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 December 31, 1998 Commission File Number 1-13776
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GreenMan Technologies, Inc.
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(Exact name of small business issuer as specified in its charter)
Delaware 71-0724248
---------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
7 Kimball Lane, Building A, Lynnfield, MA 01940
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code (781) 224-2411
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May 31 ( former fiscal year )
-----------------------------
(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 |_| No |X|
Number of shares outstanding as of February 8, 1999
Common Stock, $.01 par value, 10,990,305 shares
<PAGE>
GreenMan Technologies, Inc.
Form 10-QSB
Quarterly Report
December 31, 1998
Table of Contents
PART I - FINANCIAL INFORMATION Page
----
Item 1. Financial Statements (*)
Unaudited Condensed Consolidated Balance Sheets as of
September 30, 1998 and December 31, 1998 3
Unaudited Condensed Consolidated Statements of Loss for the
three months ended November 30, 1997 and December 31, 1998 4
Unaudited Condensed Consolidated Statement of Changes in
Stockholders' Equity for the three months ended December 31,
1998 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
three months ended November 30, 1997 and December 31, 1998 6-7
Notes to Unaudited Condensed Consolidated Financial Statements 8-14
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 15-19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 3. Defaults Upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Security Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
* The financial information at September 30, 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.
<PAGE>
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
September 30, December 31,
1998 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................................ $ 161,215 $ 533,203
Accounts receivable, trade, less allowance for doubtful accounts of $58,166 and
$64,627 as of September 30, 1998 and December 31, 1998 ................................ 1,685,885 2,083,141
Inventory ................................................................................ 229,037 182,988
Insurance claim receivable ............................................................... 2,120,284 1,720,226
Other current assets ..................................................................... 740,859 657,606
------------ ------------
Total current assets ............................................................... 4,937,280 5,177,164
------------ ------------
Property and equipment, net ................................................................ 9,126,573 9,254,972
------------ ------------
Other assets:
Deferred financing costs ................................................................. 306,304 21,111
Deferred loan costs ...................................................................... 250,436 237,805
Goodwill, net ............................................................................ 2,347,143 2,284,308
Other .................................................................................... 439,023 351,400
------------ ------------
3,342,906 2,894,624
------------ ------------
$ 17,406,759 $ 17,326,760
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Convertible notes payable, current ....................................................... $ 300,000 $ 300,000
Notes payable, related party ............................................................. 4,956 --
Notes payable,current .................................................................... 1,678,399 1,837,764
Accounts payable ......................................................................... 1,714,529 1,841,452
Accrued expenses, other .................................................................. 1,932,789 1,482,874
Obligations under capital leases, current ................................................ 542,058 558,418
------------ ------------
Total current liabilities .......................................................... 6,172,731 6,020,508
Convertible notes payable, non current portion ........................................... 839,740 257,500
Notes payable, non-current portion ....................................................... 3,546,207 3,438,710
Obligations under capital leases, non current portion .................................... 1,568,364 1,544,211
------------ ------------
Total liabilities .................................................................. 12,127,042 11,260,929
------------ ------------
Stockholders' equity :
Preferred stock, $1.00 par value, 1,000,000 shares authorized:
Class B convertible, liquidation value $10 per share,
320,000 shares issued and outstanding ................................................ 3,200,000 3,200,000
Common stock, $.01 par value, 20,000,000 shares authorized;
6,910,247 and 10,115,840 shares issued and outstanding at
September 30,1998 and December 31, 1998 .............................................. 69,103 101,158
Additional paid-in capital ............................................................... 21,366,619 22,341,491
Accumulated deficit ...................................................................... (19,356,005) (19,576,818)
------------ ------------
Total stockholders' equity ......................................................... 5,279,717 6,065,831
------------ ------------
$ 17,406,759 $ 17,326,760
============ ============
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements
3
<PAGE>
GreenMan Technologies, Inc.
Unaudited Condensed Consolidated Statements of Loss
Three Months Ended
November 30, December 31,
1997 1998
----------- -----------
Net sales .......................................... $ 3,061,578 $ 4,577,771
Cost of sales ...................................... 2,059,131 3,219,583
----------- -----------
Gross profit ....................................... 1,002,447 1,358,188
----------- -----------
Operating expenses:
Research and development ....................... 56,735 14,375
Selling, general and administrative ............ 1,044,831 1,127,063
----------- -----------
Total operating expenses ................... 1,101,566 1,141,438
----------- -----------
Operating (loss) profit ............................ (99,119) 216,750
----------- -----------
Other income (expense):
Interest and financing costs ................... (584,436) (436,603)
Other, net ..................................... (1,711) (960)
----------- -----------
Other (expense), net ....................... (586,147) (437,563)
----------- -----------
Loss from continuing operations .................... (685,266) (220,813)
Discontinued operations:
Loss from discontinued operations .............. (297,536) --
----------- -----------
Net loss ........................................... $ (982,802) $ (220,813)
=========== ===========
Loss from continuing operations per share - basic .. $ (0.40) $ (0.02)
Loss from discontinued operations per share - basic (0.18) --
----------- -----------
Net loss per share - basic ......................... $ (0.58) $ (0.02)
=========== ===========
Weighted average shares outstanding ................ 1,695,987 9,109,847
=========== ===========
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
GreenMan Technologies, Inc.
Consolidated Statement of Changes in Stockholders' Equity
Three Months Ended December 31, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
------------------- -------------------- Paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
------- ---------- ---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1998 ................... 320,000 $3,200,000 6,910,247 $ 69,103 $21,366,619 $(19,356,005) $ 5,279,717
Shares issued on conversion of notes
payable and accrued interest ................ -- -- 2,126,646 21,266 606,861 -- 628,127
Fair value of conversion discount on
accrued interest associated with
convertible notes payable ................... -- -- -- -- 13,800 -- 13,800
Sale of common stock .......................... -- -- 1,078,947 10,789 354,211 -- 365,000
Net loss for the three months ended
December 31, 1998 ........................... -- -- -- -- -- (220,813) (220,813)
------- ---------- ---------- -------- ----------- ------------ -----------
Balance, December 31, 1998 .................... 320,000 $3,200,000 10,115,840 $101,158 $22,341,491 $(19,576,818) $ 6,065,831
======= ========== ========== ======== =========== ============ ===========
</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
November 30, December 31,
1997 1998
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................................. $ (982,802) $(220,813)
Adjustments to reconcile net loss to net cash provided by
(used for ) operating activities:
Amortization of deferred financing costs .................................. 287,394 285,193
Depreciation and amortization ............................................. 310,760 428,454
(Increase) decrease in assets:
Accounts receivable ................................................... 135,203 (397,256)
Inventory ............................................................. 11,978 46,049
Insurance claim receivable ............................................ -- 400,058
Other current assets .................................................. (101,775) 83,253
Increase (decrease) in liabilities:
Accounts payable ...................................................... (6,525) 126,923
Accrued expenses ...................................................... 769,363 (404,028)
----------- ---------
Net cash provided by (used for ) operating activities ................ 423,596 347,833
----------- ---------
Cash flows from investing activities:
Purchase of property and equipment ........................................ (494,455) (450,883)
Refund of deposit on equipment ............................................ 100,000 --
Deferred loan costs ....................................................... -- (14,205)
Cash acquired on purchase of Cryopolymers Inc. ............................ 172,064 --
(Increase) decrease in other assets ....................................... 55,058 85,124
----------- ---------
Net cash used for investing activities ............................... (167,333) (379,964)
----------- ---------
Cash flows from financing activities:
Net advances under line of credit ......................................... -- 92,971
Repayment of notes payable ................................................ (376,807) (241,522)
Proceeds from notes payable ............................................... 99,380 200,419
Repayment of notes payable, related party ................................. (13,458) (4,956)
Principal payments on obligations under capital leases .................... (42,201) (7,793)
Net proceeds on the sale of common stock .................................. -- 365,000
Net proceeds on exercise of common stock warrants ......................... 101,250 --
----------- ---------
Net cash (used for) provided by financing activities .................... (231,836) 404,119
----------- ---------
Net increase in cash .......................................................... 24,427 371,988
Cash and cash equivalents at beginning of period .............................. 835,367 161,215
----------- ---------
Cash and cash equivalents at end of period .................................... $ 859,794 $ 533,203
=========== =========
Supplemental cash flow information:
Machinery and equipment acquired under capital leases ....................... $ 2,771,876 $ --
Common stock issued upon conversion of notes payable and accrued interest ... 1,325,051 628,127
Interest paid ............................................................... 51,481 134,343
</TABLE>
(Continued)
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 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
===========
See accompanying notes to unaudited condensed consolidated financial statements.
7
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
December 31, 1998
1. Business
GreenMan Technologies, Inc. (the "Company" or "GreenMan") operates two
business segments, the tire recycling operations (the "Recycling operations")
located in Jackson and Lawrenceville, Georgia; Savage, Minnesota; Batesburg,
South Carolina; 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. In August 1998, the Company's Louisiana crumb
rubber processing facility was severely damaged by a fire which necessitated the
closure of the operation.
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 was renamed GreenMan Technologies of Louisiana, Inc. ("GMTL"). GMTL
ceased processing operations in August 1998 due to a fire and GMTL's facility
was completely closed in December 1998.
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 two recycling operations
are located in Lawrenceville, Georgia and Batesburg, South Carolina. The
Lawrenceville operation was assumed by GMTG. The Batesburg operation has been
incorporated as GreenMan Technologies of South Carolina, Inc. ("GMTSC").
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.
2. Basis of Presentation
The consolidated financial statements include the results of the Company,
GMTM, GMTG and DuraWear for all periods presented, GMTL since November 19, 1997
and GMTSC since September 4, 1998. 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 were restated to reflect the 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 transition period ended
September 30, 1998 included in the Company's Form 10-KSB/A-1. 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. 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.
8
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
December 31, 1998
3. Change in Fiscal Year
On June 24,1998, the Board of Directors of the Company adopted a change of
its fiscal year-end from May 31 of each year to September 30. Accordingly,
during the first full year of the newly adopted fiscal period, quarterly results
for the periods ended December 1998, March 1999 and June 1999 will be compared
to prior fiscal periods ended November 1997, February 1998 and May 1998
respectively. Management believes there are no significant factors which would
negatively impact the comparability of the information or trends reflected.
4. Net Loss Per Share
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. For all periods presented,
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 were 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 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) 153,402 shares of common stock (then valued at
$744,000); (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 at
varying prices. 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. In August 1998, GMTL's facility was severely damaged by a
fire which necessitated the closure of the operation. As a result, the remaining
goodwill balance was expensed as of September 30,1998.
9
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
December 31, 1998
5. Acquisition of Subsidiaries - (Continued)
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 higher of the trailing 15 day
average closing bid (as defined) prices prior to the conversion date or the
average of the closing bid prices during the period from September 3, 1998 to
February 3, 2001. The 320,000 shares of Class B convertible preferred stock have
a liquidation preference of $10 per share. Simultaneous with the acquisition,
the Company entered into an equipment financing agreement with Heller Financial
Inc., which provided $850,000 in cash that was required for the transaction. The
acquired assets are located in Lawrenceville, Georgia (reported as an operating
division of GMTG) and Batesburg, South Carolina (incorporated as GreenMan
Technologies, of South Carolina, Inc. "GMTSC") .The acquisition has been
accounted for as a purchase and accordingly, the operations are included in the
consolidated financial statements since September 4, 1998. Goodwill was recorded
as the total consideration paid by the Company exceeded the fair value of the
net assets acquired by $2,015,000.
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 year ended May 31,1998. 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
November 30,
1997
--------------
Revenue $ 4,337,748
Net (Loss) Profit From Continuing Operations (632,304)
Net Loss (929,840)
Net Loss per Weighted Average Share (0.51)
6. Insurance Claim Receivable on Casualty Loss
In August 1998, GMTL's facility was damaged by a fire which necessitated
the closure of the operation. The Company does not intend to rebuild in St.
Francisville, Louisiana and is still assessing alternatives for replacing
equipment and re-establishing crumb rubber capabilities either on its own or
through alliances with existing crumb rubber producers and/or crumb rubber
users.
Under the terms of GMTL's $3,000,000 property insurance policy, the
Company anticipates initially receiving approximately $2,050,000. The remaining
$950,000 may be paid if the Company can demonstrate, to the insurance company's
satisfaction, that the Company has invested $3,000,000 (replacement policy
limit) in alternative equipment that satisfies the replacement requirements of
the insurance policy. There can be no assurance that this will be the case. In
January 1999, the Company submitted a proposal to the insurance company, which
would allow GMTL to receive the remaining funds due under the policy. The
Company will recognize as income the remaining $950,000 of insurance proceeds
when it has received the funds from the insurance company and replaces the
damaged property. As a result of the closure of GMTL, management wrote down all
GMTL assets to their estimated net realizable value and accrued for all
remaining estimated fire related costs at September 30, 1998 resulting in a
casualty loss of $1,450,000.
10
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
December 31, 1998
6. Insurance Claim Receivable on Casualty Loss - (Continued)
The Company also recorded an insurance receivable of $170,226 at December
31, 1998 associated with its business interruption policy. As of December 31,
1998, the Company has received $500,000 of advance payments from the insurance
company against the total insured loss.
On December 31, 1998, The Company reached an agreement in principal with
the lessor of GMTL's cryogenic equipment capital lease obligation whereby the
lessor agreed to forgive $500,000 of capital lease obligations in return for a
$500,000 payment when the Company receives the additional payment from the
insurance company. The lessor agreed to execute a 10 year note payable with the
Company for the remaining capital lease balance of $1,600,000. The note will
bear interest at 10% per annum and is payable in monthly payments of $21,144
including interest and principal starting in June 1999. The Company has recorded
this forgiveness of debt as other income for the period ended September 30,
1998. The Company, however, has subsequently received correspondence from
attorneys for the lessor purporting to terminate the lease restructuring. The
Company believes that the lessor is bound by its December 31, 1998 agreement.
However, there can be no assurance that this will be the case. The parties are
currently in negotiations to resolve this dispute.
7. Inventory
Inventory consists of the following:
September 30, December 31,
1998 1998
--------- --------
Raw materials .......................... $ 8,517 $ 6,578
Work in process ........................ 19,552 --
Finished goods ......................... 200,968 176,410
--------- --------
$ 229,037 $182,988
========= ========
8. Property, Plant and Equipment
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, December 31, Estimated Useful
1998 1998 Lives
------------- ------------ ----------------
<S> <C> <C> <C>
Land ................................... $ 879,162 $ 879,162
Buildings .............................. 2,561,924 2,557,500 5-25 years
Machinery and equipment ................ 4,007,240 4,250,656 3-20 years
Furniture and fixtures ................. 91,564 98,247 3-7 years
Motor vehicles ......................... 2,699,498 2,904,706 3-10 years
----------- -----------
10,239,388 10,690,271
Less accumulated depreciation
and amortization ....................... (1,112,815) (1,435,299)
----------- -----------
Property, plant and equipment (net) .... $ 9,126,573 $ 9,254,972
=========== ===========
</TABLE>
11
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
December 31, 1998
9. 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. During the year ended May
31, 1998 and the three months ended November 30, 1997, the Facility's revenues
totaled $1,126,627 and $327,760 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 were 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 year ended May 31, 1998 and the three months
ended November 30, 1997 of $660,954 and $297,536 respectively. In July 1998, the
Company disposed of the remaining assets and converted $300,000 of the capital
lease 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. As of December 31, 1998, the Company
has not made any payments on the convertible note payable and is currently in
default. The Company has classified the entire principal amount of the note as a
current liability. At September 30, 1998 and December 31, 1998, the Company has
approximately $246,000 and $189,000, respectively of the facility's net
obligations remaining which are included in accrued expenses. 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
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
approximately $533,000 associated with the 25% discount from 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.
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 holder's
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
12
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
December 31, 1998
10. Convertible Notes Payable -(Continued)
Debenture Holders and placement agents warrants to purchase an additional
40,000 shares of Common Stock in the aggregate. As of September 30, 1998,
$1,210,260 of the Initial Debentures and $57,955 of accrued interest has been
converted into 1,121,212 shares of common stock. During the quarter ended
December 1998, the remaining $389,740 of Initial Debentures and $28,457 of
accrued interest were converted into 1,395,358 shares of common stock.
The Company issued $450,000 of Additional Debentures during the period
ended September 30, 1998 and immediately exercisable two-year warrants to
purchase 27,000 shares of Common Stock at an exercise prices ranging from $1.17
to $2.41 per share. The Company also issued immediately exercisable two year
warrants to purchase 27,000 shares of common stock at an exercise prices ranging
from $1.17 to $2.41 per share to the placement agent. The Company recorded a
deferred charge of approximately $150,000 associated with 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 54,000 shares of common stock to the investors
and placement agents in accordance with SFAS No. 123. During the quarter ended
December 31, 1998, $192,500 of Additional Debentures and $15,734 of accrued
interest was converted into 731,288 shares of common stock. In January 1999, the
remaining $257,500 of Additional Debentures and $7,348 of accrued interest were
converted into 833,443 shares of common stock.
The deferred charges are being amortized over the estimated life of the
Initial and Additional Debentures. Amortization and interest expense for the
quarter ended December 31, 1998 was $311,383.
11. Capital Leases.
In October 1997, the Company entered into a fifteen-year cryogenic
equipment lease agreement. Under the terms of the agreement, GMTL was paying
$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 were 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 was classified as a capital
lease at May 31, 1998 with an equipment value of $2,771,876. As a result of the
August 21, 1998 fire at GMTL, the leased cryogenic equipment was destroyed. On
December 31, 1998 the Company reached an agreement in principal with the
lessor of the capital lease equipment whereby the lessor agreed to forgive
$500,000 of capital lease obligations at September 30, 1998 in return for a
$500,000 payment when the Company receives additional payments from its
insurance company. The lessor agreed to execute a 10-year note payable with the
Company for the remaining capital lease balance of $1,600,000. The note will
bear interest at 10% per annum and is payable in monthly payments of $21,144
including interest starting in June 1999. The Company, however, has subsequently
received correspondence from attorneys for the lessor purporting to terminate
the lease restructuring. The Company believes that the lessor is bound by its
December 31, 1998 agreement. However, there can be no assurance that this will
be the case. The parties are currently in negotiations to resolve this dispute.
12. 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. The Company has been operating the
Mac's facility since June 1, 1998 under a management agreement (the "management
agreement") and anticipates completing a purchase and sale agreement during the
first quarter of calendar 1999. The management agreement provides for the
Company to earn a management fee equal to 90% of the net income of Mac's before
depreciation and income taxes. The Company has recognized $36,000 of income
under this agreement for the quarter ended December 31, 1998 and accounts
receivable from Mac's amounted to $184,200 at December 31, 1998.
13
<PAGE>
GreenMan Technologies, Inc.
Notes To Unaudited Condensed Consolidated Financial Statements
December 31, 1998
13. Segment Information
The Company has two principal operating groups: the recycling operations
and the industrial materials operation. The 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 is as follows:
At or For the Quarter Ended December 31, 1998
---------------------------------------------
Industrial
Recycling Materials
Operations Operations Total
---------- ---------- -----
Operating Revenues $ 4,380,951 $ 196,820 $ 4,577,771
Operating Profit (Loss) 647,171 (100,286) 546,875
Net Income (Loss) 528,924 (110,384) 418,539
Identifiable Assets 14,433,341 1,793,819 16,227,160
Depreciation/Amortization 354,589 31,455 386,044
Capital Expenditures 450,883 -- 450,883
At or For the Quarter Ended November 30, 1997
---------------------------------------------
Industrial
Recycling Materials
Operations Operations Total
---------- ---------- -----
Operating Revenues $ 2,401,342 $ 660,236 $ 3,061,578
Operating Profit (Loss) 318,693 59,788 378,481
Net Income (Loss) 194,380 45,372 239,752
Identifiable Assets 11,550,810 2,343,656 13,894,466
Depreciation/Amortization 247,183 32,233 279,416
Capital Expenditures 4,266,281 -- 4,266,281
The difference between the cumulative net operating profit of the segments
and the consolidated net operating profit at December 31, 1998 and November 30,
1997 is due to unallocated corporate overhead charges of $330,125 and $477,600,
respectively. The difference between the cumulative net loss of the segments and
the consolidated net loss at December 31, 1998 and November 30, 1997 is due to
the operating profit differences noted above, corporate interest and financing
costs of $309,227 and $447,418, respectively and $297,536 associated with
discontinued operations at November 30, 1997.
14. Market for Common Stock
On October 29, 1998, the Company received notice from the Nasdaq Stock
Market, Inc. ("Nasdaq") stating that the Company's common stock would be
delisted from NASDAQ if, in the ninety day period ended January 29, 1999, the
Company could not demonstrate compliance with Nasdaq's $1.00 minimum bid price
for ten consecutive trading days. As of January 29, 1999, the Company had not
regained compliance with the minimum bid price requirement but has submitted a
written appeal to Nasdaq's Listing and Hearing Review Committee and anticipates
that delisting of the Company's common stock will be stayed during the pendency
of such appeal. There can be no assurance, however, that the Company will be
able to maintain Nasdaq listing for the Company's common stock (whether as a
result of failure to meet the minimum bid price requirement, the market value
requirement or other requirements imposed by Nasdaq). The Company's management
anticipates that the absence of the Nasdaq listing for the Company's common
stock would have an adverse effect on the market for, and potentially the market
price of, the Company's common stock. If the Company's common stock is delisted
from Nasdaq, the Company expects that brokers would continue to make a market in
the company's common stock on the OTC Bulletin Board.
As of February 8, 1999, the Company's stock traded at or above $1.00 for a
ten consecutive day period. The Company has notified the Nasdaq Listing and
Hearing Review Committee of this fact and has requested acknowledgment of the
Company's compliance with minimum bid requirement.
14
<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/A-1 filed for the transition period ended September 30, 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.
On June 24,1998, the Board of Directors of the Company adopted a change of
its fiscal year-end from May 31 of each year to September 30. Accordingly,
during the first full year of the newly adopted fiscal period, quarterly results
for the periods ended December 1998, March 1999 and June 1999 will be compared
to prior fiscal periods ended November 1997, February 1998 and May 1998
respectively. Management believes there are no significant factors which would
negatively impact the comparability of the information or trends reflected.
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" or "GreenMan") currently
operates two business segments, the tire recycling operations (the "Recycling
operations") located in Jackson and Lawrenceville, Georgia; Batesburg, South
Carolina; Savage, Minnesota 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. In August 1998, the Company's St. Francisville, Louisiana crumb rubber
processing facility was severely damaged by a fire, which necessitated the
closure of the operation.
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 ceased processing operations in August 1998 due to a fire and the St.
Francisville facility was completely closed in December 1998.
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.
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 has been operating the
Mac's facility since June 1, 1998 under a management agreement (the "management
agreement") and anticipates completing a purchase and sale agreement during the
first quarter of calendar 1999. The management agreement provides for the
Company to earn a management fee equal to 90% of the net income of Mac's before
depreciation and income taxes.
15
<PAGE>
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 two recycling operations
are located in Lawrenceville, Georgia and Batesburg, South Carolina and
currently process over 5 million passenger tire equivalents annually.
Lawrenceville operations are currently operating as a division of GMTG but will
be eventually consolidated with ongoing Jackson, Georgia operations. The
Batesburg operation has been incorporated as GreenMan Technologies of South
Carolina, Inc. ("GMTSC"). The Company has not completed the filing of Form 8-K
for the United acquisition. As a result, the Company is subject to a fine of up
to $100 a day for the period until it completes its filing. The Company is also
ineligible to register securities using SEC Form S-3 for a period of twelve
months from the date on which it is current with respect to all of its SEC
filings.
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.
Results of Operations
Three Months ended December 31, 1998 Compared to the Three Months
ended November 30, 1997
Net sales for the three months ended December 31, 1998 were $4,577,771 as
compared to $3,061,578 for the three months ended November 30, 1997. The
increase of $1,516,193 or 50% was primarily attributable to the inclusion of
revenues from the United acquisition of approximately $1,046,000 as they were
acquired on September 4, 1998 and an internal growth in tires processed from
existing operations of over 30% as compared to the three months ended November
30, 1997. This increase was offset by a $436,416 decrease in revenues from
DuraWear during the three months ended December 31, 1998, compared to the three
months ended November 30, 1997.
Gross profit for the three months ended December 31, 1998 was $1,358,188
or 30% of net sales as compared to $1,002,447 or 33% of net sales for the three
months ended November 30, 1997. The decrease was primarily attributable to
decreased margins at DuraWear.
Research and development expenditures were $14,375 for the three months
ended December 31, 1998 as compared to $56,735 for the three months ended
November 30, 1997. The decrease is due to the fact that during the prior fiscal
year ended May 31, 1998, the Company expended a significant effort in the area
of crumb rubber research and development. The effort resulted in the June 1998
Federal Highway Administration certification of the Company's crumb rubber
modification technology for use in the asphalt industry.
Selling, general and administrative expenses were $1,127,063 for the three
months ended December 31, 1998, or 25% of sales as compared to $1,044,831 or 34%
of sales, for the three months ended November 30, 1997. The three months ended
December 31, 1998 include approximately $98,000 associated with employee
termination benefits and the inclusion of the first full quarter of operating
expenses of the United acquisition.
As a result of the foregoing, the Company had an operating profit of
$216,750 for the three months ended December 31, 1998 as compared to an
operating loss of $99,119 for three months ended November 30, 1997.
Interest and financing costs for the quarter ended December 31, 1998
decreased by $147,833 to $436,603 due to decreased amortization of the financing
costs associated with the issuance of convertible debentures. Approximately
$285,000 of financing costs were expensed during the period ended December 31,
1998 with $21,111 remaining to be amortized.
The Company experienced a net loss of $220,813, or $0.02 per share for the
three months ended December 31, 1998 as compared to a net loss of $982,802, or
$0.58 per share for the three months ended November 30, 1997. The net loss for
the three months ended November 30, 1997 includes a $297,536 loss from
discontinued operations associated with the closure of the Company's injection
molding operations in January 1998.
16
<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% 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% 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%.
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. 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.
On September 4, 1998, Heller provided GMTG an additional $850,000 term
note secured by the machinery and equipment of GMTG and payable in monthly
principal installments of $14,667, with interest at prime plus 1.75% and a
balloon payment of $439,324 due in February 2001. GMTG used the proceeds for the
United acquisition. In connection with the loan, Heller reduced the working
capital line of credit from $1,700,000 to $1,079,000.
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 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.
17
<PAGE>
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.
United 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 higher of the trailing 15 day
average closing bid (as defined) prices prior to the conversion date or the
average of the closing bid prices during the period from September 3, 1998 to
February 3, 2001. The 320,000 shares of Class B convertible preferred stock have
a liquidation preference of $10 per share. Simultaneous 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 (reported as an operating division of GMTG)
and Batesburg, South Carolina (incorporated as GreenMan Technologies, of South
Carolina, Inc. "GMTSC") .The acquisition has been accounted for as a purchase
and accordingly, the operations are included in the consolidated financial
statements since September 4, 1998. Goodwill was recorded as the total
consideration paid by the Company exceeded the fair value of the net assets
acquired by $2,015,000.
The Company has not completed the filing of Form 8-K for the United
acquisition. As a result, the Company is subject to a fine of up to $100 a day
for the period until it completes its filing. The Company is also ineligible to
register securities using SEC Form S-3 for a period of twelve months form the
date on which it is current with respect to all of its SEC filings.
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 December 31, 1998,
the Company sold 1,078,947 shares of uregistered common stock to investors
including officers and directors of the Company (the "Investors" ) for
approximately $365,000. 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.
At December 31, 1998 the Company had cash of $533,203, a working capital
deficit of $843,344, net capital of $6,065,831 and accumulated losses of
$19,576,818.
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 and December 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
ability of the Company' common stock and warrants to remain listed on the NASDAQ
Stock Market (ii) the Company's ability to realize all amounts due under the
GMTL property insurance policy (including the remaining $950,000); (iii) the
Company's ability to reach satisfactory settlement with the remaining creditors
of GMTL and the Company's closed injection molding operation; (iv) the Company's
ability to reestablish or relocate the operations of GMTL or gain access to
sufficient supplies of crumb rubber necessary for its modified asphalt needs;
(v); the impact of the Company's ongoing merger and acquisition activities; (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 the
production or purchase 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.
18
<PAGE>
YEAR 2000 DATE CONVERSION
Many computer software systems, as well as certain hardware and equipment
utilizing date-sensitive information, were configured to use a two-digit date
field, which will preclude them from properly recognizing dates in the year
2000. The inability to properly recognize date-sensitive information in the year
2000 could render systems inoperable or cause them to incorrectly process
operational or financial information.
The Company has hired GraVoc Associates, Inc. to assess and replace its
office PCs that are not year 2000 compatible during calendar 1999. The Company
is in the process of obtaining written confirmation that software is year 2000
compatible. The amounts anticipated to be charged to expense related to the Year
2000 computer compliance modifications, have not been and are not expected to be
material to the Company's financial position, results of operations or cash
flows.
In addition, machinery and equipment often use or are controlled or
monitored by electronic devices that contain embedded microchips. Such machinery
and equipment could be rendered partially or totally inoperable if embedded
microchips are date-sensitive and do not properly recognize the year 2000.
The Company is taking steps to resolve year 2000 compliance issues that
may be created by customers, suppliers and financial institutions with whom the
Company does business. However, there can be no guarantee that the systems of
other entities will be converted timely.
The Company has initiated a process to (1) identify critical supplier and
customer related issues, (2) access the year 2000 readiness of equipment located
at all of its operating facilities and (3) determine what contingency plans may
be required. At this time, the potential effects in the event that the Company
or third parties are unable to resolve year 2000 problems timely are not
determinable, however, the Company believes it will be able to resolve its own
year 2000 issues.
19
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There have been no significant changes in legal proceedings during
the quarter ended December 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 10.80 -- Management Agreement between GreenMan Technologies
of Mississippi, Inc. and Mac's Tire Recyclers.
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 October 5, 1998 describing the Company's
acquisition of the tire recycling assets of United Waste Service, Inc. This
Form 8-K is not yet complete.
20
<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, February 9, 1999
-------------------- President and Director
Robert H. Davis
/s/ Charles E. Coppa Acting Chief Financial Officer, February 9, 1999
-------------------- Treasurer and Secretary
Charles E. Coppa
21
MANAGEMENT AGREEMENT
THIS MANAGEMENT AGREEMENT (the "Agreement") is made and entered into this
___ day of December, 1998 and effective as of June 1, 1998 ("Effective Date"),
by and between GREENMAN TECHNOLOGIES OF MISSISSIPPI, INC., a Mississippi
corporation, having a registered office at c/o Corporation Service Company, 506
South President Street, Jackson, Mississippi 39201-5301 ("GreenMan-MS") and
MAC'S TIRE RECYCLERS, INC., a Mississippi corporation, having a principal place
of business at 2058 Highway 45 South, Saltillo, Mississippi ("Mac's").
RECITALS:
Mac's has requested and GreenMan-MS has agreed to provide certain
management services to Mac's upon the terms and conditions set forth in this
Agreement.
NOW THEREFORE, in consideration of the following mutual covenants and
promises, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, accepted and agreed to, Mac's and
GreenMan-MS, intending to be legally bound, hereby agree as follows:
1. Term. This Agreement shall commence on the Effective Date and shall
continue in force until the earlier of the following events:
(a) the date on which a merger ("Merger") is effected pursuant to
Mississippi state law between Mac's and GreenMan-MS in which
GreenMan-MS is the surviving corporation; or
(b) the date that is thirty (30) days after the date either party gives
notice to the other of its intention to terminate this Agreement
(the "Term").
2. Services. During the Term, GreenMan-MS agrees that it shall, on an
on-going basis, manage and supervise all aspects of the day to day business of
Mac's, including, but not limited to, the production of goods for sale,
marketing and sales, the collection of accounts receivable, and the payment of
accounts payable (collectively, the "Services"), but excluding (a) the
preparation of, and audit, if required, of the financial statements of Mac's;
(b) the preparation and filing of income tax returns; (c) the preparation and
distribution of reports to investors and stockholders in connection with
meetings of investors or stockholders; or (d) any matter which requires Mac's
board of stockholder approval.
3. Ownership of Property. During the Term, Mac's shall retain ownership of
all of its properties both real and personal.
4. Permits and Employees. To permit GreenMan-MS to provide the Services,
<PAGE>
(a) GreenMan-MS has obtained in its own name certain government and
other permits;
(b) GreenMan-MS shall establish a checking account with the Bank of
Mississippi for the benefit of Mac's, withdrawals from which shall
require signatures of any two of W.B. McPherson, Kitty Black or
Robert D. Maust, which account shall be used by GreenMan-MS in
respect of its provision of the Services, including, without
limitation, the management of cash flow in respect of the business
of Mac's; and
(c) GreenMan-MS shall be permitted to carry on business using the name
"Mac's Tire Recyclers" or any variation thereof and Mac's shall
consent to and execute and deliver any documents required to be
filed with any federal, state, or local government authorities to
permit GreenMan-MS to use the name "Mac's Tire Recyclers" or any
variation thereof.
5. Excluded Costs. GreenMan-MS shall not be responsible for any costs or
expenses related to (a) legal, accounting, consulting, appraisal, and other
professional services rendered to Mac's or Mac's stockholders; (b) filing fees,
income taxes and interest and penalties thereon (whether federal, state, or
local), or other governmental charges which do not relate to the day to day
operation of Mac's business; (c) any matter specified in Section 2(a), (b), (c)
or (d) of this Agreement; (d) expenses incurred in the preparation and
distribution of reports to investors and in connection with needs of investors
or stockholders; (e) the payment of any government entity, including, without
limitation, courts, departments, commissions, agencies or corporations
established by any form of federal, state, or local government in respect of the
period prior to the Effective Date; and (f) litigation, insurance, or other
costs or expenses related to the business of Mac's or to Mac's shareholders
regarding (I) any matter which occurred prior to the Effective Date of (ii) any
matter specified in Section 4 (a), (b), or (c). GreenMan-MS shall be responsible
for its own overhead expenses incurred by GreenMan-Ms in connection with its
management of the business of Mac's.
6. Management Fee. (a) Each quarter Mac's shall pay to GreenMan-MS a
management fee ("Fee") for the Services equal to ninety percent (90%) of the Net
Operating Profits (as hereinafter defined) of Mac's. The Fee shall be payable as
follows: the first quarter's Fee shall be due and payable on March 31, 1999, and
each subsequent quarterly payment shall be due and payable at the end of each
following quarter. If GreenMan-MS has collected the Net Operating Profits and
has not remitted it to Mac's prior to the payment date for the quarter, then
GreenMan-MS shall pay to Mac's ten percent (10%) of the Net Operating Profits
and such payment shall be made to Mac's within the same time frame as
established in this Paragraph 6 for payment to GreenMan-MS. The parties also
hereby agree that, on March 31, 1999, a $20,000 principal payment will be made
from the working capital of the business to reduce the indebtedness of Mac's to
the Bank of Mississippi.
-2-
<PAGE>
(b) The term "Net Operating Profit" as used herein shall mean revenues
plus depreciation less operating expenses, but before the provisions for income
taxes.
(c) The Net Operating Profit shall be determined by the Certified Public
Accountant then employed by Mac's; being that Certified Public Accountant agreed
on by both GreenMan-MS and Mac's, from monthly financial statements prepared by
the Certified Public Accountant for each month in the quarter ("Financial
Statements"). The Financial Statements shall be binding upon the parties within
twenty (20) days of receipt by GreenMan-MS, unless GreenMan-MS delivers written
notice to W.B. McPherson, acting on behalf of Mac's Shareholders, that
GreenMan-MS disputes the determination of any amount or amounts on the Financial
Statements. If GreenMan-MS delivers such written notice within the said period
of time, the payment obligation under Section 6(a) shall be deferred without
interest until the later of (i) the date specified in Section 6(a) or (ii) the
date that is within five (5) business days of (A) the date on which the parties
either agree on the disputed figures or (B) the date on which the Accountant
makes a determination pursuant to Section 6(d).
(d) Disputes between any of the parties relating to any amount on the
Financial Statement which impacts the payment obligation under Section 6(a)
which cannot be resolved by the parties within thirty (30) days of the receipt
by W.B. McPherson of GreenMan-MS's written notice pursuant to Section 6(c),
shall be promptly referred for decision at the insistence of any party to the
accounting firm mutually selected by the parties ("Accountants") acting as an
independent representative of the parties. The Accountant's decision on any
matter referred to it shall be final and binding on the parties. The
Accountant's fee shall be borne by each of the disputing parties in equal
portions.
7. Status as Independent Contractor. It is agreed and understood that, at
any and all times during the Term,
(a) GreenMan-MS is engaged as an independent contractor of Mac's;
(b) all Mac's employees shall remain employees of Mac's and shall not
become employees of GreenMan-MS; and
(c) without affecting the status of GreenMan-MS of Mac's employees as
specified in Sections 7(a) and (b) above, GreenMan-MS, in its sole
discretion, may permit Mac's employees to participate in benefit
plans offered by GreenMan-MS to its employees, the cost of which
participation shall be fully borne by Mac's for those employees
electing to participate in such plan(s).
8. Notices. All notices and payments shall be given to Mac's or
GreenMan-MS at the address listed on the first page or at such other address as
the party to receive such notice may
-3-
<PAGE>
hereinafter specify by written notice given to the other. All notices or other
communications under this Agreement shall be mailed United States registered or
certified mail, return receipt requested, postage prepaid, or delivered by hand,
by telecopier or by any overnight delivery service. For purposes of this
Agreement, notices will be deemed to have been given upon personal delivery
thereof or receipt of a telecopy thereof or 48 hours after having been deposited
in the United States mail as provided above or 24 hours after having been
deposited with an overnight delivery service.
9. Indemnification. GreenMan-MS hereby agrees to indemnify, defend and
hold Mac's and its shareholders harmless from and against all claims, actions,
damages, expenses, losses or liabilities incurred by or asserted against Mac's
or its shareholders as a result of GreenMan-MS's performance of the Services,
except for any claims, levies, charges, penalties, fees, charges, or taxes on
Mac's or any of Mac's shareholders in respect to any amount owed to or collected
by the Federal Internal Revenue Service or any state taxing authority.
10. No Assignment. This Agreement may not be assigned by either Mac's or
GreenMan-MS. This Agreement may be executed in multiple counterparts each of
which shall be deemed an original.
11. Governing Law. This Agreement will be governed by and construed in
accordance with the laws of the State of Mississippi. Any claim or dispute
arising out of this Agreement or the transactions contemplated herein shall be
heard by a court in Lee County, Mississippi, or such other place as agreed by
GreenMan-MS and any other person who is a party to the action.
IN WITNESS WHEREOF, the undersigned has hereby executed this Agreement
this _____ day of December, 1998 effective as of the Effective Date.
GREENMAN TECHNOLOGIES OF MISSISSIPPI, INC.
By:________________________________
Charles Coppa, CFO
MAC'S TIRE RECYCLERS, INC.
By:________________________________
Roseanne McPherson, Secretary
-4-
Exhibit 11
GreenMan Technologies, Inc.
Statement Regarding Net Loss per Share
December 31, 1998
Three Months Ended
November 30, December 31,
1997 1998
------------ ------------
Net loss from continuing operations .......... $ (685,266) $ (220,813)
Net loss from discontinued operations ........ $ (297,536) $ --
Net loss ..................................... $ (982,802) $ (220,813)
========== ==========
Net loss per share - basic ...................
Continuing operations ........................ $ (0.40) $ (0.02)
Discontinued operations ...................... $ (0.18) $ --
Net loss per share - basic ................... $ (0.58) $ (0.02)
========== ==========
Weighted average shares outstanding .......... 1,695,987 9,109,847
========== ==========
20
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
GreenMan Technologies, Inc.
Form 10-QSB
December 31, 1998
Financial Data Schedule
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1999
<CASH> 533,203
<SECURITIES> 0
<RECEIVABLES> 2,147,768
<ALLOWANCES> 64,627
<INVENTORY> 182,988
<CURRENT-ASSETS> 5,177,164
<PP&E> 10,690,271
<DEPRECIATION> 1,435,299
<TOTAL-ASSETS> 17,326,760
<CURRENT-LIABILITIES> 6,020,508
<BONDS> 3,696,210
0
3,200,000
<COMMON> 101,158
<OTHER-SE> 22,341,491
<TOTAL-LIABILITY-AND-EQUITY> 17,326,760
<SALES> 4,577,771
<TOTAL-REVENUES> 4,577,771
<CGS> 3,219,583
<TOTAL-COSTS> 1,141,438
<OTHER-EXPENSES> (960)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (436,603)
<INCOME-PRETAX> (220,813)
<INCOME-TAX> 0
<INCOME-CONTINUING> (220,813)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (220,813)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
