U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended August 31, 1998 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
incorporation or organization) Identification No.)
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
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---------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report.)
Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Number of shares outstanding as of October 1, 1998
Common Stock, $.01 par value, 6,926,247 shares
<PAGE>
GreenMan Technologies, Inc.
Form 10-QSB
Quarterly Report
August 31, 1998
Table of Contents
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (*)
Unaudited Condensed Consolidated Balance Sheets as of
May 31, 1998 and August 31, 1998 3
Unaudited Condensed Consolidated Statements of Loss for the
three months ended August 31, 1997 and 1998 4
Unaudited Condensed Consolidated Statement of Changes in
Stockholder's Equity for the three months ended August 31, 1998 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the three months ended August 31, 1997 and 1998 6-7
Notes to Unaudited Condensed Consolidated Financial Statements 8-13
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14-17
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 18
Signatures 19
* The financial information at May 31, 1998 has been taken from audited
financial statements at that date and should be read in conjunction
therewith. All other financial statements are unaudited.
** All share and per share data in this Form 10-QSB 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.
2
<PAGE>
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Balance Sheet
<TABLE>
<CAPTION>
May 31, August 31,
1998 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................. $ 180,963 $ 171,114
Accounts receivable, trade, less allowance for doubtful
accounts of $ 63,737 and $51,529 as of May 31, 1998
and August 31, 1998 ................................... 1,475,064 1,497,357
Inventory (Note 7)..................................... 328,578 300,938
Insurance claim receivable (Note 6) ................... -- 3,047,690
Other current assets .................................. 392,119 792,748
------------ ------------
Total current assets ............................... 2,376,724 5,809,847
------------ ------------
Property and equipment, net (Note 8) . ....... ........... 9,874,079 7,158,402
------------ ------------
Other assets:
Equipment deposits .................................... 200,000 185,000
Deferred financing costs (Note 10) .................... 441,465 421,193
Deferred loan costs ................................... 286,218 259,382
Goodwill, net ......................................... 460,552 445,691
Investment in joint venture ........................... 400,000 400,000
Other ................................................. 468,504 458,855
------------ ------------
2,256,739 2,170,121
------------ ------------
$ 14,507,542 $ 15,138,370
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible notes payable, other (Note 9) ............. $ -- $ 90,223
Notes payable, related parties ........................ 24,371 9,870
Notes payable,current portion ....................... 1,053,676 1,179,861
Accounts payable ...................................... 1,515,371 1,817,416
Accrued expenses, other ............................... 1,717,599 1,439,467
Obligations under capital leases, current (Note 6) ... 213,622 2,616,250
------------ ------------
Total current liabilities .......................... 4,524,639 7,153,087
Convertible notes payable (Note 10) ................... 1,359,567 1,014,680
Convertible notes payable, other (Note 9) ............. -- 209,777
Notes payable, non-current portion ................... 3,062,283 2,908,352
Obligations under capital leases ...................... 2,424,825 --
------------ ------------
Total liabilities .................................. 11,371,314 11,285,896
------------ ------------
Stockholders' equity (Note 10):
Preferred stock, $1.00 par value, 1,000,000 shares
authorized, no shares issued and outstanding .......... -- --
Common stock, $.01 par value, 20,000,000 shares
authorized; 5,858,019 and 6,596,866 shares issued and
outstanding at May 31, 1998 and August 31, 1998 ....... 58,580 65,969
Additional paid-in capital ............................ 20,107,567 21,180,871
Accumulated deficit ................................... (17,029,919) (17,394,366)
------------ ------------
Total stockholders' equity ......................... 3,136,228 3,852,474
------------ ------------
$ 14,507,542 $ 15,138,370
============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
3
<PAGE>
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Statements of Loss
Three Months Ended
August 31,
--------------------------
1997 1998
----------- -----------
Net sales ........................................ $ 2,147,259 $ 3,590,948
Cost of sales .................................... 1,425,124 2,415,318
----------- -----------
Gross profit ..................................... 722,135 1,175,630
----------- -----------
Operating expenses:
Research and development ...................... 75,065 140,132
Selling, general and administrative ........... 725,110 921,765
----------- -----------
Total operating expenses .................... 800,175 1,061,897
----------- -----------
Operating (loss) profit .......................... (78,040) 113,733
----------- -----------
Other income (expense):
Interest and financing costs (Note 10) ........ (878,988) (483,145)
Other, net .................................... 4,320 4,965
----------- -----------
Other income (expense), net ................. (874,668) (478,180)
----------- -----------
Loss from continuing operations .................. (952,708) (364,447)
Discontinued operations (Note 9 ):
Loss from discontinued operations ............. (147,034) --
----------- -----------
Net loss ......................................... $(1,099,742) $ (364,447)
=========== ===========
Loss from continuing operations per share -
basic (Note 4) ................................... $ (0.61) $ (0.06)
Loss from discontinued operations per share -
basic (Note 4) .................................. (0.10) --
----------- -----------
Net loss per share - basic (Note 4) .............. $ (0.71) $ (0.06)
=========== ===========
Weighted average shares outstanding .............. 1,551,056 6,180,025
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Statements of Changes In Stockholders' Equity
Three Months Ended August 31, 1998
<TABLE>
<CAPTION>
Additional
Common Stock Paid-in Accumulated
Shares Amount Capital Deficit Total
--------- ------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Balance, May 31, 1998 ............................... 5,858,019 $58,580 $20,107,567 $(17,029,919) $3,136,228
Shares issued on conversion of notes payable
and accrued interest ................................ 708,847 7,089 828,144 -- 835,233
Fair value of warrants issued in June and August 1998
convertible debt offering under SFAS No. 123 ...... -- -- 54,000 54,000
Fair value of conversion discount on convertible
notes payable issued in June and August 1998 ...... -- -- 150,000 150,000
Fair value of conversion discount on accrued
interest associated with convertible notes
payable ........................................... -- -- 11,460 11,460
Shares issued for services .......................... 30,000 300 29,700 -- 30,000
Net loss for quarter ended August 31, 1998 .......... -- -- -- (364,447) (364,447)
--------- ------- ----------- ------------ ----------
Balance, August 31, 1998 ............................ 6,596,866 $65,969 $21,180,871 $(17,394,366) $3,852,474
========= ======= =========== ============ ==========
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Statements of Cash Flow
<TABLE>
<CAPTION>
Three Months Ended August 31,
-----------------------------
1997 1998
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss ................................................................... $(1,099,742) $(364,447)
Adjustments to reconcile net loss to net cash provided (used)
for operating activities:
Amortization of deferred financing costs ................................... 646,577 314,968
Depreciation and amortization .............................................. 238,841 311,636
Common stock issued for services rendered .................................. -- 30,000
(Increase) decrease in assets:
Insurance claim receivable ............................................. -- (244,274)
Accounts receivable .................................................... (170,198) (22,293)
Inventory .............................................................. (58,990) (60,360)
Other current assets ................................................... 39,177 (400,630)
Increase (decrease) in liabilities:
Accounts payable ....................................................... 721,615 602,046
Accrued expenses ....................................................... 107,751 (219,895)
----------- ---------
Net cash provided (used) for operating activities ................... 425,031 (53,249)
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment ......................................... (54,848) (285,070)
Deposit on equipment ....................................................... (10,000) --
(Increase) decrease in other assets ........................................ (1,360) 21,415
----------- ---------
Net cash (used for) provided by investing activities .................. (66,208) (263,655)
----------- ---------
Cash flows from financing activities:
Net proceeds from convertible notes payable ............................... -- 371,500
Net advances under line of credit .......................................... -- 159,378
Repayment of notes payable ................................................. (8,970) (187,124)
Proceeds from notes payable related parties ................................ 386,000 --
Repayment of notes payable related parties ................................. (17,429) (14,501)
Principal payments on obligations under capital leases ..................... (111,000) (22,198)
Net proceeds on exercise of common stock warrants .......................... 123,750 --
----------- ---------
Net cash provided by financing activities ................................ 372,351 307,055
----------- ---------
Net increase (decrease) in cash ................................................ 731,174 (9,849)
Cash and cash equivalents at beginning of period ............................... 104,193 180,963
----------- ---------
Cash and cash equivalents at end of period ..................................... $ 835,367 $ 171,114
=========== =========
Supplemental cash flow information:
Common stock issued upon conversion of notes payable and accrued interest .... $ 700,000 $ 835,233
Interest paid ................................................................ 45,200 144,758
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
<PAGE>
GreenMan Technologies, Inc.
Consolidated Statements of Cash Flow
(Concluded)
Supplemental Schedule of Non-cash 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
===========
In connection with the discontinued operations, the Company transferred
$300,000 of accounts payable to convertible notes payable, other, as of August
31, 1998.
See accompanying notes to unaudited condensed consolidated financial statements.
7
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
August 31, 1998
1. 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, the Company determined in fiscal 1998 that concentration on raw
materials management would be more profitable and provide greater growth
opportunities 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. ("BFI") 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 used as a research and development facility and crumb rubber production
center. GMTL, GMTM and GMTG constitute the Company's tire recycling operations
(the "Recycling operations"). On August 21,1998, GMTL's manufacturing facility
and cryogenic equipment were significantly damaged by a fire. The Company is
evaluating plans for replacing the equipment and re-establishing its crumb
rubber capabilities.
On June 1, 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-sanctioned disposal site on about 40 acres of permitted land. The Company
began operating the Mac's facility effective, June 1, 1998 under a management
agreement and anticipates completing the acquisition of all of the outstanding
capital stock of Mac's in October 1998.
2. Basis of Presentation
The consolidated financial statements include the results of GMTM and GMTG
since July 1, 1997, GMTL since November 19, 1997 and income associated with the
Mac's management agreement since June 1, 1998. All significant intercompany
accounts and transactions are eliminated in consolidation.
The Company discontinued operations at the Malvern, Arkansas molding
operation effective January 31, 1998. Management adopted a formal plan to
dispose of the facility and as a result, 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 financial statements are unaudited and should be read in conjunction
with the financial statements and notes thereto for the fiscal year ended May
31, 1998 included in the Company's Form 10-KSB. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to the Securities and Exchange Commission ("SEC") rules and
regulations, although the Company believes the disclosures which have been made
are adequate to make the information presented not misleading.
8
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
August 31, 1998
2. Basis of Presentation - (Continued)
The results of operations for the periods reported are not necessarily
indicative of those that may be expected for a full year. In the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
which are necessary for a fair statement of operating results for the interim
periods presented have been made.
3. 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 of each year to September 30 of each year. The
change will become effective immediately. The Company's next fiscal year will
end on September 30, 1998.
4. Net Loss Per Share
In February 1997, the Financial Accounting Standards Board ("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 be 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 solely 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 three months ended August 31,
1997 and 1998, options, warrants and convertible debt were anti-dilutive and
excluded from the net loss per share computation.
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.
5. 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 in 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 11)
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.
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
9
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
August 31, 1998
5. Acquisition of Subsidiaries - (Continued)
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
the date of acquisition. 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.
Three Months Ended
August 31, 1997
------------------
Revenue $ 2,897,792
Net loss from continuing operations (942,998)
Net loss (1,090,032)
Net loss per weighted average share (0.70)
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.
6. Insurance Claim Receivable
On August 21,1998, GMTL's manufacturing facility and cryogenic equipment
were significantly damaged by a fire. The Company has assessed the damage and
believes that it will be adequately covered by insurance and as a result has
recorded no loss on this transaction at August 31, 1998. At August 31, 1998, the
Company wrote down the carrying value of the damaged assets to their estimated
residual value and has recorded a $3,047,690 insurance claim receivable. The
Company has classified all payments due under the cryogenic equipment lease as
current liabilities at August 31, 1998. The Company is evaluating plans for
replacing the equipment and re-establishing its crumb rubber capabilities.
7. Inventory
Inventory consists of the following:
May 31, 1998 August 31, 1998
------------ ---------------
Raw materials .................. $ 29,000 $ 44,375
Work in process ................ 12,805 --
Finished goods ................. 286,773 256,563
-------- --------
$328,578 $300,938
======== ========
10
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
August 31, 1998
8. Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
Estimated Useful
May 31, 1998 August 31, 1998 Lives
------------ --------------- ----------------
<S> <C> <C> <C>
Land ................................... $ 879,162 $ 879,162 --
Buildings .............................. 2,490,980 2,531,486 5-25 years
Machinery and equipment ................ 5,552,609 2,894,478 3-20 years
Furniture and fixtures ................. 79,184 85,799 3-7 years
Motor vehicles ......................... 1,779,541 1,942,314 3-10 years
Leasehold improvements ................. 52,626 52,626 5 years
----------- -----------
10,834,102 8,385,865
Less accumulated depreciation
and amortization ..................... (960,023) (1,227,463)
----------- -----------
Property, plant and equipment (net) .. $ 9,874,079 $ 7,158,402
=========== ===========
</TABLE>
9. Discontinued Operations
In January 1998, the Company discontinued operations at its Malvern,
Arkansas facility (the "Facility") which was previously engaged in providing
injection molding manufacturing services. 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 in fiscal 1998 and
wrote down the Facility's net assets to their estimated fair market value at May
31, 1998. During the year ended May 31, 1998, the Facility's revenues totaled
$1,126,627 and had net losses totaling $660,954. For the three months ended
August 31, 1997, the Facility's revenues were $568,071 and had a net loss of
$147,034. 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 prior periods presented.
As of August 31, 1998, the Company had disposed of the Facility's assets
and has remaining obligations of $251,336 included in accounts payable and
accrued expenses and 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.
10. Convertible Notes Payable
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. The net proceeds from
the December Offering were approximately $1,350,000 after deducting commissions
and expenses of approximately $250,000. The Company paid $750,000 from the
proceeds to BFI towards the outstanding loan payable for the purchase of GMTM
and GMTG. The Company has recorded a deferred charge of approximately $533,000
associated with the impact of the 25% discount from
11
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
August 31, 1998
10. Convertible Notes Payable - (Continued)
market to be realized upon conversion 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. As of May 31, 1998,
$240,433 of the Initial Debentures and $7,127 of accrued interest had converted
into 98,984 shares of common stock. During the quarter ended August 31, 1998,
$794,887 of the Initial Debentures and $40,346 of accrued interest were
converted into 708,847 shares of common stock. Interest expense for the quarter
ended August 31, 1998 was $15,995.
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 up to
$175,000 or greater if mutually agreed upon 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.
During June and August 1998, the Company issued Additional Debentures in
the aggregate principal amount of $450,000 and immediately exercisable two-year
warrants to purchase 27,000 shares of Common Stock at an exercise prices ranging
from $2.41 to $1.17 per share. The net proceeds from the Additional Debentures
were approximately $371,500 after deducting commissions and expenses of
approximately $78,500. The Company has recorded deferred charges of $150,000
associated with the impact of the 25% discount from market to be realized upon
conversion of the Additional Debentures. The Company also recorded deferred
financing costs of $54,000 in connection with the issuance of warrants to
purchase 27,000 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 Additional Debentures. Interest expense for the quarter
ended August 31, 1998 was $5,160.
11. Letter of Intent
On June 1, 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-sanctioned disposal site on about 40 acres of permitted land. The Company
began operating the Mac's facility effective, June 1, 1998 under a management
agreement and has recognized $144,000 of income under this agreement for the
three months ended August 31, 1998. The Company anticipates completing the
acquisition of all of the outstanding capital stock of Mac's in October 1998.
12
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
August 31, 1998
12. Subsequent Events
United Waste Systems Acquisition
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. Simultanious
with the acquisition, the Company entered into an equipment financing agreement
with Heller Financial Inc. which provided the $850,000 for the transaction. The
acquired assets are located in Lawrenceville, Georgia and Batesburg, South
Carolina and collectively, the two operations process over 5 million tires
annually.
Private Offering of Common Stock
In October 1998, the Company commenced a private offering of common stock
in an effort to raise up to $500,000 in gross proceeds. As of October 14, 1998,
the Company sold 928,432 shares of uregistered common stock to investors
including officers and directors of the Company (the "Investors" ) for
approximately $325,000. The Company granted the Investors piggy-back
registration rights to register the common stock . The Investors have agreed not
to sell or transfer the shares for a period of at least twelve months after
issuance.
13
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information should be read in conjunction with the unaudited
condensed consolidated financial statements and the notes thereto included in
Item 1 of the Quarterly Report, and the audited consolidated financial
statements and notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations contained in the Company's Form
10-KSB filed for the fiscal year ended May 31, 1998.
All share and per share data in this Form 10-QSB 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.
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.
Overview
GreenMan Technologies, Inc. (the "Company") 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, 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").
GMTL, GMTM and GMTG constitute the Company's tire recycling operations (the
"Recycling operations"). On August 21,1998, GMTL's manufacturing facility and
cryogenic equipment were significantly damaged by a fire. The Company is
evaluating plans for replacing the equipment and re-establishing its crumb
rubber capabilities.
On June 1, 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-sanctioned disposal site on about 40 acres of permitted land. The Company
began operating the Mac's facility effective, June 1, 1998 under a management
agreement and anticipates completing the acquisition of all of the outstanding
capital stock of Mac's in October 1998.
14
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Three Months ended August 31, 1998 Compared to the Three Months ended
August 31, 1997
Net sales for the three months ended August 31, 1998 were $3,590,948 as
compared to $2,147,259 for the three months ended August 31, 1997. The increase
of $1,443,689 or 67% was primarily attributable to the inclusion of revenues
from GMTM and GMTG for a full quarter as they were acquired June 30, 1997 and an
average 27% internal growth in tires processed as compared to the same fiscal
1998 period. The increase also includes $144,000 of management fee income
associated with the Mac's management agreement.
Gross profit for the three months ended August 31, 1998 was $1,175,630 or
33% of net sales as compared to $722,135 or 34% of net sales for the three
months ended August 31, 1997. The slight decrease was attributable to the
inclusion GMTL which operated under limited operating conditions during the
quarter as the Company continued its crumb rubber research and development
efforts.
Research and development expenditures were $140,132 for the three months
ended August 31, 1998 as compared to $75,065 for the same period in fiscal 1998.
The increase is attributable to the Company's continued crumb rubber research
and development efforts being conducted at GMTL. This facility has operated as
the Company's technical proving ground 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.
Selling, general and administrative expenses were $921,765 for the three
months ended August 31, 1998, or 26% of sales as compared to $725,110 or 34% of
sales, for the same period in fiscal 1998. The three months ended August 31,
1998 include operating expenses of $75,119 associated with the inclusion of GMTL
which was acquired in November 1997 and expenses associated with GMTM and GMTG
for a full quarter.
As a result of the foregoing, the Company had an operating profit of
$113,733 for the three months ended August 31, 1998 as compared to an operating
loss of $78,040 for the comparable period in fiscal 1998. The quarter ended
August 31, 1998 represents the first time the Company has reported an operating
profit.
Interest and financing costs for the comparable quarter in fiscal 1998
decreased by $395,843 to $483,145 for the three months ended August 31, 1998 due
to decreased amortization of the financing costs associated with the issuance of
convertible debentures. Approximately $314,000 of financing costs were expensed
during the period ended August 31, 1998 with $421,193 remaining to be amortized.
The Company experienced a net loss of $364,447, or $0.06 per share for the
three months ended August 31, 1998 as compared to a net loss of $1,099,742, or
$0.61 per share for the three months ended August 31, 1997. The net loss for the
three months ended August 31, 1997 includes a $147,034 loss from discontinued
operations associated with the closure of the Company's injection molding
operations in January 1998.
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
Since its inception, the Company has satisfied its capital requirements
through the sale of common and preferred stock and debt securities to investors,
loans from affiliated and unaffiliated lenders, the acquisition of machinery and
equipment through capital leases and notes payable, and the issuance of common
stock and common stock options and warrants in lieu of cash for services
rendered.
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 August 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 August 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 working capital line of credit bears interest at prime plus 1.5% (10%
at August 31, 1998). At August 31, 1998, the Company had $438,687 outstanding
under the line of credit.
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. The net proceeds from
the December Offering were approximately $1,350,000 after deducting commissions
and expenses of approximately $250,000. The Company paid $750,000 from the
proceeds to BFI towards the outstanding loan payable 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 Debentures. Each tranche shall be for the purchase up to
$175,000 or greater if mutually agreed upon 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.
During June and August 1998, the Company issued Additional Debentures in
the aggregate principal amount of $450,000 and immediately exercisable two-year
warrants to purchase 27,000 shares of Common Stock at an exercise prices ranging
from $2.41 to $1.17 per share. The net proceeds from the Additional Debentures
were approximately $371,500 after deducting commissions and expenses of
approximately $78,500.
Private Offering of Common Stock
In October 1998, the Company commenced a private offering of common stock
in an effort to raise up to $500,000 in gross proceeds. As of October 14, 1998,
the Company sold 928,432 shares of uregistered common stock to investors
including officers and directors of the Company (the "Investors" ) for
approximately $325,000. The Company granted the Investors piggy-back
registration rights to register the common stock . The Investors have agreed not
to sell or transfer the shares for a period of at least twelve months after
issuance.
16
<PAGE>
At August 31, 1998 the Company had cash of $171,114, a working capital
deficit of $1,343,240, net capital of $3,852,474 and accumulated losses of
$17,394,366.
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 sale of common stock in
October 1998, the purchase of equipment through lease financing arrangements and
the remaining availability under the Heller Credit Facility, should 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 and reach a
satisfactory resolution with the insurance carriers; (iv) the Company's ability
to reach satisfactory settlement with the remaining creditors of its closed
injection molding operation; (v) the Company's ability to integrate and manage
the scrap tire collection and processing assets acquired from United in
September 1998; (vi) ability to obtain raw materials from suppliers on terms
acceptable to the Company; and (vii) 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.
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.
17
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There has been no significant changes in legal proceedings during the
quarter ended August 31, 1998
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 11 -- Statement regarding net loss per share.
Exhibit 27 -- Financial Data Schedule.
(b) Reports on Form 8-K
A report on Form 8-K was filed on July 9, 1998 describing the
Company's change in fiscal year from May 31 to September 30.
18
<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
Signature Title(s) Date
--------- -------- ----
/s/ Robert H. Davis Chief Executive Officer, President October 15, 1998
- ------------------- and Director
Robert H. Davis
/s/ Charles E. Coppa Acting Chief Financial Officer and October 15, 1998
- -------------------- Assistant Secretary
Charles E. Coppa
Exhibit 11
GreenMan Technologies, Inc.
Statement Regarding Net Loss per Share
August 31, 1998
Three Months Ended
August 31,
1997 1998
----------- -----------
Net loss from continuing operations ................ $ (952,708) $ (364,447)
Net loss from discontinued operations .............. $ (147,034) $ --
----------- -----------
Net loss ........................................... $(1,099,742) $ (364,447)
=========== ===========
Net loss per share - basic:
Continuing operations .............................. $ (0.61) $ (0.06)
----------- -----------
Discontinued operations ............................ $ (0.10) $ --
----------- -----------
Net loss ........................................... $ (0.71) $ (0.06)
=========== ===========
Shares used in calculation of loss per share (1):
Weighted average common shares outstanding ......... 1,551,056 6,180,025
=========== ===========
(1) All share and per share data 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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
GreenMan Technologies, Inc.
Form 10-QSB
August 31, 1998
Financial Data Schedule
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> AUG-31-1998
<CASH> 171,114
<SECURITIES> 0
<RECEIVABLES> 1,548,886
<ALLOWANCES> 51,529
<INVENTORY> 300,938
<CURRENT-ASSETS> 5,809,847
<PP&E> 8,385,865
<DEPRECIATION> 1,227,463
<TOTAL-ASSETS> 15,138,370
<CURRENT-LIABILITIES> 7,153,087
<BONDS> 4,132,809
0
0
<COMMON> 65,969
<OTHER-SE> 21,180,871
<TOTAL-LIABILITY-AND-EQUITY> 15,138,370
<SALES> 3,590,948
<TOTAL-REVENUES> 3,590,948
<CGS> 2,415,318
<TOTAL-COSTS> 1,061,897
<OTHER-EXPENSES> (4,965)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 483,145
<INCOME-PRETAX> (364,447)
<INCOME-TAX> 0
<INCOME-CONTINUING> (364,447)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (364,447)
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<EPS-DILUTED> (0.06)
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