U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-KSB
(Mark One)
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended September 30, 2002
OR
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
Commission File Number 1-13776
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GreenMan Technologies, Inc.
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(Name of small business issuer in its charter)
Delaware 71-0724248
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
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 (781) 224-2411
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Securities registered pursuant to Section 12 (b) of the Exchange Act:
Title of each class Name of each exchange on which registered
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Common Stock, $ .01 par value American Stock Exchange
-----------------------------
(Title of each class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |X|
The issuer's revenues for the fiscal year ended September 30, 2002 were
$27,451,633.
The aggregate market value of the voting stock held by non-affiliates, computed
by reference to the closing bid prices of such stock, as of December 16, 2002
was $21,236,212.
As of December 16, 2002, 15,698,214 shares of common stock of issuer were
outstanding.
Transitional Small Business Disclosure Format (check one) Yes |_| No |X|
2
Part 1
Item 1. Description of Business
General
GreenMan Technologies, Inc. ("GreenMan" or the "Company") was founded as a
Delaware corporation in 1992 and today comprises a group of eight affiliated
companies that is now on an annualized run-rate to collect, process and market
over 30 million scrap tires in whole, shredded or granule form. We are
headquartered in Lynnfield, Massachusetts and currently operate size reduction
operations in California, Georgia, Iowa, Minnesota, Oklahoma and Wisconsin and
operate under exclusive agreements to supply whole tires to cement kilns located
in Florida, Georgia, Illinois, Michigan, Oklahoma, Tennessee and Texas.
Recent Developments
In July 1997, the Board of Directors hired Robert H. Davis, a 30-year
veteran of the recycling industry and formerly Vice President of Recycling for
Browning-Ferris Industries, Inc. as GreenMan's new Chief Executive Officer.
While at Browning-Ferris, Mr. Davis was responsible for growing their entire
North American recycling operations from startup to $650 million in five years.
During the last four years, the current GreenMan management team led by Mr.
Davis, have turned an unfocused company losing over $5 million per year into a
leader within our industry.
In April 2001, Technical Tire Recycling, Inc. ("TTRI"), a newly formed
wholly-owned subsidiary of GreenMan, acquired the net operations of Tennessee
Tire Recyclers, Inc. TTRI is a Tennessee based company which procures whole
scrap tires to be used as an alternative fuel to several of the largest cement
companies in North America. In October 2001, all Georgia and Tennessee based
tire collection and disposal operations of TTRI were consolidated into GreenMan
Technologies of Georgia, Inc. ("GreenMan Technologies of Georgia"), a
wholly-owned subidiary in order to maximize logistical and managerial resources
of GreenMan's southern U.S. operations.
In January 2002, GreenMan Technologies of Wisconsin, Inc. ("GreenMan
Technologies of Wisconsin"), a newly formed wholly-owned subsidiary of GreenMan
Technologies of Minnesota, acquired the operations and certain processing
equipment of An-Gun, Inc, a Wisconsin based company in the business of
collecting, processing and marketing of scrap tires
Also in January 2002, GreenMan Technologies of Oklahoma, Inc., ("GreenMan
Technologies of Oklahoma") a newly formed wholly-owned subsidiary of GreenMan
and Able Tire Company, LLC, a Burleson, Texas tire processor and collector,
formed a joint venture known as Able Tire of Oklahoma, LLC ("Able Tire of
Oklahoma"). Able Tire of Oklahoma collects, shreds and markets whole tires to
the cement industry. GreenMan Technologies of Oklahoma is the majority owner and
has responsibility for finance and administration while Able Tire is responsible
for marketing and operational management.
In April 2002, GreenMan Technologies of Iowa, Inc. ("GreenMan Technologies
of Iowa"), a newly formed wholly-owned subsidiary of GreenMan acquired the Iowa
based tire collection and processing operations of Utah Tire Recyclers, Inc., a
Utah based company in the business of collecting, processing and marketing of
scrap tires. The acquisition also provides GreenMan with an installed crumb
rubber production capacity of over 15 million pounds per year.
In July 2002, GreenMan Technologies of California, Inc., ("GreenMan
Technologies of California") a newly formed wholly-owned subsidiary of GreenMan
Technologies, acquired the outstanding common stock of Unlimited Tire
Technologies, Inc., an Azusa, California based company in the business of
collecting, processing and marketing scrap tires.
In September 2002, GreenMan announced an agreement with US Century, LLC of
San Antonio, Texas ("US Century") to be the sole producer of heavy duty roofing
shingles from scrap tires for US Century. The patented "hail proof" product
developed by US Century produces shingles stamped from the tread of scrap
passenger and light truck tires which are coated and granulated to have a "slate
look". A prototype shingle production line has been installed at the GreenMan
Technologies of California's facility. Management is working with US Century to
finalize product acceptance and commercialization criteria which are expected to
occur during the second quarter of fiscal 2003.
3
Products and Services
GreenMan's size reduction operations located in California, Georgia,
Iowa, Minnesota, Oklahoma and Wisconsin are paid a fee to collect, transport
and process scrap tires (i.e. collection/processing revenue) in whole or two
inch or smaller rubber chips which are then sold (i.e. product revenue).
GreenMan collects scrap tires from three sources:
o local, regional and national tire stores;
o tire manufacturing plants; and
o illegal tire piles when governmental entities intervene to clean up
The tires we collect are processed and sold ("end product" revenue):
o as alternative fuel (in lieu of coal) by pulp and paper producers,
cement kilns and electric utilities;
o as an effective substitute for crushed stone in civil engineering
applications such as road beds, landfill construction or septic
field construction;
o as feedstock to be further processed into crumb rubber (rubber
granules) for playground and athletic surfaces, running tracks,
landscaping/groundcover applications, bullet containment systems; or
o as heavy-duty roofing shingles which are stamped from the tread of
scrap passenger and light truck tires, coated with a granular
material to have a "slate look" and then used as a replacement for
wood shingles, particularly in areas where hail is prevalent.
TTRI's whole tire operations are paid a fee by existing tire collectors to
dispose of whole tires in states where TTRI has disposal contracts with cement
kilns. TTRI pays the cement kilns a fee to accept the whole tires whereupon they
are used as an alternative fuel source to coal as well as providing a source of
iron oxide which is required in the cement making process.
Manufacturing/Processing
GreenMan's tire shredding operations currently have the capacity to
process about 40 million passenger tire equivalents annually. GreenMan's
operations collected over 26 million passenger tire equivalents in the year
ended September 30, 2002 as compared to approximately 21 million passenger tire
equivalents during the year ended September 30, 2001. GreenMan will enter fiscal
2003 on a scrap tire run rate of over 30 million passenger tire equivalents
annually.
The method used to process tires is a series of commercially available
shredders that sequentially reduce tires from whole tires to two-inch chips or
smaller. Bead-steel is removed magnetically yielding a "95% wire-free chip".
This primary recycling process recovers approximately 65% of the incoming tire
processed with the balance of cross-contaminated rubber and steel ("waste wire")
historically disposed at a cost exceeding $1 million annually during the last
two fiscal years. GreenMan has installed secondary equipment at its Georgia,
Iowa, and Wisconsin facilities to further process the waste wire residual into
saleable components of rubber and steel that not only provide new sources of
revenue but also reduceed residual disposal costs. In Iowa, rubber is further
granulated into particles less than one-quarter inch in size.
Raw Materials
GreenMan believes it will have access to a supply of tires sufficient to
meet its requirements for tire-derived fuel, civil engineering, feedstock
markets and granulation for the foreseeable future. Specialized equipment for
unique contracts is rented on an as-needed basis. According to the Scrap Tire
Management Council, in 2000, approximately 280 million passenger tire
equivalents (approximately one per person per year) were discarded annually in
the United States in addition to an estimated several hundred million scrap
passenger tire equivalents already stockpiled in illegal tire piles. The Scrap
Tire Management Council estimates that a total of approximately 180 million
passenger tire equivalents are currently recycled of which approximately 115
million are burned as tire-derived fuel; 25 million are used in civil
engineering applications and 40 million are used in various other applications
such as crumb rubber production, retreading and export. The approximately 100
million remaining passenger tire equivalents are now added to landfills
annually. Accordingly, there is a more than ample supply of non-recycled tires
to meet GreenMan's growth plan.
4
Customers
The tire recycling operations have a diversified collection and product
sales program that minimizes their vulnerability to the loss of any one
customer. During the fiscal years ended September 30, 2002 and 2001, one
customer accounted for approximately 10% and 15%, respectively of GreenMan's
consolidated net sales. The diverse base of customers includes Goodyear,
Bridgestone/Firestone, Cooper, Continental, Michelin, many local and regional
tire outlets and state and local governments. Management does note believe that
the loss of any individual customer would have a material adverse effect on the
business of GreenMan and its subsidiaries, taken as a whole.
GreenMan does not have any long-term contracts pursuant to which any
customer is required to purchase any minimum amount of products or provide any
minimum amount of tires. There can be no assurance that GreenMan will continue
to receive orders of the same magnitude as in the past from existing customers
or that it will be able to market its current or proposed products to new
customers.
Sales and Marketing
GreenMan utilizes in-house sales staff for securing new accounts and
marketing processed materials. This strategy maximizes revenue and concentrates
sales/marketing efforts on highly focused initiatives. Sales/marketing personnel
have extensive experience in the tire industry and in industries where processed
materials are consumed.
Competition
GreenMan has positioned itself as a leader in tire recycling operations.
We estimate that at our current scrap tire run rate, GreenMan operations collect
over 10% of tires currently generated domestically, making it one of the largest
tire recyclers in the United States.
GreenMan competes in a highly fragmented and decentralized market in which
many of its competitors are small and undercapitalized. Consequently, GreenMan
believes there is an opportunity for industry consolidation and certain
strategic value-added vertical integration. GreenMan's strategy is to continue
to increase the number of passenger tire equivalents that it processes through
aggressive sales and marketing efforts as well as through selective acquisitions
of smaller competitors, while continuing to focus on identifying and generating
marketing strategies for recycled tires and their by-products.
Companies in the tire collection and processing industry have historically
generated sufficient quantities of tires to satisfy the growing needs of tire
derived fuel users such as cement kilns, pulp and paper producers and electric
utilities or utilized in civil engineering projects such as landfill
construction or road stabilization projects. There are also several companies
that break down the tire material into its elemental components and sell the
components individually.
Government Regulation
GreenMan's tire recycling and manufacturing activities are subject to
extensive and rigorous government regulation designed to protect the
environment. Management does not believe that GreenMan's activities result in
the emission of air pollutants, disposal of combustion residues, or storage of
hazardous substances. The establishment and operation of plants for tire
recycling, however, are subject to obtaining numerous permits and compliance
with environmental and other government regulations. The process of obtaining
required regulatory approvals can be lengthy and expensive. The Environmental
Protection Agency and comparable state and local regulatory agencies actively
enforce environmental regulations and conduct periodic inspections to determine
compliance with government regulations. Failure to comply with applicable
regulatory requirements can result in, among other things, fines, suspensions of
approvals, seizure or recall of products, operating restrictions, and criminal
prosecutions. Furthermore, changes in existing regulations or adoption of new
regulations could impose costly new procedures for compliance, or prevent
GreenMan from obtaining, or affect the timing of, regulatory approvals. GreenMan
uses its best efforts to keep abreast of changed or new regulations for
immediate implementation.
5
Protection of Intellectual Property Rights and Proprietary Rights
None of the equipment or machinery that GreenMan currently uses or intends
to use in its current or proposed manufacturing activities is proprietary. Any
competitor can acquire equivalent equipment and machinery on the open market.
GreenMan has used the name "GreenMan" in interstate commerce since
inception and asserts a common law right in and to such name.
Employees
As of September 30, 2002, GreenMan had 170 full time employees. Neither
GreenMan nor any of its subsidiaries is a party to any collective bargaining
agreements, and each considers the relationship with its employees to be
satisfactory.
Item 2. Description of Properties
GreenMan Technologies of Minnesota owns two industrial buildings and an
office building in Savage, Minnesota, located on approximately 8 acres of land
zoned for industrial use.
In April 2001, GreenMan Technologies of Georgia sold all of its land and
buildings located in Jackson, Georgia to a third party. Simultaneous with the
sale, GreenMan Technologies of Georgia executed a twenty year lease with the
same third party for use of that property at a monthly rental of $17,642. The
lease can be renewed for four additional 5 year periods and provides GreenMan
Technologies of Georgia an option to repurchase the land and buildings at fair
market value after the second anniversary of the lease.
GreenMan Technologies of Iowa leases a facility located on approximately 4
acres of land under a 36-month lease for $5,000 per month. The lease can be
renewed for two additional one year periods and provides GreenMan Technologies
of Iowa a right of first refusal to purchase the land and buildings during the
term of the lease.
GreenMan Technologies of Wisconsin leases a facility located on
approximately 4 acres of land under a 36-month lease for $3,600 per month. At
the end of the lease GreenMan of Wisconsin has the option to purchase the land
and building for $350,000, with a portion of the lease payments being credited
towards the purchase price.
GreenMan Technologies of California leases approximately 45,000 square
feet of a building situated on approximately 1.5 acres of land for $1,250 per
month. The lease expires in April 2007, with an option to extend the lease for
an additional five years.
Management believes these facilities are adequate for its current needs
and have adequate space to accommodate expansion if required to meet ongoing
growth.
Item 3. Legal Proceedings
GreenMan was not a party to any pending legal proceedings as of September
30, 2002.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the shareholders during the
fourth quarter of the fiscal year ended September 30, 2002.
6
Part II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
GreenMan's common stock began trading on the American Stock Exchange on
September 20, 2002 under the symbol of "GRN". Prior to that time, the common
stock had traded on the Over the Counter Bulletion Board under the symbol "GMT".
Based on the minimal trading activity of common stock on the Boston Stock
Exchange, GreenMan voluntarily withdrew its listing on that exchange effective
November 13, 2002.
The following table sets forth the high and low bid quotations for the
common stock for the periods indicated as quoted on the Over the Counter
Bulletin Board and effective, September 20, 2002 on the American Stock Exchange.
Quotations from the Over the Counter Bulletin Board reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
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Common Stock
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High Low
Fiscal 2001
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Quarter Ended December 31, 2000 $0.53 $0.25
Quarter Ended March 31, 2001 0.52 0.30
Quarter Ended June 30, 2001 0.54 0.34
Quarter Ended September 30, 2001 0.85 0.38
Fiscal 2002
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Quarter Ended December 31, 2001 $1.35 $0.65
Quarter Ended March 31, 2002 1.82 1.12
Quarter Ended June 30, 2002 2.68 2.00
Quarter Ended September 30, 2002 2.35 1.80
On December 16, 2002, the closing bid price of the common stock was $2.35.
As of December 16, 2002, management estimates the approximate number of
stockholders of record of GreenMan's common stock to be 2,500.
GreenMan has not paid any cash dividends on its common stock since
inception and it does not anticipate paying any cash dividends in the
foreseeable future.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Liquidity and Capital Resources - Private Offering of
Common Stock" and "Repurchase of Class B Convertible Preferred Stock", below,
for descriptions of certain shares of capital stock sold during the fiscal year
ended September 30, 2002.
7
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations Results of Operations
Year ended September 30, 2002 Compared to year ended September 30, 2001
Net sales for the year ended September 30, 2002 were $27,451,633, an
increase of 26%, as compared to net sales of $21,753,070 for the year ended
September 30, 2001. GreenMan processed over 26 million passenger tire
equivalents during the year ended September 30, 2002 as compared to over 21.5
million passenger tire equivalents during the year ended September 30, 2001. The
overall quality of revenue (revenue per passenger tire equivalent) improved due
to the impact of several tire pile cleanup projects and increased end product
sales which accounted for 12% of consolidated revenues for the year ended
September 30, 2002 as compared to 7% for the prior year. The increase in end
product sales is attributable to implementation of GreenMan's waste wire
processing equipment and the recently acquired crumb rubber production capacity.
The results also include the operations of three new subsidiaries formed in
connection with recent acquisitions (GreenMan Technologies of Wisconsin (January
2002), GreenMan Technologies of Iowa (April 2002) and GreenMan Technologies of
California (July 2002) and GreenMan's interest in our majority owned joint
venture, Able Tire of Oklahoma, LLC (February 2002).
Gross profit for the year ended September 30, 2002 was $6,254,624 or 23%
of net sales as compared to $4,992,452 or 23% of net sales for the year ended
September 30, 2001. The results for the year ended September 30, 2002 benefited
from a 21% increase in overall volume; increased overall quality of revenue;
tire pile cleanup projects in the mid-west and the inclusion of GreenMan's
recent acquisitions. These benefits were offset by (1) approximately $150,000
relating to costs specifically associated with operational disruptions and
increased transportation costs due to a complete shredding equipment upgrade at
GreenMan of Iowa; (2) approximately $150,000 relating to operating and startup
losses associated with a new kiln relationship, which will be terminated
December 31, 2002; and (3) corporate-wide insurance cost increases of over
$100,000 during the quarter ended September 30, 2002 as a result of higher
insurance limits due to recent acquisitions and increased renewal premiums
reflecting the impact that September 11, 2001 has had on the insurance industry.
Selling, general and administrative expenses were $4,398,146 or 16% of net
sales for the year ended September 30, 2002, as compared to $3,503,865 or 16% of
net sales for the year ended September 30, 2001. Included in the results for the
year ended September 30, 2002 were approximately $200,000 of costs relating to
GreenMan's specialty waste initiatives, which have been curtailed at this point,
and approximately $100,000 associated with GreenMan's initial listing on the
American Stock Exchange in September 2002.
As a result of the foregoing, GreenMan's operating profit for the year
ended September 30, 2002 increased 25% or $367,891 to $1,856,478 as compared to
$1,488,587 for the year ended September 30, 2001.
During the year ended September 30, 2001, GreenMan recorded other income
of $437,525 due to an insurance settlement and a casualty loss of $155,000
associated with a litigation settlement related to the August 1998 fire at
GreenMan Technologies of Louisiana. GreenMan also recorded $177,929 and 172,776
of income from forgiveness of indebtedness during the years ended September 30,
2002 and 2001, respectively, as a result of renegotiating and settling certain
outstanding obligations due to various unrelated, unsecured vendors and
creditors who agreed to forgive past due amounts due in return for an immediate
payment of less than 100%.
GreenMan recorded a net benefit for income taxes of $204,400 primarily due
to the recognition of a deferred tax asset of $270,000. As a result of
GreenMan's continued operating results, the Company expects to be able to
realize the benefit of a portion of their federal net operating loss
carryforwards.
GreenMan's net income after taxes increased 27 percent to $1,018,027, or
$.07 per share-basic for the year ended September 30, 2002 as compared to net
income after taxes of $803,227, or $.06 per share-basic for the year ended
September 30, 2001.
8
Liquidity and Capital Resources
As of September 30, 2002, the Company had $780,497 in cash and cash
equivalents and a working capital deficiency of $497,367. Management understands
that the continued, successful sales and marketing of the Company's services and
products, the introduction of new products and the Company's continued
profitability from operations will be critical to the Company's future
liquidity.
During the past four years, GreenMan has divested and/or closed under
performing non-core operations and eliminated the use of non-conventional
financing methods that had contributed over $18.7 million of GreenMan's
cumulative losses. As a result of these divestitures and by implementing a very
focused business plan and adding businesses, relationships and product lines
that complement our core business of scrap tire management, GreenMan has been
profitable during the past two fiscal years. However, GreenMan believes that it
will be necessary to raise additional financing to fund continued growth.
In order to better position GreenMan for the future, management has
implemented the following actions:
Operating Performance Enhancements
Historically, our tire processing operations were able to recover and sell
about 65% of a processed tire with the balance disposed of as waste wire
residual (cross-contaminated rubber and steel) at a cost which exceeded
$1,000,000 annually during the last two fiscal years. During the last two fiscal
years, we have installed equipment at our Georgia, Iowa and Wisconsin facilities
to further process the waste wire residual into saleable components of rubber
and steel to provide new sources of revenue and reduce disposal costs. We are
realizing both increased product sales and reduced disposal costs as a result of
this equipment. The implementation of this equipment is another step towards our
goal of realizing positive value from over 90% of each tire that we manage.
During the fourth quarter of fiscal 2002, GreenMan initiated a $1.5
million equipment upgrade to its Des Moines, Iowa tire processing facility. We
have completely replaced all tire shredders with more efficient, higher volume
equipment and installed a third waste wire processing equipment line which will
allow us to reduce waste wire disposal costs while providing the internal
capacity to produce over 20 million pounds of rubber feedstock per year for our
crumb rubber operations. The internalization of crumb rubber feedstock supply
and production via our new processing equipment will eliminate over $250,000 in
estimated annual transportation costs necessitated by sourcing crumb rubber
feedstock from GreenMan's Wisconsin location at the same time it positions us to
better meet the growing market demand for our products and services. During the
July to November timeframe, we experienced inevitable one-time operational
disruptions as well as increased transportation costs associated with
temporarily diverting a significant portion of Iowa tires to our Minnesota plant
during the equipment installation. These disruptive factors negatively impacted
earnings in the fourth quarter of fiscal 2002 by approximately $150,000..
The Iowa capital investment is being funded from a combination of internal
cash flow and long term debt provided by the GreenMan Technologies of Iowa's
existing lender, First American Bank of Des Moines, Iowa and the State of Iowa.
Private Offering of Common Stock
In February 2002 GreenMan commenced a private offering of unregistered
common stock in an effort to raise up to $2,000,000 in gross proceeds
(subsequently increased to $3,000,000 in August 2002). As of September 30, 2002
the Company sold 1,330,343 shares of unregistered common stock to investors,
including existing shareholders, for gross proceeds of $1,953,603. The investors
have been granted limited registration rights to cause the Company to register
the common stock for resale in the event that GreenMan registers shares of
common stock for its own account. The investors have agreed not to sell or
transfer the shares for a period of at least 18 months after issuance. A
majority of the proceeds of this offering were used to acquire certain tire
recycling operations and assets during fiscal 2002.
Repurchase of Class B Convertible Preferred Stock
On February 14, 2002, GreenMan repurchased and retired all of the Class B
convertible Preferred Stock held by Republic Services of Georgia, Limited
Partnership ("RSLP") (as successor to United Waste Services, Inc.) for a
$1,500,000 promissory note bearing interest at 10% and due in February 2007 and
100,000 shares of common stock valued at $1.60 per share on the date of
issuance. The difference between the liquidation value of the preferred stock
and the consideration given has been credited to paid-in-capital.
9
On May 6, 2002, RSLP converted $750,000 of the principal amount of the
February 14, 2002 promissory note into 300,000 unregistered shares of GreenMan's
common stock valued at $750,000. GreenMan issued RSLP a promissory note for the
remaining balance on the February 14, 2002 promissory note in the principal
amount of $743,750 bearing interest at 10% and due in March 2007.
Cautionary Statement
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.
Factors Affecting Future Results
There are several factors which may affect the future operating results of
GreenMan, including:
o the ability to successfully realize the anticipated on-going cost
reductions and revenue enhancements associated with GreenMan's waste wire
processing projects;
o the ability to successfully integrate recent acquisitions into GreenMan
and realize the anticipated benefits;
o a significant part of GreenMan's business strategy entails future
acquisitions, or significant investments in businesses that offer
complementary products, services and technologies. Any acquisition of a
business is accompanied by certain risks including, but not limited to:
o the ability to integrate future acquisitions without significant
disruption of the Company's on-going business;
o overpaying for the entity or assets acquired; and
o the dilutive impact to existing shareholder's stock positions and
earnings per share of common stock from the potential issuance of
common stock or right to purchase common stock used in future
acquisitions.
o general economic conditions.
GreenMan's plans and objectives are based on assumptions that it will be
successful in receiving additional financing to fund future growth and that
there will be no material adverse change in GreenMan's operations or business.
There can be no assurance that GreenMan will obtain such financing on acceptable
terms or at all.
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 GreenMan. As a result, there can be no assurance that
GreenMan will be able to sustain profitability on a quarterly or annual basis.
In light of the significant uncertainties inherent in GreenMan's business,
forward-looking statements made in this report should not be regarded as a
representation by GreenMan or any other person that the objectives and plans of
GreenMan will be achieved.
Environmental Liability
There are no known material environmental violations or assessments.
10
Recent Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 142, "Goodwill and Other Intangible
Assets". SFAS No. 142 eliminates the amortization of goodwill and
indefinite-lived intangible assets and initiates an annual review for
impairment. Identifiable intangible assets with a determinable useful life will
continue to be amortized. GreenMan adopted SFAS No. 142 effective October 1,
2001, which required GreenMan to cease amortization of its remaining net
goodwill balance and to perform an impairment test of its existing goodwill
based on a fair value concept within six months of fiscal 2002 and any
transitional impairment loss will be recorded in the first quarter as a change
in accounting principle. Management has reviewed the provisions of these
statements and determined that no goodwill impairment had resulted during the
year ended September 30, 2002. . As of September 30, 2002 and September 30,
2001, GreenMan has net unamortized goodwill of $3,413,894 and $2,172,198,
respectively, and recognized no goodwill amortization expense for the year ended
September 30, 2002.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement establishes standards for accounting for
obligations associated with the retirement of tangible long-lived assets. This
statement is effective for fiscal years beginning after June 15, 2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement addresses financial
accounting and reporting for the impairment and disposal of long-lived assets.
This statement is effective for fiscal years beginning after December 15, 2001.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 will be applied prospectively to any exit or disposal activities
initiated after December 31, 2002. GreenMan will adopt SFAS No. 144 in the first
quarter of fiscal 2003 and does not expect the adoption of SFAS No. 143, 144 or
146 to impact its financial position and results of operations.
Item 7. Financial Statements
For information required with respect to this Item 7, see "Consolidated
Financial Statements" on pages F-1 through F-19 of this report.
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure
None
11
Part III
Item 9. Directors, Executive Officers and Key Employees
The directors and executive officers of GreenMan are as follows:
Name Age Position
---- --- --------
Maurice E. Needham .... 62 Chairman of the Board of Directors
Robert H. Davis ....... 60 Chief Executive Officer; President; Director
Charles E. Coppa ...... 39 Chief Financial Officer; Treasurer; Secretary
Mark T. Maust ......... 44 Vice President of Operations
Dr. Allen Kahn......... 81 Director
Lew F. Boyd ........... 57 Director
Lyle Jensen............ 52 Director
Each director is elected for a period of one year at the annual meeting of
stockholders and serves until his or her successor is duly elected by the
stockholders. The officers are appointed by and serve at the discretion of the
Board of Directors. Each outside director receives a fee of $2,500 per board
meeting . Each outside director also participates in the Non-Employee Director
Stock Option Plan.
GreenMan has established an Audit Committee consisting of Messrs. Jensen
(Chair) and Boyd and Dr. Kahn and a Compensation Committee consisting of Messrs.
Boyd (Chair) and Jensen .
MAURICE E. NEEDHAM has been Chairman since June 1993. From June 1993 to
July 21, 1997, Mr. Needham also served as Chief Executive Officer. He also
serves as a Director of Comtel Holdings, an electronics contract manufacturer
since April 1999. He previously served as Chairman of Dynaco Corporation, a
manufacturer of electronic components which he founded in 1987. Prior to 1987,
Mr. Needham spent 17 years at Hadco Corporation, a manufacturer of electronic
components, where he served as President, Chief Operating Officer and Director.
ROBERT H. DAVIS has been Chief Executive Officer and a Director since July
1997. Prior to joining GreenMan, Mr. Davis served as Vice President of Recycling
for Browning-Ferris Industries, Inc. of Houston, Texas ("BFI") since 1990. As an
early leader of BFI's recycling division, Mr. Davis grew that operation from
startup to $650 million per year in profitable revenues. A 25-year veteran of
the recycling industry, Mr. Davis has also held executive positions with Fibres
International, Garden State Paper Company, and SCS Engineers, Inc. Mr. Davis
currently serves as a Director and Audit Committee member of Waste Connections,
Inc., the fourth largest solid waste management company in the United States.
CHARLES E. COPPA has served as Chief Financial Officer, Treasurer and
Secretary since March 1998. From October 1995 to March 1998, he served as
Corporate Controller. Mr. Coppa was Chief Financial Officer and Treasurer of
Food Integrated Technologies of Brookline, MA, a publicly-traded development
stage company from July 1994 to October 1995. Prior to joining Food Integrated
Technologies, Inc., Mr. Coppa served as Corporate Controller for Boston Pacific
Medical, Inc., a manufacturer and distributor of disposable medical products and
Corporate Controller for Avatar Technologies, Inc., a computer networking
company.
MARK T. MAUST has been Vice President of Operations since July 2000 and
Vice President of GreenMan Technologies of Minnesota, Inc. since July 1997.
Prior to joining GreenMan, Mr. Maust served as Vice President for BFI Tire
Recyclers of Minnesota, Inc. from July 1991 to June 1997. Mr. Maust was Vice
President of Maust Tire Recycling from 1988 to 1991, when the business was sold
to BFI and he joined BFI as a Vice President.
ALLEN KAHN, M.D. has been a Director since March 2000. Dr. Kahn operated a
private medical practice in Chicago, Illinois, which he founded in 1953 until
his retirement in October 2002. Dr. Kahn has been actively involved as an
investor in "concept companies" since 1960. From 1965 through 1995 Dr. Kahn
served as a member of the Board of Directors of Nease Chemical Company
(currently German Chemical Company), Hollymatic Corporation and Pay Fone Systems
(currently Pay Chex, Inc.). Dr. Kahn currently serves as a director of InfraCor,
Inc., a technology-based construction firm focusing on the installation and
rehabilitation of subsurface pipelines using trenchless technologies.
12
LEW F. BOYD has been a Director since August 1994. Mr. Boyd is the founder
and since 1985 has been the Chief Executive Officer of Coastal International,
Inc., an international business development and executive search firm,
specializing in the energy and environmental sectors. Previously, Mr. Boyd had
been Vice President/General Manager of the Renewable Energy Division of Butler
Manufacturing Corporation and had served in academic administration at Harvard
and Massachusetts Institute of Technology.
LYLE JENSEN has been a Director since May 2002. For the past five years,
Mr. Jensen has been Chief Executive Officer and part owner of Comtel and Corlund
Electronics, Inc. He served as President of Dynaco, Corporporation from 1988 to
1997; Vice-President and General Manager of Interconics from 1984 to 1988; and
as divisional controller of Rockwell International from 1973 to 1984.
Compliance with Section 16(a) of the Securities and Exchange Act of 1934
Section 16(a) of the Securities and Exchange Act of 1934 requires
GreenMan's directors and executive officers, and persons who own more than 10%
of GreenMan's common stock, to file with the Securities and Exchange Commission
initial reports of ownership of GreenMan's common stock and other equity
securities on Form 3 and reports of changes in such ownership on Form 4 and Form
5. Officers, directors and 10% Stockholders are required by the Securities and
Exchange Commission regulations to furnish GreenMan with copies of all Section
16 (a) forms they file.
To the best of management's knowledge, based solely on review of the
copies of such reports furnished to GreenMan during and with respect to, its
most recent fiscal year, and written representation that no other reports were
required, all Section 16 (a) filing requirements applicable to its officers,
directors and 10% Stockholders were complied with.
Item 10. Executive Compensation
The following table summarizes the compensation paid or accrued for
services rendered during the fiscal years ended September 30, 2002, 2001 and
2000, to the Chief Executive Officer, the Vice President of Operations and the
Chief Financial Officer. GreenMan did not grant any restricted stock awards or
stock appreciation rights or make any long-term plan payouts during the periods
indicated.
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term
------------------- Compensation
(1) Securities (3)
Name and Other Annual Underlying All Other
Principal Position Fiscal Year Salary Bonus Compensation Options (2) Compensation
------------------ ----------- ------ ----- ------------ ----------- ------------
Robert H. Davis .......... 2002 $230,000 $23,000 $ 16,817 7,500 $ --
Chief Executive Officer 2001 230,000 44,000 15,586 25,000 5,813
2000(4) 230,000 -- 14,292 125,000 --
Mark T. Maust ............ 2002 $140,000 $70,000 $ 17,278 7,500 $ --
Vice President 2001 140,000 70,000 17,074 25,000 5,813
2000(5) 132,000 53,333 18,664 200,000 --
Charles E. Coppa ......... 2002 $130,000 $ 5,000 $ 7,200 7,500 $ --
Chief Financial Officer 2001 130,000 20,000 7,200 50,000 5,813
2000(6) 125,000 -- 7,200 100,000 --
(1) Represents payments made to or on behalf of Messrs. Davis, Maust and Coppa
for health insurance and auto allowances.
(2) The fiscal 2002 grants represent options granted to Mr. Davis, Mr. Maust
and Mr. Coppa in August 2002. The fiscal 2001 grants represent options
granted in January 2001 to Mr. Davis, Mr. Maust and Mr. Coppa
(3) Represents the value assigned to 19,375 shares of unregistered GreenMan
common stock granted to each of Messrs. Davis, Maust and Coppa for prior
services rendered.
(4) Based upon GreenMan's performance, Mr. Davis deferred payment of $46,000
of accrued compensation due him and invested an additional $49,000 (net of
taxes) of compensation due him into unregistered GreenMan common stock
during the year ended September 30, 2000.
13
(5) Based upon GreenMan's performance, Mr. Maust deferred payment of $46,000
of accrued compensation due him and invested an additional $25,000 (net of
taxes) of compensation due him into unregistered GreenMan common stock
during the year ended September 30, 2000.
(6) Based upon GreenMan's performance, Mr. Coppa deferred payment of $29,000
of accrued compensation due him and invested an additional $29,000 (net of
taxes) of compensation due him into unregistered GreenMan common stock
during the year ended September 30, 2000.
Options/SAR Grants Table
The following table sets forth each grant of stock options made during the
year ended September 30, 2002 held by the executives named in the Summary
Compensation Table above.
OPTION GRANTS IN LAST FISCAL YEAR
% of Total
Options Market Price
Number of Securities Granted to Exercise On Date
Underlying Options Employees in Price of Grant Expiration
Name Granted Fiscal Year Per Share Per Share Date
---- ------- ----------- --------- --------- ----
Robert H. Davis ............ 7,500 (1) 2.9% $1.80 $1.80 8/23/12
Mark T. Maust .............. 7,500 (1) 2.9% $1.80 $1.80 8/23/12
Charles E. Coppa............ 7,500 (1) 2.9% $1.80 $1.80 8/23/12
(1) Vests equally over a five year period.
The following table sets forth information concerning the value of
unexercised options as of September 30, 2002 held by the executives named in the
Summary Compensation Table above.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES(1)
Value of Unexercised
Number of Unexercised In-the-Money Options
Options at September 30, 2002 (1) at September 30, 2002 (2)
--------------------------------- --------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ------------- --------------- ----------- -------------
Robert H. Davis ............ 614,000 433,500 $704,830 $550,645
Mark T. Maust .............. 166,000 166,500 $214,470 $243,155
Charles E. Coppa ........... 214,000 173,500 $270,440 $247,235
(1) There were no options exercised by any of the executive officers named in
the Summary Compensation Table during the fiscal year ended September 30, 2002.
The options granted to the executive officers became exercisable commencing July
17, 1998 in the case of Mr. Davis, December 30, 1997 in the case of Mr. Maust
and March 23, 1999 in the case of Mr. Coppa at an annual rate of 20% of the
underlying shares of Common Stock. The options granted to Mr. Davis pursuant to
his April 1999 employment agreement vest over a seven-year period.
(2) Assumes that the value of shares of common stock is equal to $2.05 per
share, which was the closing bid price as listed by the American Stock Exchange
on September 30, 2002.
14
Employment Agreements
In July 1997, GreenMan entered into a five-year employment agreement with
Mr. Needham pursuant to which Mr. Needham will receive a salary of $90,000 per
annum. Any increases or bonuses will be made at the discretion of the Board of
Directors upon the recommendation of the Compensation Committee. The agreement
provides for payment of six months salary as a severance payment for termination
without cause.
In April 1999, GreenMan entered into a three-year employment agreement
with Mr. Davis pursuant to which Mr. Davis will receive a salary of $230,000 per
annum with an additional $50,000 of deferred compensation in the first year. The
agreement automatically renews for an additional three years upon each
anniversary, unless notice of non-renewal is given by either party and provides
for payment of twelve months salary as a severance payment for termination
without cause. Any increases will be made at the discretion of the Board of
Directors upon the recommendation of the Compensation Committee. The agreement
also provides for Mr. Davis to receive incentive compensation based on the
following formula:
Consolidated Net Income Before Incentive Cumulative
Income Taxes Compensation Rate Maximum
$0 - $1,000,000 5% $ 50,000
$1,000,001 - $2,000,000 7.5% 125,000
$2,000,001+ 2.5% 125,000+
Based upon GreenMan's fiscal 2002 performance, Mr. Davis chose to accept a
reduced bonus amount of $23,000.
In June 1999, GreenMan entered into a two-year employment agreement with
Mr. Coppa pursuant to which Mr. Coppa currently receives a salary of $130,000
per annum. The agreement automatically renews for an additional two years upon
each anniversary, unless notice of non-renewal is given by either party. Any
increases or bonuses will be made at the discretion of the Board of Directors
upon the recommendation of the Compensation Committee. The agreement provides
for payment of twelve months salary as a severance payment for termination
without cause.
Stock Option Plan
GreenMan's 1993 Stock Option Plan, was established to provide options to
purchase shares of common stock to employees, officers, directors and
consultants. In March 2001, GreenMan's stockholders approved an increase to the
number of shares authorized under the 1993 Stock Option Plan to 3,000,000
shares.
Options granted under the 1993 Stock Option Plan may be either options
intended to qualify as "incentive stock options" under Section 422 of the
Internal Revenue Code of 1986, as amended; or non-qualified stock options.
Incentive stock options may be granted under the 1993 Stock Option Plan to
employees, including officers and directors who are employees. Non-qualified
options may be granted to employees, directors and consultants of GreenMan.
The 1993 Stock Option Plan is administered by the Board of Directors,
which has the authority to determine;
o the persons to whom options will be granted;
o the number of shares to be covered by each option;
o whether the options granted are intended to be incentive stock
options;
o the manner of exercise; and
o the time, manner and form of payment upon exercise of an option.
Incentive stock options granted under the 1993 Stock Option Plan may not
be granted at a price less than the fair market value of the Common Stock on the
date of grant (or less than 110% of fair market value in the case of persons
holding 10% or more of the voting stock of GreenMan). Non-qualified stock
options may be granted at an exercise price established by the Board which may
not be less than 85% of fair market value of the shares on the date of grant.
Incentive stock options granted under the 1993 Stock Option Plan must expire no
more than ten years from the date of grant, and no more than five years from the
date of grant in the case of incentive stock options granted to an employee
holding 10% or more of the voting stock of GreenMan.
As of September 30, 2002, there were 2,113,000 options granted and
outstanding under the 1993 Stock Option Plan of which 1,201,800 options were
exercisable at prices ranging from $0.38 to $4.70.
15
Non-Employee Director Stock Option Plan
GreenMan's 1996 Non-Employee Director Stock Option Plan.is intended to
promote the interests of GreenMan by providing an inducement to obtain and
retain the services of qualified persons who are not officers or employees to
serve as members of the Board of Directors. The Board of Directors has reserved
60,000 shares of common stock for issuance under Non-Employee Director Stock
Option Plan , of which, options to purchase 20,000 shares of common stock have
been granted as of September 30, 2002.
Each person who was a member of the Board of Directors on January 24,
1996, and who was not an officer or employee, was automatically granted an
option to purchase 2,000 shares of common stock. In addition, after an
individual's initial election to the Board of Directors, any director who is not
an officer or employee and who continues to serve as a director will
automatically be granted on the date of the Annual Meeting of Stockholders an
additional option to purchase 2,000 shares of common stock. The exercise price
per share of options granted under the Non-Employee Director Stock Option Plan
is 100% of the fair-market value of the common stock on the business day
immediately prior to the date of the grant and each option is immediately
exercisable for a period of ten years from the date of the grant.
Employee Benefit Plan
In August 1999, GreenMan implemented a Section 401(k) plan for all
eligible employees. Employees are permitted to make elective deferrals of up to
15% of employee compensation and employee contributions to the 401(k) plan are
fully vested at all times. GreenMan may make discretionary contributions to the
401(k) plan which become vested over a period of five years. There were no
corporate contributions to the 401(k) plan during the years ended September 30,
2002 and 2001.
Item 11. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
The following table sets forth certain information regarding beneficial
ownership of GreenMan common stock as of September 30, 2002:
o by each person (including andy "group' as used in Section 13 (d) of
the Securities and Exchange Act of 1934) who is known by GreenMan to
own beneficially 5% or more of the outstanding shares of common
stock;
o by each director and officer of GreenMan; and
o by all directors and officers of GreenMan as a group.
Unless otherwise indicated below, to the knowledge of GreenMan, all
persons listed below have sole voting and investment power with respect to their
shares of common stock, except to the extent authority is shared by spouses
under applicable law. As of September 30, 2002, 15,654,665 shares of common
stock were issued and outstanding.
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
Number of Shares Percentage of
Name (1) Beneficially Owned(2) Class
-------- --------------------- -----
Dr. Allen Kahn (3) ........................... 2,712,591 16.66%
Maurice E. Needham (4) ....................... 1,618,651 9.92%
Robert H. Davis (5) .......................... 1,095,700 6.71%
Charles E. Coppa (6) ......................... 546,927 3.45%
Mark Maust (7) ............................... 357,236 2.26%
Lew F. Boyd (8) .............................. 336,088 2.13%
Lyle Jensen .................................. 300 *
All officers and directors as a group
(7 persons) ............................ 6,667,493 36.80%
* Less than 1%
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Number of Shares Percentage of
Beneficially Owned Class
------------------ -----
Richard Ledet (9) ............................ 1,925,886 12.30%
(1) Except as noted, each person's address is care of GreenMan Technologies,
Inc., 7 Kimball Lane, Building A, Lynnfield, MA 01940
16
(2) Pursuant to the rules of the Securities and Exchange Commission, shares of
common stock that an individual or group has a right to acquire within 60
days pursuant to the exercise of options or warrants are deemed to be
outstanding for the purpose of computing the percentage ownership of such
individual or group, but are not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person shown in the
table.
(3) Includes 131,000 shares of common stock issuable pursuant to immediately
exercisable stock options and warrants. Also includes 500,000 shares of
common stock issuable pursuant to immediately exercisable convertible
notes payable.
(4) Includes 661,400 shares of common stock issuable pursuant to immediately
exercisable stock options. Also includes 59,556 shares of common stock
owned by Mr. Needham's wife.
(5) Includes 614,000 shares of common stock issuable pursuant to immediately
exercisable stock options.
(6) Includes 214,000 shares of common stock issuable pursuant to immediately
exercisable stock options.
(7) Includes 166,000 shares of common stock issuable pursuant to immediately
exercisable stock options.
(8) Includes 111,000 shares of common stock issuable pursuant to immediately
exercisable stock options.
(9) Mr. Ledet's address is 2960 NE Broadway, Des Moines, IA 50317.
Common Stock Authorized for Issuance under Equity Compensation Plans
For descriptions of equity compensation plans under which GreenMan common
stock is authorized for issuance as of September 30, 2002, see Footnote 8
"Stockholders' Equity" of the Consolidated Financial Statements contained
herein. For additional information concerning certain compensation arrangements,
not approved by stockholders, under which options to purchase common stock may
be issued, see "Executive Compensation - Employment Agreements', above, and
"Certain Relationships and Transactions - Stock Issuances: Stock Options;
Warrants", below.
Item 12. Certain Relationships and Related Transactions
Stock Issuances; Stock Options; Warrants
In July 2001, the Board of Directors approved the issuance of 100,000
shares of unregistered GreenMan common stock to certain employees in recognition
of past services and recorded a $30,000 expense (assigned fair value based on
the closing bid price of common stock on date of issuance) associated with the
issuance of these shares during the year ended September 30, 2001. Messrs.
Needham, Davis, Coppa, Maust, Boyd and Kahn collectively received 85,000 shares
of these unregistered shares of common stock.
On March 19, 2002, Mr. Jensen was granted options to purchase 25,000
shares of GreenMan common stock at an exercise price of $1.51 per share in
conjunction with his becoming a Director of GreenMan. The options are
exercisable for a period of ten years and vest equally over a five year period
On August 23, 2002, Messrs. Needham, Davis, Coppa, Maust, Kahn, Boyd and
Jensen were collectively granted options to purchase 30,000 shares of GreenMan
common stock at an exercise price of $1.80 per share. The options are
exercisable for a period of ten years and vest equally over a five year period.
Loans; Personal Guarantees
In January 1998, Mr. Davis was advanced $104,000 under an 8.5% secured
loan agreement with both principal and interest due January 2001. This agreement
was amended on September 30, 2000 to extend the maturity of the note until April
15, 2002 and increase the interest rate to 9.5%. In September 2001, GreenMan
agreed to extend the maturity date to April 15, 2004.
In January 1999, Messrs. Davis and Coppa were advanced $55,000, in
aggregate, under 8.5% secured loan agreements with both principal and interest
due January 2002 (subsequently extended to April 15, 2004). The proceeds were
used to participate in a private placement of GreenMan common stock and the
loans are secured by 191,637 shares of common stock owned by the two officers.
In June 2002, Messrs. Davis and Coppa repaid $5,000 each toward their respective
then outstanding balances.
Messrs. Needham, Davis and Coppa have personally guaranteed the $1.1
million note payable issued to Cryopolymers Leasing Inc. in May 1999.
Dr. Kahn has loaned GreenMan $375,000 as of September 30, 2002 under the
terms of an October 1999 private offering of 10% convertible notes payable and
warrants. GreenMan issued to Dr. Kahn immediately exercisable five year warrants
to purchase 125,000 shares of common stock at exercise prices ranging from $.31
to $.50 per share. Dr. Kahn has been granted piggy-back registration rights to
register the underlying shares of common stock. The original maturity date of
17
the convertible notes payable was twelve months after issuance and is payable in
cash or unregistered common stock at a conversion price of $1.00 per share. In
September 2000 and June 2001 Dr. Kahn agreed to extend the maturity date of each
note for an additional twelve months from their original maturity. In return for
the June 2001 extension, GreenMan agreed to reduce the conversion price to $.75
per share. In September 2002, Dr. Kahn again agreed to extend the maturity of
each note for an additional twenty four months from their extended maturity
dates.
Dr. Kahn has also loaned GreenMan $200,000 as of September 30, 2002 under
the terms of a November 2000 unsecured note payable which bears interest at 12%
per annum with interest due monthly and the principal due in November 2001. In
June 2001, Dr. Kahn agreed to extend the maturity date of the note for an
additional twelve months from its original maturity. In September 2002, Dr. Kahn
again agreed to extend the maturity of the note for an additional twenty four
months or until November 2004.
Related Party Transactions
GreenMan Technologies rents several pieces of equipment on a monthly basis
from Valley View Farms, Inc., a company co-owned by Mr. Maust. Rent expense
associated with payments made to Valley View Farms for the years ended September
30, 2002 and 2001 was $355,040 and $328,012, respectively.
In July 2002, GreenMan Technologies of Minnesota entered into a four-year
equipment lease with Valley View Farms. Under the terms of the lease, GreenMan
Technologies of Minnesota is required to pay $4,394 per month rental and has the
ability to purchase the equipment at the end of the lease at approximately 40%
of original value. The lease is classified as a capital lease at September 30,
2002 with an equipment value of $146,670.
In September 1999, GreenMan Technologies of Georgia entered into a
five-year equipment lease with Valley View Farms. Under the terms of the lease,
GreenMan Technologies of Georgia is required to pay $6,421 per month rental and
has the ability to apply 85% of all payments made towards the purchase of the
equipment at the end of the lease. The lease is classified as a capital lease at
September 30, 2002 with an equipment value of $187,250.
Able Tire of Oklahoma, LLC leases, on a month-to-month basis, certain
rolling stock equipment from Gary Humphreys, an owner of Able Tire Company, LLC,
the other member of Able Tire of Oklahoma, LLC. Payments made to Mr. Humphreys
totaled $45,100 during the fiscal year ended September 30, 2002.
Able Tire of Oklahoma, LLC also purchased certain operating equipment from
Green Tree Resorts, a company partly owned by Mr. Humphreys, totaling $10,500
during the fiscal year ended September 30, 2002.
All transactions, including loans, between GreenMan and its officers,
directors, principal stockholders, and their affiliates are approved by a
majority of the independent and disinterested outside directors on the Board of
Directors, and are on terms no less favorable to GreenMan than could be obtained
from unaffiliated third parties.
18
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibits required by Item 601 of Regulation S-B are filed as
part of this Form 10-KSB.
Exhibit
No. Description
--- -----------
3.1(1) -- Certificate of Incorporation of GreenMan Technologies, Inc. as
amended
3.2(2) -- By-laws of GreenMan Technologies, Inc.
4.1(2) -- Specimen certificate for Common Stock of GreenMan Technologies,
Inc.
10.1(2) -- 1993 Stock Option Plan.
10.2(2) -- Form of confidentiality and non-disclosure agreement for
executive employees.
10.3(4) -- Employment Agreement between GreenMan Technologies, Inc. and
Robert H. Davis.
10.4(1) -- Promissory Note issued by Robert H. Davis dated January 9, 1998
in favor of GreenMan Technologies, Inc.
10.5(1) -- Promissory Note issued by Robert H. Davis dated January 4, 1999
in favor of GreenMan Technologies, Inc.
10.6(1) -- Extension Agreement dated September 30, 2000 between GreenMan
Technologies, Inc. and Robert H. Davis.
10.7(1) -- Extension Agreement dated September 30, 2001 between GreenMan
and Robert H. Davis.
10.8(4) -- Employment Agreement between GreenMan Technologies, Inc. and
Charles E. Coppa.
10.9(3) -- Promissory Note issued by Charles E. Coppa dated January 4,
1999 in favor of GreenMan Technologies, Inc.
10.10(1) -- Convertible Note Payable issued October 27, 1999 by GreenMan
Technologies, Inc.to Dr. Allen Kahn.
10.11(1) -- Convertible Note Payable issued November 23, 1999 by GreenMan
Technologies, Inc. to Dr. Allen Kahn.
10.12(1) -- Convertible Note Payable issued February 18, 2000 by GreenMan
Technologies, Inc.to Dr. Allen Kahn.
10.13(1) -- Promissory note issued November 17, 2000 by GreenMan
Technologies, Inc. to Dr. Allen Kahn.
10.14(1) -- Extension Agreement dated September 30, 2000 between GreenMan
Technologies, Inc. and Dr. Allen Kahn.
10.15(1) -- Extension Agreement dated June 27, 2001 between GreenMan
Technologies, Inc. and Dr. Allen Kahn.
10.16(5) -- Loan and Security Agreement dated January 31, 2001 by and among
Coast Business Credit, GreenMan Technologies of Minnesota,
Inc. and GreenMan Technologies of Georgia, Inc.
10.16(5) -- Secured Promissory Note dated January 31, 2001 in the amount
of $2,044,000 executed by GreenMan Technologies of Minnesota,
Inc. and GreenMan Technologies of Georgia, Inc. payable to
Coast Business Credit.
10.18(5) -- Secured Promissory Note dated January 31, 2001 in the amount of
$822,250 executed by GreenMan Technologies of Minnesota, Inc.
and GreenMan Technologies of Georgia, Inc. payable to
Coast Business Credit.
10.19(5) -- Secured Promissory Note dated January 31, 2001 in the amount
of $812,250 executed by GreenMan Technologies of Minnesota,
Inc. and GreenMan Technologies of Georgia, Inc. payable to
Coast Business Credit.
19
10.20(5) -- Secured Promissory Note dated January 31, 2001 in the amount of
$1,000,000 executed by GreenMan Technologies of Minnesota, Inc.
and GreenMan Technologies of Georgia, Inc. payable to Coast
Business Credit.
10.21(5) -- Security Agreement-Continuing Guaranty dated January 31, 2001
between GreenMan Technologies Inc. and Coast Business Credit.
10.22(5) -- Loan Agreement dated March 29, 2001 between GreenMan
Technologies of Minnesota, Inc. Bremer Business Finance
Corporation.
10.23(5) -- Real Estate Term Note dated January 31, 2001 in the amount of
$822,250 executed by GreenMan Technologies of Minnesota, Inc.
in favor of Bremer Business Finance Corporation.
10.24(5) -- Mortgage, Security Agreement, Fixture Financing Statement and
Assignment of Leases and Rents executed by GreenMan
Technologies of Minnesota, Inc. to Bremer Business Finance
Corporation.
10.25(6) -- Purchase and Sale Agreement By and Between GreenMan
Technologies of Georgia, Inc. and WTN Realty Trust dated April
2, 2001
10.26(6) -- Lease Agreement By and Between WTN Realty Trust to GreenMan
Technologies of Georgia, Inc. dated April 2, 2001.
10.27(6) -- $200,000 Promissory Note by WTN Realty Trust to GreenMan
Technologies of Georgia, Inc. dated April 2, 2001.
10.28(6) -- Purchase and Sale Agreement By and Between Technical Tire
Recycling, Inc. and Tennessee Tire Recyclers, Inc. dated April
16, 2001
10.29(6) -- $180,000 Promissory Note by Technical Tire Recycling, Inc. to
Tennessee Tire Recyclers, Inc. dated April 16, 2001.
10.30(6) -- Corporate Guarantee by GreenMan Technologies, Inc. of $180,000
note to Tennessee Tire Recyclers, Inc. dated April 16, 2001.
10.31(7) -- Stock Repurchase Agreement by and between GreenMan
Technologies, Inc. and Republic Services of Georgia, LP, dated
February 14, 2002.
10.32(7) -- $1,500,000 Promissory Note by GreenMan Technologies, Inc. to
Republic Services of Georgia, LP dated February 14, 2002.
10.33(8) -- Stock Repurchase Agreement by and between GreenMan
Technologies, Inc. and Republic Services of Georgia, LP dated
May 6, 2002
10.34(8) -- $750,000 Promissory Note by GreenMan Technologies, Inc. to
Republic Services of Georgia, LP dated May 6, 2002.
10.35(3) -- Extension Agreement dated September 23, 2002 between GreenMan
and Dr. Allen Kahn.
11.1(3) -- Statement Regarding Computation of Earnings Per Share.
21.1(3) -- List of All Subsidiaries.
(1) Filed as a Exhibit to GreenMan's Form 10-KSB for the Fiscal Year Ended
September 30, 2001 and incorporated herein by reference.
(2) Filed as an Exhibit to GreenMan's Registration Statement on Form SB-2 No.
33-86138 and incorporated herein by reference.
(3) Filed herewith
(4) Filed as an Exhibit to GreenMan's Form 10-QSB for the Quarter Ended
December 31, 2000 and incorporated herein by reference.
(5) Filed as an Exhibit to GreenMan's Form 10-QSB for the Quarter Ended March
31, 2001 and incorporated herein by reference.
20
(6) Filed as an Exhibit to GreenMan's Form 10-QSB for the Quarter Ended June
30, 2001 and incorporated herein by reference.
(7) Filed as an Exhibit to GreenMan's Form 10-QSB for the Quarter Ended March
31, 2002 and incorporated herein by reference.
(8) Filed as an Exhibit to GreenMan's Form 10-QSB for the Quarter Ended June
30, 2002 and incorporated herein by reference.
(b) Reports on Form 8-K.
There were no reports filed on Form 8-K during the quarter ended September
30, 2002
Item 14. Controls and Procedures
(a) Evaluation of disclosure controls and procedures.
Based on evaluation as of a date within 90 days of the filing date of this
Annual Report on Form 10-KSB, GreeenMan's principal executive officer and
principal financial officer have concluded that GreenMan's disclosure controls
and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under the Securities
Exchange Act of 1934 (the "Exchange Act")) are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in Securities and Exchange Commission rules
and forms.
(b) Changes in internal controls.
There were no significant changes in GreenMan's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
21
GreenMan Technologies, Inc.
Index to Consolidated Financial Statements
Page
----
Independent Auditors' Report F-2
Consolidated Balance Sheets as of September 30, 2002 and 2001 F-3
Consolidated Statements of Income for the Years Ended September
30, 2002 and 2001 F-4
Consolidated Statements of Changes in Stockholders' Equity fo
the Years Ended September 30, 2002 and 2001 F-5
Consolidated Statements of Cash Flows for the Years Ended
September 30, 2002 and 2001 F-6
Notes to Consolidated Financial Statements F-7
F-1
Independent Auditors' Report
The Board of Directors and Stockholders
GreenMan Technologies, Inc.
Lynnfield, Massachusetts
We have audited the accompanying consolidated balance sheets of GreenMan
Technologies, Inc. and subsidiaries as of September 30, 2002 and 2001 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years then ended. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of GreenMan Technologies, Inc.
and subsidiaries as of September 30, 2002 and 2001 and the results of their
operations and cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.
/s/ WOLF & COMPANY, P.C.
------------------------
WOLF & COMPANY, P.C
Boston, Massachusetts
November 21, 2002
F-2
GreenMan Technologies, Inc.
Consolidated Balance Sheets
September 30,
2002 2001
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 780,497 $ 428,075
Accounts receivable, trade, less allowance for doubtful accounts
of $196,920 and $118,586 as of September 30, 2002 and 2001 ........... 4,072,535 3,447,071
Equipment held for sale ................................................. 213,333 250,000
Product inventory ....................................................... 133,530 --
Other current assets .................................................... 1,151,923 791,575
------------ ------------
Total current assets ................................................ 6,351,818 4,916,721
------------ ------------
Property, plant and equipment, net ........................................ 10,845,337 7,298,000
------------ ------------
Other assets:
Deferred loan costs ..................................................... 313,603 373,963
Goodwill, net ........................................................... 3,413,894 2,172,198
Customer relationship intangibles, net .................................. 247,475 --
Note receivable ......................................................... 200,000 200,000
Other ................................................................... 581,117 292,890
------------ ------------
Total other assets .................................................. 4,756,089 3,039,051
------------ ------------
$ 21,953,244 $ 15,253,772
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current .................................................. $ 2,743,187 $ 1,411,412
Accounts payable ........................................................ 2,576,647 2,612,400
Accrued expenses, other ................................................. 1,184,261 1,025,559
Obligations under capital leases, current ............................... 345,090 239,287
------------ ------------
Total current liabilities ........................................... 6,849,185 5,288,658
Notes payable, related party ............................................ 575,000 575,000
Notes payable, non-current portion ...................................... 6,789,932 4,730,460
Obligations under capital leases, non-current portion ................... 2,176,000 1,759,257
------------ ------------
Total liabilities ................................................... 16,390,117 12,353,375
------------ ------------
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized:
Class B convertible, liquidation value $10 per share, 0 and
320,000 shares issued and outstanding at September 30, 2002 and 2001 .. -- 3,200,000
Common stock, $.01 par value, 20,000,000 shares authorized;
15,654,665 and 13,648,231 shares issued and outstanding at
September 30, 2002 and 2001 ........................................... 156,547 136,482
Additional paid-in capital .............................................. 28,473,710 23,659,072
Accumulated deficit ..................................................... (23,022,130) (24,040,157)
Notes receivable, common stock .......................................... (45,000) (55,000)
------------ ------------
Total stockholders' equity .......................................... 5,563,127 2,900,397
------------ ------------
$ 21,953,244 $ 15,253,772
============ ============
See accompanying notes to consolidated financial statements.
F-3
GreenMan Technologies, Inc.
Consolidated Statements of Income
Years Ended September 30,
2002 2001
------------ ------------
Net sales ...................................... $ 27,451,633 $ 21,753,070
Cost of sales .................................. 21,197,009 16,760,618
------------ ------------
Gross profit ................................... 6,254,624 4,992,452
Operating expenses:
Selling, general and administrative ......... 4,398,146 3,503,865
------------ ------------
Operating income ............................... 1,856,478 1,488,587
------------ ------------
Other income (expense):
Interest and financing costs, net ........... (1,231,248) (1,002,758)
Other, net .................................. 10,468 345,622
Casualty loss ............................... -- (155,000)
Forgiveness of indebtedness ................. 177,929 172,776
------------ ------------
Other (expense), net ..................... (1,042,851) (639,360)
------------ ------------
Net income before income taxes ................. 813,627 849,227
Benefit (provision) for income taxes ........... 204,400 (46,000)
------------ ------------
Net income ..................................... $ 1,018,027 $ 803,227
============ ============
Net income per share - basic ................... $ 0.07 $ 0.06
============ ============
Net income per share - diluted ................. $ 0.06 $ 0.06
============ ============
Weighted average shares outstanding - basic .... 14,586,538 13,464,943
============ ============
Weighted average shares outstanding - diluted .. 16,624,109 13,493,165
============ ============
See accompanying notes to consolidated financial statements.
F-4
GreenMan Technologies, Inc.
Consolidated Statements of Changes in Stockholders' Equity
Years Ended September 30, 2002 and 2001
Notes
Preferred Stock Common Stock Additional Receivable,
--------------------- --------------------- Paid-In Accumulated Common
Shares Amount Shares Amount Capital Deficit Stock Total
-------- ----------- ----------- -------- ----------- ------------ -------- -----------
Balance, September 30, 2000 .. 320,000 $ 3,200,000 13,348,231 $133,482 $23,560,072 $(24,843,384) $(55,000) $ 1,995,170
Common stock issued for
business combinations ...... -- -- 200,000 2,000 70,000 -- -- 72,000
Common stock issued for
services rendered .......... -- -- 100,000 1,000 29,000 -- -- 30,000
Net income for the year ended
September 30, 2001 ......... -- -- -- -- -- 803,227 -- 803,227
-------- ----------- ---------- -------- ----------- ------------ -------- -----------
Balance, September 30, 2001 .. 320,000 $ 3,200,000 13,648,231 136,482 23,659,072 (24,040,157) (55,000) 2,900,397
Repurchase of preferred
stock ...................... (320,000) (3,200,000) 100,000 1,000 1,699,000 -- -- (1,500,000)
Common stock issued for
business acquisitions ...... -- -- 191,778 1,918 334,242 -- -- 336,160
Common stock issued in
connection with partial
conversion of note payable . -- -- 300,000 3,000 747,000 -- -- 750,000
Common stock issued upon
exercise of options ........ -- -- 54,313 543 46,397 -- -- 46,940
Common stock and warrants
issued in connection
with service agreement ..... -- -- 30,000 300 47,700 -- -- 48,000
Sale of common stock ......... -- -- 1,330,343 13,304 1,940,299 -- -- 1,953,603
Repayment of notes receivable,
common stock ............... -- -- -- -- -- -- 10,000 10,000
Net income for the year ended
September 30, 2002 ......... -- -- -- -- -- 1,018,027 -- 1,018,027
-------- ----------- ---------- -------- ----------- ------------ -------- -----------
Balance, September 30, 2002 .. -- $ -- 15,654,665 $156,547 $28,473,710 $(23,022,130) $(45,000) $ 5,563,127
======== =========== ========== ======== =========== ============ ======== ===========
See accompanying notes to consolidated financial statements.
F-5
GreenMan Technologies, Inc.
Consolidated Statements of Cash Flows
Years Ended September 30,
2002 2001
----------- -----------
Cash flows from operating activities:
Net income ................................................... $ 1,018,027 $ 803,227
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ................................ 1,859,815 1,808,648
Loss on disposal of property, plant and equipment ............ 730 68,372
Amortization of deferred loan costs ......................... 88,765 93,514
Deferred income tax benefit .................................. (270,000) --
Common stock and warrants issued for services ................ 24,000 30,000
Forgiveness of indebtedness .................................. (177,929) (172,776)
Decrease (increase) in assets:
Accounts receivable ....................................... (526,189) (1,074,003)
Product inventory ......................................... (54,564) --
Other current assets ...................................... (29,183) (120,145)
Increase (decrease) in liabilities:
Accounts payable .......................................... 27,398 355,724
Accrued expenses .......................................... 66,504 (422,654)
----------- -----------
Net cash provided by operating activities .............. 2,027,374 1,369,907
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment ........................... (2,022,472) (1,964,845)
Increase to work in progress ................................. (848,515) --
Proceeds on sale of property and equipment and other assets .. 180,000 1,388,007
Acquisition of businesses, net of cash acquired .............. (608,437) (53,728)
(Increase) decrease in other assets .......................... (263,708) (303,339)
----------- -----------
Net cash (used for) investing activities ................ (3,563,132) (933,905)
----------- -----------
Cash flows from financing activities:
Deferred financing costs ..................................... (28,405) (427,226)
Proceeds from notes payable .................................. 836,157 5,813,528
Repayment of notes payable ................................... (1,350,468) (4,558,541)
Net advances (repayments) under line of credit .............. 736,146 (879,147)
Net proceeds from notes payable, related party ............... -- 200,000
Repayment of notes receivable, related party ................. 10,000 --
Principal payments on obligations under capital leases ....... (315,793) (209,130)
Cash received upon exercise of stock options ................. 46,940 --
Net proceeds on the sale of common stock ..................... 1,953,603 --
----------- -----------
Net cash provided by (used for) financing activities .... 1,888,180 (60,516)
----------- -----------
Net increase in cash and cash equivalents ....................... 352,422 375,486
Cash and cash equivalents at beginning of year .................. 428,075 52,589
----------- -----------
Cash and cash equivalents at end of year ........................ $ 780,497 $ 428,075
=========== ===========
Supplemental cash flow information:
Property and equipment acquired under capital leases .......... $ 310,139 $ 1,507,020
Interest paid ................................................. 1,119,035 842,564
Common stock issued in acquisitions ........................... 336,160 72,000
Debt issued in acquisitions ................................... 1,866,410 --
Repurchase of preferred stock for note payable ................ 1,500,000 0
Common stock issued on conversion of notes payable ............ 750,000 0
See accompanying notes to consolidated financial statements.
F-6
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Business
GreenMan Technologies, Inc. ("GreenMan" or the "Company") was founded in
1992 and today comprises a group of eight affiliated companies that collect,
process and market scrap tires in whole, shredded or granule form. We are
headquartered in Lynnfield, Massachusetts and currently operate size reduction
operations in Georgia, Minnesota, Iowa, Wisconsin, California and Oklahoma and
operate under exclusive agreements to supply whole tires to cement kilns
located in Tennessee, Georgia, Illinois, Oklahoma, Florida and Texas.
Basis of Presentation
The consolidated financial statements include the results of operations of
GreenMan Technologies, Inc. and its wholly-owned and majority-owned
subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation.
Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the amounts of revenues and expenses recorded during the
reporting period. Actual results could differ from those estimates. Such
estimates relate primarily to the estimated lives of property and equipment, the
value of goodwill and other intangible assets, the valuation reserve on deferred
taxes and the value of equity instruments issued. The amount that may be
ultimately realized from equipment held for sale, notes receivable and other
assets and liabilities could differ materially from the values recorded in the
accompanying financial statements as of September 30, 2002.
Cash Equivalents
Cash equivalents include short-term investments with original maturities
of three months or less.
Product Inventory
Inventory consists of crumb rubber and is valued at the lower of cost or
market on a first-in first-out (FIFO) method.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization
expense is provided on the straight-line method. Expenditures for maintenance,
repairs and minor renewals are charged to expense as incurred. Significant
improvements and major renewals that extend the useful life of equipment are
capitalized.
Deferred Loan Costs
Deferred loan costs represent costs incurred in connection with securing
financing for wholly owned subsidiaries in Minnesota, Iowa and Georgia. The
amount is amortized to expense over the life of the related notes payable.
Revenue Recognition
GreenMan has two sources of revenue: processing revenue that is derived
from the collection, transportation and processing of scrap tires and product
revenue that is derived from the sale of tire chips, crumb rubber and steel.
Revenues from product sales are recognized when the products are shipped and
collectability is reasonably assured. Revenues derived from the collection,
transporting and processing of tires are recognized when processing of the tires
has been completed.
Income Taxes
Deferred tax assets and liabilities are recorded for temporary differences
between the financial statement and tax bases of assets and liabilities using
the currently enacted income tax rates expected to be in effect when the taxes
are actually paid or recovered. A deferred tax asset is also recorded for net
operating loss and tax credit carryforwards to the extent their realization is
more likely than not. The deferred tax (benefit) expense for the period
represents the change in the deferred tax asset or liability from the beginning
to the end of the period.
F-7
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies - (Continued)
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", encourages all entities to adopt a fair value based
method of accounting for employee stock compensation plans, whereby compensation
cost is measured at the grant date based on the value of the award and is
recognized over the service period, which is usually the vesting period.
However, it also allows an entity to continue to measure compensation cost of
those plans using the intrinsic value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", whereby compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date (or other measurement date) over the
amount an employee must pay to acquire the stock. Stock options issued under
GreenMan's stock option plans generally have no intrinsic value at the grant
date, and under Accounting Principles Board Opinion No. 25 no compensation cost
is recognized for them. GreenMan has elected to continue to apply the accounting
in Accounting Principles Board Opinion No. 25 and, as a result, has provided pro
forma disclosures of net income and earnings per share and other disclosures, as
if the fair value based method of accounting had been applied. The pro forma
disclosures include the effects of all awards granted after May 31, 1995.
Impairment of Long Lived Assets and Assets to be Disposed Of
Management continually reviews long-lived assets, goodwill and certain
identifiable intangibles to evaluate whether events or changes in circumstances
indicate an impairment of carrying value. Such reviews include an analysis of
current results and take into consideration the discounted value of projected
operating cash flows (earnings before interest, taxes, depreciation and
amortization). An impairment charge would be recognized when expected future
operating cash flows are lower than the carrying value of the assets.
Net Income 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 GreenMan relate to outstanding
stock options and warrants (determined using the treasury stock method),
preferred stock and convertible debt. The assumed conversion of outstanding
dilutive stock options, warrants and preferred stock would increase the shares
outstanding but would not require an adjustment to income as a result of the
conversion.
Net income per common share have been computed based on the following:
Year Ended Year Ended
September 30, September 30,
2002 2001
Net income applicable to common stock ............ $ 1,018,027 $ 803,227
=========== ===========
Average number of common shares outstanding ...... 14,586,538 13,464,943
Effect of dilutive options ....................... 2,037,571 28,222
----------- -----------
Average number of common shares outstanding used
to calculate diluted net income per share ...... 16,624,109 13,493,165
=========== ===========
New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard (SFAS) No. 141, "Business Combinations" and SFAS
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 applies to all
business combinations with a closing date after June 30, 2001 and eliminates the
pooling-of-interests method of accounting and further clarifies the criteria for
recognition of intangible assets separately from goodwill. SFAS No. 142
eliminates the amortization of goodwill and indefinite-lived intangible assets
and initiates an annual review for impairment. Identifiable intangible assets
with a determinable useful life will continue to be amortized. GreenMan adopted
SFAS No. 142 effective October 1, 2001, which required GreenMan to cease
amortization of its remaining net goodwill balance and to perform an impairment
test of its existing goodwill based on a fair value concept. As of September 30,
2002, GreenMan has net unamortized goodwill of $3,413,894 and goodwill
amortization expense of $196,404 for the year ended September 30, 2001.
F-8
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies - (Continued)
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations". This statement establishes standards for accounting for
obligations associated with the retirement of tangible long-lived assets. This
statement is effective for fiscal years beginning after June 15, 2002.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement addresses financial
accounting and reporting for the impairment and disposal of long-lived assets.
This statement is effective for fiscal years beginning after December 15, 2001.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities". SFAS No. 146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 will be applied prospectively to any exit or disposal activities
initiated after December 31, 2002. GreenMan will adopt SFAS No. 144 in the first
quarter of fiscal 2003 and does not expect the adoption of SFAS No. 143, 144 or
146 to impact its financial position and results of operations.
2. Acquisition of Businesses
Effective on April 1, 2001, Technical Tire Recycling, Inc., ("TTRI"),a
newly formed wholly owned subsidiary of GreenMan, acquired the net operations of
Tennessee Tire Recyclers, Inc. TTRI is a Tennessee based company which procures
whole scrap tires to be used as an alternative fuel to several of the largest
cement companies in North America.
On January 1, 2002 GreenMan Technologies of Wisconsin, Inc. ("GreenMan
Technologies of Wisconsin"), a newly formed wholly-owned subsidiary of GreenMan
Technologies of Minnesota, acquired the operations and certain processing
equipment of An-Gun, Inc. ("An-Gun"), a Wisconsin based company in the business
of collecting, processing and marketing of scrap tires.
On April 4, 2002 GreenMan Technologies of Iowa, Inc. ("GreenMan
Technologies of Iowa"), a newly formed wholly-owned subsidiary of GreenMan
acquired the Iowa based tire collection and processing operations of Utah Tire
Recyclers, Inc. ("UT").
On July 1, 2002 GreenMan Technologies of California, Inc. ("GreenMan
Technologies of California"), a newly formed wholly-owned subsidiary of GreenMan
acquired the outstanding common stock of Unlimited Tire Technologies, Inc.
("UTT"), an Azusa, California based company in the business of collecting,
processing and marketing of scrap tires.
The above fiscal 2001 acquisition was accounted for as a purchase and
accordingly the results of operations are included in the consolidated financial
statements since the date of acquisition. The aggregate consideration, exclusive
of debt assumed for the acquisition consisted of $75,000 in cash, 200,000 shares
of unregistered shares of GreenMan common stock valued at $72,000 and the
issuance of $180,000 of long term debt. The total consideration paid exceeded
the fair value of the net assets acquired resulting in the recognition of
$942,000 of goodwill . In 2001, goodwill was being amortized over an estimated
useful life of 20 years on a straight-line basis (See new accounting
pronouncements in Note 1). Total goodwill amortization expense for the year
ended September 30, 2001 was $196,354.
The above fiscal 2002 acquisitions were accounted for as purchases and
accordingly the results of operations are included in the consolidated financial
statements since the date of each acquisition. The aggregate consideration,
exclusive of debt assumed for the acquisitions consisted of $608,437 in cash,
191,778 shares of unregistered shares of GreenMan common stock valued at
$336,160 and the issuance of $1,866,410 of long term debt. The total
consideration paid exceeded the fair value of the net assets acquired by
$1,493,696 resulting in the recognition of $1,241,696 of goodwill and $252,000
assigned to customer relationships. Customer relationships are being amortized
over an estimated useful life of 20 years on a straight-line basis which will be
evaluated annually. Amortization expense associated with customer relationships
was $4,525 for the year ended September 30, 2002. The estimated annual
amortization expense for customer relationships is $12,600.
The changes in the carrying amount of goodwill for the year ended
September 30, 2002, are as follows:
Balance as of September 30, 2001................ $2,172,198
Goodwill acquired during the year............... 1,241,696
----------
Balance as of September 30, 2002................ $3,413,894
==========
The following represents what net income and net income per share would
have been in the periods presented exclusive of amortization expense for
goodwill, which is no longer being amortized:
Year Ended Year Ended
September 30, September 30,
2002 2001
------------- -------------
Net income:
As reported $1,018,027 $803,227
Add back: Goodwill amortization -- 196,354
---------- --------
Adjusted $1,018,027 $999,581
========== ========
Basic earnings per share:
As reported $ 0.07 $ 0.06
Add back: Goodwill amortization 0.01
---------- --------
Adjusted $ 0.07 $ 0.07
========== ========
Diluted earnings per share:
As reported $ 0.07 $ 0.06
Add back: Goodwill amortization 0.01
---------- --------
Adjusted $ 0.07 $ 0.07
========== ========
F-9
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statement
3. Formation of Joint Venture
During January 2002 GreenMan Technologies of Oklahoma, Inc., ("GreenMan
Technologies of Oklahoma"), a newly formed wholly-owned subsidiary of GreenMan
and Able Tire Company, LLC, a Burleson, Texas tire processor and collector,
formed a joint venture known as Able Tire of Oklahoma, LLC ("Able Tire of
Oklahoma") Able Tire of Oklahoma collects, shreds and markets whole tires to the
cement industry. GreenMan Technologies of Oklahoma is the majority owner and has
responsibility for finance and administration while Able Tire Company will be
responsible for all marketing efforts and operational management. The results of
operations of Able Tire of Oklahoma are included in the consolidated financial
statements since January 2002
4. Property, Plant and Equipment
Property, plant and equipment consists of the following:
September 30, September 30, Estimated
2002 2001 Useful Lives
------------- ------------- ------------
Land ................................ $ 336,365 $ 336,365
Buildings ........................... 2,245,891 1,939,040 10-20 years
Machinery and equipment ............. 7,875,139 5,386,636 5-10 years
Furniture and fixtures .............. 169,721 122,617 3-5 years
Motor vehicles ...................... 5,410,434 3,774,152 3-10 years
Construction work in process ........ 848,515 --
------------ ------------
16,886,065 11,558,810
Less accumulated depreciation
And amortization .................. (6,040,728) (4,260,810)
------------ ------------
Property, plant and equipment, net .. $ 10,845,337 $ 7,298,000
============ ============
In April 2001, GreenMan Technologies of Georgia sold all of its land and
buildings to a third party for $1,300,000 and incurred a loss on the sale of
approximately $33,000. GreenMan Technologies of Georgia received $1,100,000 in
cash and a $200,000 note receivable that bears interest at 8.5% and is due April
2, 2004. The proceeds of the sale were used to repay the GreenMan Technologies
of Georgia's portion of the Coast bridge loan of $812,500 plus accrued interest.
(See Note 5). Simultaneous with the sale, GreenMan Technologies of Georgia
executed a 20-year lease with the same third party that provides for a monthly
rental of $17,642. The lease can be renewed for four additional 5-year periods
and provides GreenMan Technologies of Georgia an option to repurchase the land
and buildings at fair market value after the second anniversary of the lease
(See Note 7).
During the fourth quarter of fiscal 2002, GreenMan initiated a $1.5
million equipment upgrade to its Des Moines, Iowa tire processing facility to
replace all tire shredders with more efficient, higher volume equipment and to
install GreenMan's third waste wire processing equipment line in order to reduce
waste wire disposal costs as well as provide the internal capacity to produce
rubber feedstock per year for our crumb rubber operations. At September 30,
2002, GreenMan had $848,515 of work in progress relating to this initiative.
Depreciation and amortization expense for the years ended September 30,
2002 and 2001 was $1,851,849 and $1,590,941 respectively.
5. Bank Credit Facility/Notes Payable
In August 1998, GreenMan Technologies of Louisiana's crumb rubber
processing facility was severely damaged by a fire, which necessitated the
closure of this operation in December 1998. As a result of the fire, certain
cryogenic equipment that GreenMan was leasing from Cryopolymers Leasing, Inc.
("Cryopolymers Leasing"), under an October 1997 agreement was destroyed.
On May 14, 1999, GreenMan and Cryopolymers Leasing reached a settlement
agreement valued at $3,255,000, Cryopolymers Leasing agreed to assign to
GreenMan all interest in and to any additional insurance proceeds to be received
as a result of the August 21, 1998 fire; transfer ownership of some additional
cryogenic rubber recycling equipment to GreenMan; and withdraw from all legal
proceedings against GreenMan. As part of the settlement agreement, GreenMan
issued a $1,100,000 sixty month note payable, bearing interest at 7.75% with
monthly payments of $7,553 and a balloon payment due June 2004 The $1,100,000
note payable is personally guaranteed by three officers of GreenMan.
F-10
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
5. Bank Credit Facility/Notes Payable - (Continued)
On January 31, 2001 GreenMan Technologies of Minnesota and GreenMan
Technologies of Georgia, collectively secured a $7 million five-year,
asset-based credit facility (the "Credit Facility") from Coast Business Credit
("Coast"). The Credit Facility consisted of approximately $3 million of term
loans secured by machinery and equipment, approximately $1.6 million of bridge
loans secured by all real estate of the entities and a working capital line of
credit of up to $2.3 million secured by eligible accounts receivable, as
defined.
As of September 30, 2002 there was $893,670 outstanding under the working
capital line of credit. The obligations under the Credit Facility are guaranteed
by GreenMan and contain certain minimum reporting requirements and certain
restrictions on intercompany cash transactions. GreenMan is in compliance with
all requirements at September 30, 2002.
GreenMan used the proceeds from the Credit Facility to repay the balance
of approximately $3,372,000, including interest, due Finvoa Capital under
GreenMan's previous credit facility. GreenMan also incurred approximately
$346,000 of deferred loan costs associated with securing the Credit Facility.
These deferred charges are being amortized over the life of the term notes.
Amortization expense was $77,575 and $84,014 for years ended September 30, 2002
and 2001, respectively.
On March 29, 2001, GreenMan Technologies of Minnesota executed a
five-year, $950,000 secured term note (secured with all Minnesota real estate)
with Bremer Business Finance Corporation, ("Bremer") payable in monthly
installments including interest at prime plus 2.75% for the first 36 months and
then prime plus 2.25% until maturity based on a 15 year amortization. The
proceeds of the term notes were used to repay the GreenMan Technologies of
Minnesota portion of the Coast bridge loan of $822,250, including interest.
GreenMan Technologies of Minnesota incurred $50,000 of deferred loan costs
associated with the transaction, which is being amortized over the life of the
term note. Amortization of deferred charges for the year ended was $8,340 and
$5,000 for the years ended September 30, 2002 and 2001, respectively.
In connection with the February 14, 2002, repurchase and retirement of all
of the Class B convertible Preferred Stock held by Republic Services of Georgia,
Limited Partnership ("RSLP") (as successor to United Waste Services, Inc.),
GreenMan issued a $1,500,000 promissory note bearing interest at 10% and due in
February 2007 and 100,000 shares of common stock valued at $1.60 per share on
the date of issuance (See Note 9).
On May 6, 2002, RSLP converted $750,000 of the principal amount of the
February 14, 2002 promissory note into 300,000 unregistered shares of GreenMan
common stock valued at $750,000. GreenMan issued RSLP a promissory note in the
principal amount of $743,750 bearing interest at 10% and due in March 2007.
On April 4, 2002, GreenMan Technologies of Iowa executed a five-year,
$1,185,000 secured term note and a $300,000 line of credit (secured with all
assets of GreenMan Technologies of Iowa) with First American Bank ("First
American"),payable in installments of $23,735, with a final payment of unpaid
principal and accrued interest on April 1, 2007. The term note bears interest at
7.5%. and the line of credit bears interest a prime rate plus 1.00% (5.75% at
September 30, 2002). The proceeds of this term note were used in connection with
the acquisition of UT. GreenMan Technologies of Iowa incurred $28,404 of
deferred loan costs associated with the transaction, which are being amortized
over the life of the term note. Amortization of deferred charges for the year
ended September 30, 2002 was $2,850.
F-11
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
5. Bank Credit Facility/Notes Payable - (Continued)
Notes payable consists of the following at: September 30, September 30,
2002 2001
------------- -------------
Term note payable, Cryopolymers Leasing, guaranteed by three officers, due in
monthly installments of $7,553 including interest at 7.75% with the remaining
principal balance due June 2004 ................................................................ $ 1,079,576 $ 1,086,264
Line of credit, Coast, secured by eligible accounts receivable of GreenMan Technologies of
Minnesota and GreenMan Technologies of Georgia, guaranteed by GreenMan, and bearing
interest at prime plus 2.0% (6.75% at September 30, 2002) ...................................... 893,670 376,524
Line of credit, First American, secured by all assets of GreenMan Technologies of Iowa, bearing
interest at prime plus 1.0% (5.75% at September 30, 2002) ...................................... 219,000 --
Term note payable, Coast, secured by machinery and equipment of GreenMan Technologies of
Minnesota and GreenMan Technologies of Georgia, guaranteed by GreenMan, due in monthly
installments of $34,067 including interest at prime plus 2.5% (7.25% at September 30, 2002) .... 1,396,734 1,805,534
Term note payable, Coast, secured by machinery and equipment acquired under the machinery and
equipment line of credit, guaranteed by GreenMan, due in monthly installments of $13,283
including interest at prime plus 2.5% (7.25% at September 30,2002) ............................. 552,828 680,114
Term note payable, Bremer, secured by real estate of GreenMan Technologies of Minnesota,
due in monthly installments of $10,649 including interest at prime plus 2.75% (7.50% at
September 30, 2002) for 36 months then prime plus 2.25% ........................................ 914,293 940,853
Term note payable, Republic Services of Georgia, LP, (Note 9) due in monthly installments of
$3,125 plus interest at 10% with the remaining principal balance due May 2007 .................. 728,125 --
Term note payable, First American, secured by assets of GreenMan Technologies of Iowa, due in
monthly installments of $23,735 including interest at 7.5% with the remaining principal
balance due April 2007 ......................................................................... 985,072 --
Term note payable, State of Iowa, secured by certain assets of GreenMan Technologies of Iowa,
due in quarterly installments of $ 8,449 including interest at 1.5% with the remaining
principal balance due November 2012 ............................................................ 331,867 --
Term note payable, Sun Country Bank, secured by all assets of GreenMan Technologies of
California, due in monthly installments of $6,607 including interest at 5.75% with the
remaining principal balance due March 2011 ..................................................... 543,038 --
Other term notes payable and assessments, secured by various equipment and requiring
monthly installments at interest rates ranging from 2% to 12% and terms ranging from
1 year to 5 years .............................................................................. 1,888,916 1,252,583
----------- -----------
9,533,119 6,141,872
Less current portion ............................................................................. (2,743,187) (1,411,412)
----------- -----------
Notes payable, non-current portion ............................................................. $ 6,789,932 $ 4,730,460
=========== ===========
The following is a summary of maturities of notes payable at September 30, 2002:
Years Ending September 30,
--------------------------
2003 ............................... $2,743,187
2004 ............................... 2,562,830
2005 ............................... 1,378,476
2006 ............................... 1,660,082
2007 ............................... 736,948
2008 and thereafter................. 451,596
----------
$9,533,119
==========
Interest expense on the lines of credit and notes payable for the years
ended September 30, 2002 and 2001 amounted to $842,376 and $665,082,
respectively.
F-12
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
6. Notes Payable-Related Party
Notes Payable, Related Party consists of the following:
Convertible Notes Payable-Related Party
As of September 30, 2002, a director of GreenMan is owed $375,000 under
the terms of an October 1999 private offering of 10% convertible notes payable
and warrants. GreenMan issued to the director immediately exercisable five year
warrants to purchase 125,000 shares of common stock at exercise prices ranging
from $.31 to $.50 per share and has granted piggy-back registration rights to
register the underlying shares of common stock. The original maturity date of
the convertible notes payable were twelve months after issuance and are payable
in cash or unregistered common stock at a conversion price of $1.00 per share.
In September 2000 and June 2001 the director agreed to extend the maturity date
of each note for an additional twelve months from their original maturity. In
return for the June 2001 extension, GreenMan agreed to reduce the conversion
price to $.75 per share. In September 2002, the director again agreed to extend
the maturity of each note for an additional twenty four months from their
extended maturity dates.
Note Payable-Related Party
In November 2000, GreenMan borrowed $200,000 from the same director who
holds the convertible notes referred to above. This unsecured note payable bears
interest at 12% per annum with interest due monthly and the principal due
originally in November 2001. In June 2001, the director agreed to extend the
maturity date of the note for an additional twelve months from its original
maturity. In September 2002, the director agreed to extend the maturity of the
note for an additional twenty four months or until November 2004.
Total interest expense for related party notes was $62,250 and $59,122,
for the years ended September 30, 2002 and 2001, respectively.
7. Capital Leases
GreenMan leases land, buildings and machinery and equipment with a cost of
$3,052,303 and $2,472,703 under capital lease agreements at September 30, 2002
and 2001, respectively. Accumulated amortization amounted to $565,480 and
$371,589 at September 30, 2002 and 2001, respectively. Amortization expense for
the years ended September 30, 2002 and 2001 amounted to $193,891 and $239,595
respectively.
In April 2001, GreenMan Technologies of Georgia leased back their property
under a 20-year lease requiring a monthly rental of $17,642. The lease can be
renewed for four additional 5-year periods and provides GreenMan Technologies of
Georgia an option to repurchase the land and buildings at fair market value
after the second anniversary of the lease. The lease has been classified as a
capital lease with a value of $1,300.000. (See Note 4).
In September 1999, GreenMan Technologies of Georgia entered into a
five-year equipment lease with a company co-owned by an officer. Under the terms
of the lease, GreenMan Technologies of Georgia is required to pay $6,421 per
month rental and has the ability to apply 85% of all payments towards the
purchase of the equipment. In August 2002 GreenMan Technologies of Georgia
exercised it option to acquire the equipment .
In July 2002, GreenMan Technologies of Minnesota entered into a four-year
equipment lease with a company co-owned by an officer. Under the terms of the
lease, GreenMan Technologies of Minnesota is required to pay $4,394 per month
rental and has the ability to purchase the equipment at the end of the lease at
approximately 40% of original value. The lease is classified as a capital lease
at September 30, 2002 with an equipment value of $146,670.
In August 1999, GreenMan Technologies of South Carolina entered into a
five-year equipment lease agreement. Under the terms of the lease GreenMan
Technologies of South Carolina is required to pay $12,234 per month rental. In
March 2000, the leased equipment was transferred to GreenMan Technologies of
Minnesota, which assumed responsibility for all future lease obligations. The
lease is classified as a capital lease with an equipment value of $610,973.
F-13
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
7. Capital Leases - (Continued)
The following is a schedule of the future minimum lease payments under the
capital leases together with the present value of net minimum lease payments at
September 30, 2002:
Years Ending
September 30,
-------------
2003 ............................ $ 679,531
2004 ............................ 667,297
2005 ............................ 498,478
2006............................. 462,340
2007............................. 251,285
2008 and thereafter.............. 3,172,225
-----------
Total minimum lease payments ....... 5,731,156
Less amount representing interest .. (3,210,066)
-----------
Present value of minimum lease payments $ 2,521,090
===========
Interest expense on capital leases for the years ended September 30, 2002
and 2001 was $326,264 and $278,552, respectively.
8. Commitments and Contingencies
Employment Agreements
GreenMan has employment agreements with three officers, which provide for
base salaries, participation in employee benefit programs and severance payments
for termination without cause.
Rental Agreements
GreenMan rents several pieces of equipment on a monthly basis from a
company co-owned by an officer. Rent expense for the years ended September 30,
2002 and 2001 was $335,040 and $328,012 respectively.
GreenMan Technologies of Iowa leases a facility located on approximately 4
acres of land under a 36-month lease for $5,000 per month. The lease can be
renewed for two additional one year periods and provides GreenMan Technologies
of Iowa a right of first refusal to purchase the land and buildings during the
term of the lease.
GreenMan Technologies of Wisconsin leases a facility located on
approximately 4 acres of land under a 36-month lease for $3,600 per month. At
the end of the lease GreenMan of Wisconsin has the option to purchase the land
and building for $350,000, with a portion of the lease payments being credited
towards the purchase price.
GreenMan Technologies of California leases approximately 45,000 square
feet of a building situated on approximately 1.5 acres of land for $1,250 per
month. The lease expires in April 2007, with an option to extend the lease for
an additional five years.
Future annual rent commitments under the above real estate leases are as
follows: 2003 - $118,200; 2004 - $118,200; 2005 - $55,800; 2006 - $15,000 and
2007 - $11,250. Rent expense for these lease agreements for the year ended
September 30, 2002 was $66,150.
Litigation
In August 1998, GreenMan Technologies of Louisiana's crumb rubber processing
facility was severely damaged by a fire, which necessitated the closure of this
operation in December 1998. In November 1998 St. Francisville Industrial Park,
Inc. commenced an action against GreenMan alleging that as a result of the
negligence of GreenMan or one of its affiliates, a building which was being
leased by GreenMan Technologies of Louisiana as successor in interest to a lease
between St. Francisville Industrial Park, as lessor, and Cryopolymers, Inc., as
lessee, burned and was damaged in the August 1998 fire at GreenMan Technologies
of Louisiana. St. Francisville Industrial Park sought $505,500 for damages to
the building and rent from the date of the fire through December 31, 1998.
F-14
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
8. Commitments and Contingencies - (Continued)
In March 2001 in lieu of incurring the potential costs associated with
protracted litigation of this matter, management reached a settlement agreement
whereby St. Francisville Industrial Park agreed to accept $200,000 in full
settlement of all alleged claims. GreenMan's insurance company contributed
$45,000 towards the settlement. GreenMan recorded a casualty loss of $155,000 in
the year ended September 30, 2001.
As previously reported, in October 2001, GreenMan commenced an action in
the Supreme Court of the State of New York, County of Albany, against Acorn
Processing, Inc. and TransWorld Equipment Sales, Inc. seeking the return of
certain cryogenic equipment or a payment of $550,000. In November 2001 Acorn
Processing filed several counterclaims against GreenMan and TransWorld, seeking
damages of $250,000.
In May 2002 GreenMan agreed to settle all of these claims in return for a
payment of $180,000. GreenMan received the $180,000 payment on June 6, 2002 and
all legal proceedings have been terminated.
9. Stockholders' Equity
Repurchase of Class B Convertible Preferred Stock
On February 14, 2002, GreenMan repurchased and retired all of the Class
B convertible Preferred Stock held by Republic Services of Georgia, Limited
Partnership ("RSLP") (as successor to United Waste Services, Inc.) for a
$1,500,000 promissory note bearing interest at 10% and due in February 2007 and
100,000 shares of common stock valued at $1.60 per share on the date of
issuance. The difference between the liquidation value of the preferred stock
and the consideration given has been credited to paid-in-capital.
On May 6, 2002, RSLP converted $750,000 of the principal amount of the
February 14, 2002 promissory note into 300,000 unregistered shares of GreenMan
common stock valued at $750,000. GreenMan issued RSLP a promissory note for the
remaining balance on the February 14, 2002 promissory note in the principal
amount of $743,750 bearing interest at 10% and due in March 2007.
Private Offering of Common Stock
In February 2002 GreenMan commenced a private offering of unregistered
common stock in an effort to raise up to $2,000,000 in gross proceeds
(subsequently increased to $3,000,000 in August 2002). As of September 30, 2002
the Company sold 1,330,343 shares of unregistered common stock to investors,
including existing shareholders, for gross proceeds of $1,953,603. The investors
have been granted limited registration rights to cause the Company to register
the common stock for resale in the event that GreenMan registers shares of
common stock for its own account. The investors have agreed not to sell or
transfer the shares for a period of at least 18 months after issuance.
Other Common Stock Transactions
In July 2001, the Board of Directors approved the issuance of 100,000
shares of unregistered GreenMan common stock to certain employees in recognition
of past services and recorded a $30,000 expense (assigned fair value based on
closing bid price) associated with the issuance of these shares during the year
ended September 30, 2001.
On April 1, 2002, GreenMan executed a one year financial consulting
agreement with a third party. In exchange for services to be provided, GreenMan
agreed to (1) issue 30,000 shares of unregistered common stock which vest over
the term of the agreement (valued at $37,000); (2) issue warrants to purchase
150,000 shares of common stock (valued at $11,000) exercisable commencing in
April 2002 through April 2005 at prices ranging from $2.25 to $4.50 per share.
F-15
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
9. Stockholders' Equity - (Continued)
Stock Option Plan
The 1993 Stock Option Plan was established to provide stock options to
employees, officers, directors and consultants. On March 29, 2001, the
stockholders approved an increase to the number of shares authorized under the
Plan to 3,000,000.
The Board of Directors will grant options and establish the terms of the
grant in accordance with the provisions of the 1993 Stock Option Plan. Stock
options granted are summarized as follows:
Year Ended Year Ended
September 30, 2002 September 30, 2001
--------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- --------- ----------
Outstanding at beginning of period ............ 1,962,000 $ 0.89 2,002,000 $ 0.89
Granted ....................................... 255,000 1.27 300,000 .40
Canceled ...................................... (102,800) .76 (340,000) 1.42
Exercised ..................................... (1,200) 1.09 -- --
--------- ---------
Outstanding at end of period .................. 2,113,000 .94 1,962,000 .85
========= =========
Exercisable at end of period .................. 1,201,800 .97 813,600 1.12
========= =========
Reserved for future grants at end of period ... 876,880 1,030,280
========= =========
Weighted average fair value of options
granted during the period ................... $ 0.78 $ 0.11
Information pertaining to options outstanding under the plan at September 30,
2002 is as follows:
Options Outstanding Options Exercisable
---------------------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ---------- ----------- -------- ----------- ---------
$ .38 - .53 798,000 7.4 $ .48 365,400 $ .50
$ .81 - 1.09 1,155,000 6.2 .97 791,400 1.00
$ 1.35 5,000 1.6 1.35 5,000 1.35
$ 1.50 - 4.70 155,000 8.1 2.53 40,000 4.70
--------- ---------
2,113,000 6.8 $ .90 1,201,800 $0.97
========= =========
Non-Employee Director Stock Option Plan
Under the terms of the 1996 Non-Employee Director Stock Option Plan on a
non-employee director's initial election to the Board of Directors, they are
automatically granted an option to purchase 2,000 shares of the common stock.
Each person who was a member of the Board of Directors on January 24, 1996, and
was not an officer or employee, was automatically granted an option to purchase
2,000 shares of common stock. In addition, after an individual's initial
election to the Board of Directors, any director who is not an officer or
employee and who continues to serve as a director will automatically be granted,
on the date of the annual meeting of stockholders, an option to purchase an
additional 2,000 shares of common stock. The exercise price per share of options
granted under the Non-Employee Director Stock Option Plan is 100% of the
fair-market value of the common stock on the business day immediately prior to
the date of the grant and is immediately exercisable for a period of ten years
from the date of the grant.
The Board of Directors has reserved 60,000 shares of common stock for
issuance under this plan and as of September 30, 2002, options to purchase
20,000 shares of common stock, at prices ranging from $.38 to $1.60 per share,
have been granted. During the years ended September 30, 2002 and 2001, options
were granted to purchase 4,000 shares common stock at $1.60 and $.38 per share,
respectively, exercisable for a period of ten years. The weighted average fair
value of the options on the date of grant was $.42 and $.09 per share,
respectively, for the years ended September 30, 2002 and 2001.
In December 2001, a former director exercised 4,000 non-employee director
options to purchase unregistered shares common stock at prices ranging from $.59
to $.88 per share. In addition, the former director exercised an additional
4,000 non-employee director options using a net exercise feature, and was issued
241 shares of unregistered common stock.
F-16
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
9. Stockholders' Equity - (Continued)
Other Stock Options and Warrants
Information pertaining to all other options and warrants granted and outstanding
is as follows:
Year Ended Year Ended
September 30, 2002 September 30, 2001
--------------------- ----------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------- -------- --------- ----------
Outstanding at beginning of period 2,324,900 $3.51 2,694,900 $3.70
Granted 225,000 1.50 -- --
Canceled (25,000) .41 (370,000) 1.09
Exercised (50,000) .88 -- --
--------- ---------
Outstanding at end of period 2,474,900 3.41 2,324,900 4.12
========= =========
Exercisable at end of period 1,896,400 4.10 1,701,900 4.44
========= =========
Weighted average fair value of
options granted during the period $1.50 $0.11
Options Outstanding Options Exercisable
---------------------------------- ----------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life Price Exercisable Price
-------- ---------- ----------- -------- ----------- ---------
$ .31 - 1.09 1,792,500 5.2 $ .86 1,439,000 $ .88
$ 1.50 - 4.50 375,000 3.6 2.43 150,000 2.00
$ 4.85 - 35.00 307,400 1.9 20.21 307,400 20.21
--------- ---------
2,474,900 4.5 $ 3.50 1,896,400 $ 4.14
========= =========
GreenMan applies Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for stock options issued to employees and
directors. Had the compensation cost for the stock options issued to employees
and directors been determined based on the fair value at the grant dates
consistent with Statement of Financial Accounting Standards No. 123, the net
income and net income per share would have been adjusted to the pro forma
amounts indicated below:
Year Ended Year Ended
September 30, September 30,
2002 2001
------------ ------------
Net income:
As reported $1,018,027 $803,227
Pro forma 808,836 702,810
Net income per share - basic:
As reported $ 0.07 $ 0.06
Pro forma $ 0.06 $ 0.05
Net income per share - diluted:
As reported $ 0.06 $ 0.06
Pro forma $ 0.05 $ 0.05
The fair value of each option grant under the 1993 Stock Option Plan and
the 1996 Non-Employee Director Stock Option Plan is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants during the years ended September 30, 2002
and 2001: dividend yields of 0%; risk-free interest rates of 3.0% and 5.5%
respectively; expected volatility of 50% and expected lives of 5 years.
F-17
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
9. Stockholders' Equity - (Continued)
Common Stock Reserved
GreenMan has reserved common stock at September 30, 2002 as follows:
Stock option plans ............................. 3,040,080
Other stock options ............................ 1,226,500
Other warrants ................................. 1,248,400
---------
5,514,980
=========
At September 30, 2002, GreenMan has 20,000,000 shares of authorized common
stock of which 15,654,665 shares are outstanding. Approximately 1,490,000 of the
shares of common stock reserved above are not issuable at September 30, 2002
pursuant to the terms of certain warrants and options referred to in the above
table.
10. Employee Benefit Plan
Effective August 1999, GreenMan has implemented a Section 401(k) plan for
all eligible employees. Employees are permitted to make elective deferrals of up
to 15% of employee compensation and employee contributions to the 401(k) plan
are fully vested at all times. GreenMan may make discretionary contributions to
the 401(k) plan which become vested over a period of five years. There were no
corporate contributions to the 401(k) plan during the years ended September 30,
2002 and 2001.
11. Segment Information
GreenMan operates in one business segment, the collecting, processing and
marketing of scrap tires to be used as feedstock for tire derived fuel, civil
engineering projects and/or for further processing into crumb rubber.
12. Major Customers
During the fiscal years ended September 30, 2002 and 2001, one customer
accounted for approximately 10% and 15%, respectively, of GreenMan's
consolidated net sales.
13. Income Taxes
The provision (benefit) for income taxes was comprised of the following
amounts for the years ended:
September 30, September 30,
2002 2001
------------- -------------
Current:
Federal .................................... $ -- $ --
State ...................................... 65,600 46,000
--------- -------
65,600 46,000
--------- -------
Deferred federal and state taxes ........... (270,000) --
--------- -------
Total provision (benefit) for income taxes . $(204,400) $46,000
========= =======
A reconciliation of the statutory federal income tax rate as a percentage
of pre-tax income is as follows for the years ended:
September 30, September 30,
2002 2001
------------- -------------
Statutory rate .............................. 34.0% 34.0%
State income taxes, net of federal benefit .. 5.3 3.6
Benefit derived from net operating loss
carryforward not previously provided for .. (31.2) (32.2)
Change in valuation reserve on net
deferred tax assets ....................... (33.2) --
----- -----
Effective tax rate .......................... (25.1)% 5.4%
===== =====
F-18
GreenMan Technologies, Inc.
Notes To Consolidated Financial Statements
13. Income Taxes
The current state taxes result from income in states where the Company has
no net operating loss carryforwards. The provision (benefit) for deferred income
taxes reflect the impact of "temporary differences" between amounts of assets
and liabilities recorded for financial reporting purposes and the amounts
recorded for income tax reporting purposes.
The significant components of deferred income taxes included in other current
assets are as follows:
September 30, September 30,
2002 2001
------------- -------------
Net operating loss carryforards .... $ 6,935,000 $ 7,097,000
Other temporary differences ........ (51,000) 112,000
----------- -----------
Valuation reserve .................. (6,614,000) (7,209,000)
----------- -----------
Net deferred tax asset ............. $ 270,000 $ --
=========== ===========
The change in the valuation reserve is as follows:
Year Ended Year Ended
September 30, September 30,
2002 2001
------------- -------------
Balance at beginning of period ......... $ 7,209,000 $ 7,546,000
Decrease due to expected realization of
net operating loss carryforward ...... (270,000) --
Decrease due to rate differentials
and current period operating results . (325,000) (337,000)
----------- -----------
Balance at end of period ............... $ 6,614,000 $ 7,209,000
=========== ===========
As of September 30, 2001, GreenMan had recorded a full valuation allowance
on the net operating loss carryforwards and other components of the deferred tax
assets based on GreenMan's expected ability to realize the benefit of those
assets. In the year ending September 30, 2002, GreenMan reduced the valuation
allowance by $270,000 based on GreenMan's net income before taxes in the year
then ending as well as expected net income before income taxes for the next
fiscal year. The remaining net operating loss carryforwards and other components
of the net deferred tax asset continue to have a full valuation allowance.
GreenMan will evaluate the realizability of these deferred tax assets each
quarter.
As of September 30, 2002, GreenMan has net operating loss carryforwards of
approximately $17,338,000. The Federal and state net operating loss
carryforwards expire in varying amounts beginning in 2008 and 2002,
respectively. In addition, GreenMan has Federal tax credit carryforwards of
approximately $17,000 available to reduce future tax liabilities. The Federal
tax credit carryforwards expire beginning in 2008. Use of net operating loss and
tax credit carryforwards maybe subject to annual limitations based on ownership
changes in GreenMan's common stock as defined by the Internal Revenue Code.
14. Fair Value of Financial Instruments
At September 30, 2002 and 2001, GreenMan's financial instruments consist
of notes payable to banks and others, and convertible notes payable. Notes
payable to banks and others approximate their fair values as these instruments
were negotiated currently and bear interest at market rates. The fair value of
the $375,000 convertible note payable is approximately $650,000 and $375,000 at
September 30, 2002 and 2001, respectively based upon the intrinsic value of the
conversion feature on those dates (see Note 5).
F-19
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, , the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
GreenMan Technologies, Inc.
/s/ Robert H. Davis
-------------------
Robert H. Davis
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant in the capacities and on the dates
indicated.
Signature Title(s) Date
--------- -------- ----
/s/ Maurice E. Needham Chairman of the Board December 30, 2002
----------------------
Maurice E. Needham
/s/ Robert H. Davis Chief Executive Officer, President December 30, 2002
------------------- and Director
Robert H. Davis
/s/ Charles E. Coppa Chief Financial Officer, December 30, 2002
-------------------- Treasurer and Secretary
Charles E. Coppa (Principal Financial Officer and December 30,.2002
Principal Accounting Officer)
/s/ Lew F. Boyd Director December 30, 2002
---------------
Lew F. Boyd
/s/ Dr. Allen Kahn Director December 30, 2002
------------------
Dr. Allen Kahn
/s/ Lyle Jensen Director December 30, 2002
---------------
Lyle Jensen
F-20
SECTION 302 CERTIFICATION
I, Robert H. Davis, President and Chief Executive Officer, certify that:
1. I have reviewed this annual report on Form 10-KSB of GreenMan
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 30, 2002
/s/ Robert H. Davis
---------------
Robert H. Davis
President and Chief Executive Officer
F-21
SECTION 302 CERTIFICATION
I, Charles E. Coppa, Chief Financial Officer and Treasurer, certify that:
1. I have reviewed this annual report on Form 10-KSB of GreenMan
Technologies, Inc.;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this annual
report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this annual report (the "Evaluation Date"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officer and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
Date: December 30, 2002
/s/ Charles E. Coppa
----------------
Charles E. Coppa
Chief Financial Officer and Treasurer
F-22