 40 acres of land. The Company began
operating the Mac's facility effective June 1, 1998 and anticipates completing a
purchase and sale agreement that is effective on that date.
On September 4, 1998, the Company acquired all of the scrap tire
collection and processing assets of United Waste Service, Inc. ("United"), a
wholly owned subsidiary of Republic Services, Inc.. The Company paid $4,050,000
for the acquired assets in the form of $850,000 in cash and $3,200,000 of
preferred stock. The preferred stock is convertible into the Company's common
stock beginning in February 2001 based upon the trailing 15 day average closing
bid (as reported by NASDAQ) prices prior to the conversion date. The acquired
assets are located in Lawrenceville, Georgia and Batesburg, South Carolina and
collectively, the two operations process over 5 million tires annually.
On August 21, 1998, GMTL's facility was damaged by a fire. The Company
believes that the damage will be adquately covered by insurance and is still
assessing the full extent of the damage and developing plans for replacing
equipment and re-establishing its crumb rubber capabilities. The Company is
currently purchasing crumb rubber to supplement its internal needs for modified
asphalt.
F-25
<PAGE>
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
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 Chairman of the Board September 15, 1998
Maurice E. Needham
/s/ Joseph E. Levangie Vice Chairman and Director September 15, 1998
Joseph E. Levangie
/s/ Robert H. Davis Chief Executive Officer, President September 15, 1998
Robert H. Davis and Director
/s/ Charles E. Coppa Acting Chief Financial Officer, September 15, 1998
Charles E. Coppa Treasurer and Assistant Secretary
(Principal Financial Officer and Principal
Accounting Officer)
/s/ Robert D. Maust Vice President of Operations and September 15, 1998
Robert D. Maust Director
/s/ Lew F. Boyd Director September 15, 1998
Lew F. Boyd
/s/ Jagruti Oza Director September 15, 1998
Jagruti Oza
</TABLE>
Exhibit 11
GreenMan Technologies, Inc.
Statement Regarding Net Loss per Share
May 31, 1998
Year Ended Year Ended
May 31, 1997 May 31, 1998
------------ ------------
Net loss ..................................... $ 7,066,479 $ 6,324,986
=========== ===========
Shares used in calculation of loss per share:
Weighted Average common shares outstanding 1,122,788 2,596,776
Net loss per share ........................... $ (6.24) $ (2.44)
=========== ===========
Exhibit 23.1
Consent of Wolf & Company, P.C.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the registration statements of
GreenMan Technologies, Inc. on Form S-3 (Nos. 333-22813, 333-27625, and
333-49485) of our report, which contains an explanatory paragraph about the
Company's ability to continue as a going concern, dated August 7, 1998, except
for Note 19 as to which the date is September 4, 1998, on the consolidated
balance sheets of GreenMan Technologies, Inc. as of May 31, 1997 and 1998 and
the related consolidated statements of loss, changes in stockholders' equity and
cash flows for the years then ended, which report appears in the Form 10-KSB of
GreenMan Technologies, Inc. for the fiscal year ended May 31, 1998.
Wolf & Company, P.C.
Boston, Massachusetts
September 14, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> May-31-1998
<PERIOD-START> Jun-01-1997
<PERIOD-END> May-31-1998
<CASH> 180,963
<SECURITIES> 0
<RECEIVABLES> 1,538,801
<ALLOWANCES> 63,737
<INVENTORY> 328,578
<CURRENT-ASSETS> 2,376,724
<PP&E> 10,834,102
<DEPRECIATION> 960,023
<TOTAL-ASSETS> 14,507,542
<CURRENT-LIABILITIES> 4,524,639
<BONDS> 2,437,614
0
0
<COMMON> 58,580
<OTHER-SE> 20,107,567
<TOTAL-LIABILITY-AND-EQUITY> 14,507,542
<SALES> 11,011,519
<TOTAL-REVENUES> 11,011,519
<CGS> 7,494,762
<TOTAL-COSTS> 5,199,740
<OTHER-EXPENSES> (5,317)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,881,049
<INCOME-PRETAX> (4,564,032)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,564,032)
<DISCONTINUED> (1,760,954)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,324,986)
<EPS-PRIMARY> (2.44)
<EPS-DILUTED> (2.44)
</TABLE>