Edgar Filing: GREENMAN TECHNOLOGIES INC

U.S. Securities and Exchange Commission
Washington, D.C. 20549

Form 10-QSB

Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934

For Quarter Ended June 30, 2005 Commission File Number 1-13776
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GreenMan Technologies, Inc.
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(Exact name of small business issuer as specified in its charter)

Delaware 71-0724248
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

7 Kimball Lane, Building A, Lynnfield, MA 01940
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(Address of principal executive offices) (Zip Code)

Issuer's telephone number, including area code (781) 224-2411
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(Former name, former address and former fiscal year,
if changed since last report.)

Indicate by check mark whether the issuer (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

Yes |X| No |_|

Number of shares outstanding as of August 15, 2005
Common Stock, $.01 par value: 19,225,352 shares

GreenMan Technologies, Inc.
Form 10-QSB
Quarterly Report
June 30, 2005

Table of Contents

PART I - FINANCIAL INFORMATION

Page
----
Item 1. Financial Statements (*)

Unaudited Consolidated Balance Sheets as of June 30, 2005 and
September 30, 2004 3

Unaudited Consolidated Statements of Operations for the
three and nine months ended June 30, 2005 and 2004 4

Unaudited Consolidated Statement of Changes in Stockholders' Equity
for the nine months ended June 30, 2005 5

Unaudited Consolidated Statements of Cash Flows for the
nine months ended June 30, 2005 and 2004 6

Notes to Unaudited Consolidated Financial Statements 7-17

Item 2. Management's Discussion and Analysis or Plan of Operation 18-30

Item 3. Controls and Procedures 31

PART II - OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 31

Item 4. Submission of Matters to a Vote of Security Holders 31

Item 6. Exhibits and Reports on Form 8-K 32

Signatures 33

* The financial information at September 30, 2004 has been taken from
audited financial statements at that date and should be read in
conjunction therewith. All other financial statements are unaudited.

GreenMan Technologies, Inc.
Consolidated Balance Sheets

June 30, September 30,
2005 2004
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents ............................................ $ 526,102 $ 509,787
Accounts receivable, trade, less allowance for doubtful accounts of
$244,426 and $187,559 as of June 30, 2005 and September 30, 2004 ... 4,096,908 4,383,935
Product inventory .................................................... 526,913 667,839
Other current assets ................................................. 1,237,559 1,365,594
------------ ------------
Total current assets ............................................. 6,387,482 6,927,155
------------ ------------
Property, plant and equipment, net ..................................... 11,103,304 11,516,253
------------ ------------
Other assets:
Deferred loan costs .................................................. 480,092 626,233
Goodwill, net ........................................................ 3,533,894 3,533,894
Customer relationship intangibles, net ............................... 235,308 253,725
Deferred tax asset ................................................... -- 270,000
Other ................................................................ 338,728 494,496
------------ ------------
Total other assets ............................................... 4,588,022 5,178,348
------------ ------------
$ 22,078,808 $ 23,621,756
============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, current ............................................... $ 1,128,171 $ 1,177,390
Notes payable, line of credit ........................................ 699,950 500,000
Convertible notes payable, current, net of discounts ................. 1,055,472 1,270,929
Convertible notes payable, line of credit, net of discounts .......... 3,683,952 1,814,042
Accounts payable ..................................................... 5,721,992 4,158,492
Accrued expenses, other .............................................. 1,229,571 1,225,455
Obligations under capital leases, current ............................ 276,504 302,977
------------ ------------
Total current liabilities ........................................ 13,795,612 10,449,285
Notes payable, related parties, non-current portion .................. 699,320 699,320
Notes payable, non-current portion ................................... 2,276,191 3,358,147
Convertible notes payable, non-current portion, net of discounts ..... 1,868,758 2,434,205
Obligations under capital leases, non-current portion ................ 2,858,623 2,874,885
Deferred gain on sale leaseback transaction .......................... 388,744 419,115
------------ ------------
Total liabilities ................................................ 21,887,248 20,234,957
------------ ------------

Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000 shares authorized,
none outstanding ................................................... -- --
Common stock, $.01 par value, 30,000,000 share authorized;
19,225,352 shares and 19,072,963 shares issued and outstanding at
June 30, 2005 and September 30, 2004 ............................... 192,253 190,729
Additional paid-in capital ........................................... 34,057,922 31,755,384
Accumulated deficit .................................................. (34,058,615) (28,559,314)
------------ ------------
Total stockholders' equity ....................................... 191,560 3,386,799
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$ 22,078,808 $ 23,621,756
============ ============

See accompanying notes to unaudited consolidated financial statements.

GreenMan Technologies, Inc.
Unaudited Consolidated Statements of Operations

Three Months Ended Nine months Ended
June 30, June 30, June 30, June 30,
2005 2004 2005 2004
------------ ------------ ------------ ------------

Net sales ................................................ $ 8,777,421 $ 8,059,103 $ 24,468,329 $ 21,770,118
Cost of sales ............................................ 8,461,663 6,684,326 23,939,239 18,908,514
------------ ------------ ------------ ------------
Gross profit ............................................. 315,758 1,374,777 529,090 2,861,604
------------ ------------ ------------ ------------
Operating expenses:
Selling, general and administrative .................. 1,223,305 1,120,754 3,754,586 3,356,590
Impairment loss ...................................... 57,183 -- 57,183 --
------------ ------------ ------------ ------------
1,280,488 1,120,754 3,811,769 3,356,590
------------ ------------ ------------ ------------
Operating profit (loss) .................................. (964,730) 254,023 (3,282,679) (494,986)
------------ ------------ ------------ ------------
Other income (expense):
Interest and financing costs ......................... (925,687) (588,568) (1,916,292) (1,494,476)
Casualty income, net ................................. -- -- -- 202,813
Other, net ........................................... 83,764 (1,279) (30,330) (24,666)
------------ ------------ ------------ ------------
Other income (expense), net ...................... (841,923) (589,847) (1,946,622) (1,316,329)
------------ ------------ ------------ ------------
Net loss before income taxes ............................. (1,806,653) (335,824) (5,229,301) (1,811,315)
Income tax provision ..................................... -- -- 270,000 --
------------ ------------ ------------ ------------
Net loss ................................................. $ (1,806,653) $ (335,824) $ (5,499,301) $ (1,811,315)
============ ============ ============ ============

Net loss per share - basic and diluted ................... $ (0.09) $ (0.02) $ (0.29) $ (0.11)
============ ============ ============ ============

Weighted average shares outstanding - basic and diluted .. 19,223,429 17,070,728 19,176,314 16,533,288
============ ============ ============ ============

See accompanying notes to unaudited consolidated financial statements.

GreenMan Technologies, Inc.
Unaudited Consolidated Statement of Changes in Stockholders' Equity
Nine Months Ended June 30, 2005

Additional
Common Stock Paid In Accumulated
Shares Amount Capital Deficit Total
---------------------- ----------- ------------- -----------

Balance, September 30, 2004 ........................... 19,072,963 $190,729 $31,755,384 $(28,559,314) $ 3,386,799
Common stock issued in connection with a
potential acquisition ............................... 127,389 1,274 198,726 -- 200,000
Beneficial conversion discount on convertible
notes payable ....................................... -- -- 2,084,312 -- 2,084,312
Common stock issued upon conversion of notes payable .. 25,000 250 19,500 -- 19,750
Net loss for the nine months ended June 30, 2005 ...... -- -- -- (5,499,301) (5,499,301)
---------- -------- ----------- ------------ -----------
Balance, June 30, 2005 ................................ 19,225,352 $192,253 $34,057,922 $(34,058,615) $ 191,560
========== ======== =========== ============ ===========

See accompanying notes to unaudited consolidated financial statements.

GreenMan Technologies, Inc.
Unaudited Consolidated Statements of Cash Flow

Nine Months Ended June 30,
2005 2004
----------- -----------

Cash flows from operating activities:
Net loss .................................................................................... $(5,499,301) $(1,811,315)
Adjustments to reconcile net loss to net cash provided by (used for)
operating activities:
Depreciation ................................................................................ 1,796,042 1,650,479
Deferred income tax write-off ............................................................... 270,000 --
Gain on disposal of property, plant and equipment ........................................... (4,896) 6,719
Impairment loss ............................................................................. 57,183 --
Amortization ................................................................................ 883,428 365,980
Decrease (increase) in assets:
Accounts receivable ...................................................................... 287,028 (375,118)
Insurance claim receivable ............................................................... -- 634,172
Product inventory ........................................................................ 140,926 (831,112)
Other current assets ..................................................................... 128,037 (124,579)
(Decrease) increase in liabilities:
Accounts payable ......................................................................... 1,563,500 (37,987)
Accrued expenses ......................................................................... 3,933 327,008
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Net cash (used for) operating activities ............................................... (374,120) (195,753)
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Cash flows from investing activities:
Purchase of property and equipment .......................................................... (1,640,874) (807,469)
Proceeds from sale of property and equipment ................................................ 608,102 1,444,580
(Increase) in notes receivable, officers .................................................... -- (7,848)
Decrease (increase) in other assets ......................................................... 162,195 (174,147)
----------- -----------
Net cash (used for) provided by investing activities ................................... (870,577) 455,116
----------- -----------
Cash flows from financing activities:
Decrease (increase) in deferred financing costs ............................................. (23,452) (557,017)
Net advances under line of credit ........................................................... 2,775,920 1,298,131
Repayment of notes payable .................................................................. (1,222,540) (4,213,803)
Proceeds from notes payable ................................................................. 145,420 3,998,686
Proceeds from notes payable, related parties ................................................ -- 575,000
Proceeds from convertible notes payable ..................................................... -- 375,000
Principal payments on obligations under capital leases ...................................... (414,336) (337,177)
Cash received from exercise of stock options ................................................ -- 7,800
Net proceeds from sale of common stock ...................................................... -- 833,253
----------- -----------
Net cash provided by financing activities .............................................. 1,261,012 1,979,873
----------- -----------
Net increase (decrease) in cash ................................................................ 16,315 2,239,236
Cash and cash equivalents at beginning of period ............................................... 509,787 990,745
----------- -----------
Cash and cash equivalents at end of period ..................................................... 526,102 $ 3,229,981
=========== ===========

Supplemental cash flow information:
Property, plant and equipment acquired under capital leases .................................. 277,372 1,400,000
Equipment acquired through transfer from deposits ............................................ 247,874 --
Common stock issued in connection with potential business acquisition ........................ 200,000 --
Common stock issued upon exercise of convertible notes payable and accrued interest .......... -- 937,064
Common stock issued upon conversion of notes payable and accrued interest .................... 19,750 707,800
Common stock issued upon exercise of stock options applied to notes payable .................. -- 142,635
Common stock issued in connection with lease buyout .......................................... -- 44,000
Notes receivable, officer applied against notes payable, related party and accrued interest .. -- 187,000
Common stock received in payoff of notes payable, officer .................................... -- 44,249
Interest paid ................................................................................ 984,161 1,725,063
Taxes paid ................................................................................... 4,227 550

See accompanying notes to unaudited consolidated financial statements

GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2005

1. Business

GreenMan Technologies, Inc. (together with its subsidiaries, "we", "us" or
"our") was originally founded in 1992 and has been operated as a Delaware
corporation since 1995. Today, we comprise six operating locations that collect,
process and market scrap tires in whole, shredded or granular form. We are
headquartered in Lynnfield, Massachusetts and currently operate tire processing
operations in California, Georgia, Iowa, Minnesota, Tennessee and Wisconsin and
operate under agreements to supply whole tires used as alternative fuel to
cement kilns located in Alabama, Florida, Georgia, Illinois, Missouri, and
Tennessee.

2. Basis of Presentation

The consolidated financial statements include the accounts of GreenMan
Technologies, Inc. and our wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

The financial statements are unaudited and should be read in conjunction
with the financial statements and notes thereto for the year ended September 30,
2004 included in our Annual Report on Form 10-KSB. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the Securities and Exchange Commission rules and
regulations, although we believe the disclosures which have been made are
adequate to make the information presented not misleading. The results of
operations for the periods reported are not necessarily indicative of those that
may be expected for a full year. In our opinion, all adjustments which are
necessary for a fair statement of operating results for the interim periods
presented have been made.

The financial statements have been prepared assuming we will continue as a
going concern. We have incurred substantial losses from operations, and have a
working capital deficiency of $7,408,130 at June 30, 2005. These factors raise
substantial doubt about our ability to continue as a going concern. The closure
of our primary source of working capital financing and long term debt, Southern
Pacific Bank and its wholly owned subsidiary Coast Business Credit in February
2003 necessitated that we significantly slow down or delay the implementation of
several growth initiatives, including establishing a new high volume tire
processing facility in Tennessee and shredding and screening upgrades in Georgia
and Minnesota. In addition, we estimate that during the year ended September 30,
2004, reduced end product revenue and excess waste disposal costs of over $1
million were associated with the impact of a March 31, 2003 fire in Georgia. Our
liquidity had been significantly and adversely affected by continued operating
losses in our Southeastern and Western operations which have experienced reduced
processing capacity and equipment reliability issues, increased collection costs
and continued operating inefficiencies necessitated by processing a majority of
our Tennessee-sourced tires at our Georgia location. In addition, a change in
the specifications of our alternative fuel customers requiring a smaller tire
chip has contributed to our reduced processing capacity and resulted in
significantly higher operating costs. These and other conditions have caused us
to incur significant expenses in the short-term and have limited our ability to
grow in the longer-term.

Despite these challenges during the past two years, we invested over $3
million in new equipment to increase processing capacity at our Iowa, Minnesota
and Georgia locations which will allow us to increase our overall revenue with
limited capital investment. We have identified, and are currently selling
product into several new, higher-value markets as evidenced by a 13% increase in
end product revenue during fiscal 2004 and 19% year to date increase for the
nine months ended June 30, 2005, despite the fact that our Georgia waste wire
processing equipment has been inoperable until November 2004. We continue to
experience strong demand for our end products. In addition, during the quarter
ended December 31, 2004 we reconfigured our Wisconsin location to substantially
reduce operating costs and maximize our return on assets. During June 2005, we
sold our Wisconsin property and intend to consolidate our Wisconsin operations
into our Minnesota location by September 30, 2005 in an effort to further reduce
operating costs. During March 2005, we installed equipment in Georgia which has
positively impacted but not totally resolved the reduced processing capacity
issues and in June 2005, installed new shredding equipment in California.
Additionally, management continues to attempt to negotiate more favorable
tipping fees with kiln relationships in several markets with the ultimate goal
of substantially reducing these fees from current levels.

GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2005

2. Basis of Presentation - (Continued)

During the month of July, we completed an evaluation of our Georgia
inbound collection infrastructure and determined that we would no longer provide
certain levels of service and products at existing rates. In addition, we
implemented price increases where warranted and terminated service in situations
where price increases were not an alternative. We estimate that maintaining this
unprofitable business had contributed $40,000 to $75,000 per month to our
historical operating losses in the Southeast. While these initiatives will
result initially in lower inbound tire volumes, we believe they will improve our
performance. In addition, these changes should generate further cost reductions
in the form of lower labor, parts and maintenance in the Southeast. Similar
actions are being evaluated for other locations.

Our continued existence is dependent on our ability to reduce our
operating costs, negotiate more favorable terms with existing secured creditors,
refinance existing long term debt, secure additional financing and achieve
profitable status on a sustained basis. We have implemented and/or are in the
processing of implementing the following actions:

A. Credit Facility Refinancing

On June 30, 2004, we entered into a three-year, $9 million credit facility
with Laurus Master Fund, Ltd., consisting of a $5 million convertible, revolving
working capital line of credit and a $4 million convertible term loan. On March
22, 2005, the credit facility was amended to permit us to maintain overadvances
of up to $2,000,000 under the line of credit through December 31, 2005. In
addition, the price at which the minimum borrowing note and term loan are
convertible into our common stock were adjusted. (See Note 9) In July 2005, we
entered into a $1 million secured convertible term note with Laurus. (See Note
14)

B. Private Placement of Investment Units

On April 9, 2004, we commenced a private offering of investment units.
Each unit consists of one share of our common stock and a warrant to purchase
0.5 shares of our common stock. As of June 30, 2004, when the offering was
terminated, we had sold 1,594,211 units (1,594,211 shares of our common stock
and warrants to purchase 797,105 additional shares of our common stock at prices
ranging from $1.56 to $2.06 per share) to investors, including our directors and
existing shareholders, for gross proceeds of $1,547,000.

C. Related Party Notes Payable

See the discussion of certain notes payable to related parties at Note 10
-"Notes Payable - Related Parties".

D. Convertible Note Payable

In December 2003, we entered into a note purchase agreement with an
accredited investor and, pursuant thereto, we issued a convertible note in the
aggregate principal amount of $375,000 and bearing interest at 10%, due December
22, 2004. The note and accrued interest of $11,854 were converted on June 24,
2004 into 369,331 shares of common stock and we issued warrants to purchase
553,997 shares of our common stock.

E. Sale and Leaseback of Real Estate

During March 2004, our Minnesota subsidiary sold all of its land and
buildings to an entity co-owned by an employee for $1,400,000, realizing a gain
of $437,337 which has been recorded as unearned income and will be recognized as
income ratably over the term of the lease. Simultaneous with the sale, we
entered into an agreement to lease the property back. We used $875,000 of the
proceeds to repay an existing obligation to Bremer Business Finance.

F. Tennessee Facility

GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2005

2. Basis of Presentation - (Continued)

other things our agreement to lease certain pieces of tire processing equipment
which were initially intended to be utilized in Tennessee (see Note 8) and
agreed to apply a portion of the $350,000 to preparation and moving of the
equipment to be leased. Due to delays in identifying the appropriate remaining
equipment for Tennessee, we reallocated approximately $650,000 of the proceeds
to be used to re-establish our Georgia waste wire processing equipment line in
November 2004 as well as support the limited Tennessee operation during this
period. During February 2005, we determined that, based on increasing inbound
tire volumes in the Southeast and reduced existing processing capacity as well
as equipment reliability issues, we would install a majority of the new leased
equipment in Georgia in order to increase our plant processing capacity and
reduce disposal expense. Based on existing capital constraints and continued
operating losses, we have reduced our Tennessee staff and are currently
evaluating several alternatives which will allow us to reduce or eliminate our
operating losses in Tennessee by September 30, 2005 when our facility lease
expires. We are evaluating alternative locations but believe we can extend our
lease on a month by month basis if needed during the interim period. If we are
successful in reducing or eliminating the need to transport Tennessee tires to
Georgia, we estimate the cost savings realized could exceed $80,000 per month.
No assurance can be given, however, that we will be able accomplish this in a
timely manner or at all. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.

3. Net Loss Per Share

Basic earnings per share represents income available to common
stockholders 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 potentially 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 us relate to
outstanding stock options and warrants (determined using the treasury stock
method) and convertible debt. Basic and diluted net loss per share are the same
for the three and nine months ended June 30, 2005 and 2004, since the effect of
the inclusion of all outstanding options, warrants and convertible debt would be
anti-dilutive.

4. Insurance Claim

On March 31, 2003, a portion of our Georgia facility and several pieces of
waste wire processing equipment were damaged by a fire.

In December 2003, we reached a settlement agreement with our insurance
carrier amounting to $1,029,885 of which $821,172 was applicable to losses
incurred during fiscal 2003. The settlement amount, net of direct costs
incurred, resulted in net casualty income of $431,594 during the fiscal year
ended September 30, 2003 and $112,766 during the quarter ended December 31,
2003, which is classified as other income in the accompanying statement of
operations. In December 2003 all remaining amounts associated with this
settlement were received.

5. Annual Assessment of Goodwill

We have elected to perform the required annual impairment test of our
goodwill on the last day of our fiscal third quarter. As of June 30, 2005, we
have concluded that goodwill is not impaired.

6. Notes Receivable, Officers

In January 1998 we advanced $104,000 to an officer under an 8.5% secured
promissory note with both principal and interest due January 2001. This note was
amended on September 30, 2000 to extend the maturity until April 15, 2002
(subsequently extended to April 15, 2004) and increase the interest rate to
9.5%. On April 30, 2004 the remaining balance of $163,000, including interest,
was applied to offset obligations under our $400,000 September 30, 2003 note
payable due to the officer. (See Note 10)

GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2005

6. Notes Receivable, Officers - (Continued)

In January 1999, we advanced two officers $55,000, in aggregate, under
8.5% secured promissory notes with both principal and interest due January 2002
(subsequently extended to January 2004). The proceeds were used to participate
in a private placement of our common stock and the loans were secured by 191,637
shares of common stock owned by the two officers. In June 2002, the two officers
repaid $5,000 each toward their respective then outstanding balances. On March
31, 2004, one officer agreed to apply his then outstanding balance of $24,000
against obligations under our $400,000 September 30, 2003 note payable due to
the officer. (See Note 10) On May 11, 2004 the other officer sold 36,717 shares
of common stock valued at $44,248 back to us in full settlement of all amounts
due under his note. We subsequently cancelled these shares, which reduced our
total shares issued and outstanding.

7. Property, Plant and Equipment

Property, plant and equipment consists of the following:

June 30, September 30, Estimated
2005 2004 Useful Lives
----------- ------------- -------------

Land ........................................... $ -- $ 167,981
Buildings and improvements ..................... 3,529,267 3,595,104 10 - 20 years
Machinery, equipment and improvements........... 11,162,375 9,716,896 5 - 10 years
Furniture and fixtures ......................... 459,068 277,146 3 - 5 years
Motor vehicles ................................. 6,043,976 6,087,959 2 - 10 years
Construction in process ........................ 288,477 891,267
----------- -----------
21,483,163 20,736,353

Less accumulated deprecation and amortization... (10,379,859) (9,220,100)
----------- -----------
Property, plant and equipment, net ............. $11,103,304 $11,516,253
=========== ===========

During June 2005, our Wisconsin subsidiary sold all of its land and
buildings for approximately $483,000, realizing a gain of $123,608. We used
approximately $284,000 of the proceeds to repay an existing obligation on the
property and simultaneous with the sale, entered into an agreement to lease the
property back for a period of 90 days. We intend to consolidate all remaining
Wisconsin operations into our Minnesota facility during the quarter ending
September 30, 2005.

In addition during the quarter ended June 30, 2005, our Wisconsin
subsidiary reached an agreement with the lessor of certain transportation
equipment to buy-out the remaining term of the lease. The lessor agreed to
accept approximately $190,000 in full settlement of our capital lease obligation
with a carrying value of approximately $156,000, resulting in a loss of
approximately $34,000 in connection with this transaction during the quarter. In
addition, management determined that the carrying value of the purchased
transportation equipment was impaired. Accordingly, we recorded an impairment
loss amounting to $57,183 during the quarter ended June 30, 2005 based on the
estimated fair value based on replacement cost of similar equipment and reduced
the remaining estimated useful life to 24 months.

8. Acquisition Deposit

In August 2004, we executed a non-binding letter of intent and escrow
agreement with Tires Into Recycled Energy and Supplies, Inc. ("TIRES"), a
leading crumb rubber processor in the United States. Pursuant to the escrow
agreement, we made a "good faith" payment amounting to $350,000, which was to be
applied toward the purchase price upon completion of the transaction. On
December 8, 2004, we executed a new letter of intent which superseded the August
letter of intent in which we (1) leased, with an option to buy, certain pieces
of tire processing equipment owned by TIRES, (2) entered a material supply
agreement and (3) were granted an exclusive purchase option to acquire
additional operating assets of TIRES. The operating leases were executed in
January 2005 but became effective in February and March 2005 and provide for
aggregate monthly payments of $25,300 over terms ranging from 48 to 60 months.

GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2005

8. Acquisition Deposit - Continued

Pursuant to the terms of the material supply agreement, we are to supply
agreed upon minimum amounts of crumb rubber material to TIRES on a weekly basis.
If we do not meet the minimum weekly requirements, we are assessed a shortfall
fee equal to 150% of the purchase price for any shortfall tonnage. Due to
unexpected equipment downtime and delays in installing the additional rasper
which is being leased from TIRES, we were unable to meet the minimum material
requirements during the quarter ended June 30, 2005 and as a result, we recorded
a shortfall expense of approximately $117,000 during the quarter. On June 6,
2005, we negotiated an amendment to the material supply agreement whereby the
minimum weekly requirement was reduced and the price at which TIRES would
purchase material was increased 15 percent for a period of 10 weeks. In return
for this short term consideration, we agreed to reduce our original pricing by
8% on the first 30,000 tons of material purchased by TIRES subsequent to the 10
week amendment period.

The exclusive purchase option to acquire additional operating assets of
TIRES is exercisable if predetermined financial performance criteria are met by
TIRES during the subsequent fifteen to twenty four month period after December
8, 2004. The ultimate purchase price cannot be determined at this time. In
return for the exclusive purchase option, we issued 127,389 shares of our common
stock (valued at $200,000) to TIRES. If we exercise our exclusive purchase
option and close a transaction, the value of the shares will be applied against
the purchase price of the assets. If the exclusive purchase option expires or we
decide not to exercise the option, TIRES will retain a sufficient number of our
shares to equal $200,000 (as of the date that the purchase option expires) and
return the balance of such shares of common stock to us. If at the time the
purchase option expires, the value of the shares is less than $200,000, we will
issue a sufficient number of additional shares to equal $200,000. If at the time
the purchase option expires, TIRES has not achieved the predetermined financial
performance criteria, TIRES will return to us a sufficient number of our shares
to equal $200,000 at the time. In connection with this agreement and based on
the fair market value of our stock at each quarter end, we may be required to
record an asset or liability based upon the sufficient number of shares required
to meet the requirements of the agreement, as required under Statement of
Financial Accounting Standards No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equities". At June 30,
2005, we have not recorded a related liability as the amount is immaterial and
would be offset by a corresponding increase in the related deposit.

We have also agreed to allow TIRES to retain $101,378 of the "good faith"
payment to upgrade it's existing crumb rubber production capacity and have used
the remaining $248,622 to prepare and move the leased equipment for our use.
Accordingly, during the quarter ended March 31, 2005, the $101,378 was expensed
when it was released from escrow and approximately $243,597 has been capitalized
and is being amortized over the lease terms which range from 48 to 60 months.

GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2005

9. Notes Payable/Credit Facilities

Republic Services of Georgia

On February 14, 2002, we 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 was 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 our common
stock valued at $750,000. We 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. As of June 30, 2005, 9
payments totaling $76,042 were past due. RSLP has agreed to defer all payments
due through June 30, 2005 until July 31, 2005 and has agreed to waive any and
all defaults that may exist. On July 31, 2005, RSLP agreed to defer all interest
and principal payments due through June 2006 at which time all interest and
principal payments under the promissory note that are otherwise due and payable
on or before that date will be incorporated into an new promissory note, payable
in 48 monthly installments commencing July 2007 and bearing interest at 10% per
annum.

First American Credit Facility

On April 4, 2002, our Iowa subsidiary executed a five-year, $1,185,000
secured term note and a one year $300,000 working capital line of credit
(secured with all Iowa assets) with First American Bank ("First American"). The
proceeds of this term note were used in connection with the acquisition of UT
Tire Recyclers, Inc in April 2002.

On February 13, 2003, our Iowa subsidiary amended its existing term debt
with First American under the terms of a five-year, $1,760,857 secured term
note. The note is payable in sixty monthly installments of $34,660 and is
secured with all Iowa assets. They also renewed their working capital line of
credit which was increased to $500,000. The line of credit was subsequently
extended to January 20, 2005 and First American temporarily increased the
maximum availability under the line of credit to $650,000 through September 30,
2004. The term note bears interest at 7.5% and the line of credit bears interest
at the prime rate plus 1% (7.25% as of June 30, 2005).

On November 15, 2004, First American reduced the availability under our
working capital line of credit and issued a $100,050 Irrevocable Letter of
Credit as collateral for a performance bond associated with the initial phase of
a significant scrap tire cleanup project in Iowa. In May 2005, we were awarded
the next phase of the cleanup project and First American agreed to extend the
term of the Letter of Credit accordingly.

On February 10, 2005, First American renewed our working capital line until
February 10, 2006 and increased our maximum availability under the line of
credit to $800,000. In addition, First American agreed to increase our overall
maximum availability by an additional $350,000 to $1,150,000 through June 10,
2005 to coincide with the performance of a significant scrap tire cleanup
project which was completed in April 2005.

Laurus Credit Facility

On June 30, 2004, we entered into a $9 million credit facility with Laurus
Master Fund, Ltd., consisting of a $5 million convertible, revolving working
capital line of credit and a $4 million convertible term note loan. At closing,
we borrowed $4 million under the term loan and $2 million under the line of
credit, and used approximately $1,860,000 of the proceeds to repay the
outstanding indebtedness under our prior credit facility and approximately
$1,070,000 to repay in full the indebtedness due Cryopolymers Leasing.
Additional proceeds of the financing were used to increase working capital and
to pay certain costs and fees associated with this transaction including a
$425,000 placement fee paid to our investment bank. On March 22, 2005, the
credit facility was amended to permit us to maintain overadvances of up to
$2,000,000 under the line of credit through December 31, 2005. In addition, the
price at which the minimum borrowing note and term loan are convertible into our
common stock were adjusted as noted below.

GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2005

9. Notes Payable/Credit Facility - (Continued)

The line of credit has a three-year term. Borrowings generally bear
interest at the prime rate published in The Wall Street Journal from time to
time plus 1.0% (7.25% at June 30, 2005), and are convertible into shares of our
common stock at the option of Laurus. Except for downward adjustments provided
in the credit facility terms described below, the interest rate shall not be
below 5%. The amount we may borrow at any time under the line of credit is
generally limited to 90% of eligible accounts receivable (90 days or less) and
50% of eligible finished goods inventory, subject to certain limitations. Until
December 31, 2005, however, we will be permitted to maintain overadvances of up
to $2,000,000 under the line of credit. All overadvances outstanding from time
to time will bear interest, in addition to the interest otherwise required, at a
rate equal to 2% per annum on the amount of the overadvance. In the event that
at any time we have outstanding overadvances of more than $2,000,000, or if any
overadvance remains outstanding on or after January 1, 2006, the excess or
overdue overadvance will bear interest, in addition to that otherwise required,
at a rate equal to 2% per month for all times such amounts are outstanding. The
line of credit requires us to maintain a minimum borrowing of $1,000,000. As of
June 30, 2005, our overadvance was $1,980,250.

Subject to certain limitations, Laurus will have the right, but not the
obligation, to convert the first $1,000,000 of borrowings under the line of
credit into our common stock at a revised price of $.79 (85% of the average
closing price of our common stock for the five days immediately prior to the
March 22, 2005 amendment to the credit facility which was $.93) The original
conversion price of the term note determined at June 30, 2004 was $1.31. The
conversion price for each subsequent $1,000,000 of borrowings will be adjusted
to the higher of $.93 or a 10% premium over the 22-day trailing average closing
price computed on each $1,000,000 increments. We will determine at that time if
any new beneficial conversion factor exists. During the quarter ended June 30,
2005, Laurus converted $19,750 under the line of credit and was issued 25,000
shares of common stock.

In connection with the line of credit, we issued Laurus a warrant to
purchase up to 990,000 shares of our common stock at prices ranging from $1.63
to $2.29. The warrant, valued at $82,731, is immediately exercisable, has a term
of ten years and allows for cashless exercise at the option of Laurus, and does
not contain any "put" provisions.

Net proceeds received from advances made under the line at closing were
allocated to the line of credit and the warrant based on their relative fair
values resulting in a discount on the line of credit amounting to $186,700 which
will be amortized to interest expense over the three-year term of the borrowing
or immediately upon conversion. As a result of the change in conversion price
pursuant to the terms of the March 22, 2005 amendment, we have determined the
minimum borrowing note contains a beneficial conversion feature of $598,717. The
beneficial conversion amount was recorded as paid-in-capital and will be
amortized to interest expense at $59,872 per month through December 31, 2005 or
ratably upon any partial conversion.

The term note also has a three-year term and bears interest at the prime
rate published in The Wall Street Journal from time to time plus 1.0% (7.25% at
June 30, 2005), with interest payable monthly. Except for downward adjustments
provided in the credit facility terms described below, the interest rate shall
not be below 5%. Principal is being amortized over the term of the loan,
commencing on November 1, 2004, with minimum monthly principal payments of
$125,000. Pursuant to the terms of the March 22, 2005 amendment, however
principal payments otherwise due from December 1, 2004 through June 30, 2005
have been deferred and are payable in full on the maturity date of the term
note, together with all other amounts due and payable on that date.

Laurus has the option to convert some or all of the principal and interest
payments into common stock at a revised fixed conversion price of $.93 (the
average closing price of our common stock for the five days immediately prior
the March 22, 2005 amendment), provided, that the first $1,000,000 of borrowings
under the term note is convertible into common stock at a price of $.79 (85% of
the average closing price of our common stock for the five days immediately
prior to the amendment). The original conversion price of the term note
determined at June 30, 2004 was $1.31. Subject to certain limitations, regular
payments of principal and interest will be automatically payable in common stock
if the 5-day average closing price of the common stock immediately preceding a
payment date is greater than or equal to 110% of such fixed conversion price.

GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2005

9. Notes Payable/Credit Facility - (Continued)

In connection with the term note, we issued Laurus a warrant to purchase
up to 390,000 shares of our common stock at prices ranging from $1.56 to $2.18.
The warrant, valued at $37,161, is immediately exercisable, has a term of ten
years and allows for cashless exercise at the option of Laurus, and does not
contain any "put" provisions.

Net proceeds received from issuance of the term note amounted to
$3,788,950 and were allocated to the term note and the warrant based on their
relative fair values. The note contained a beneficial conversion feature of
$64,000 at issuance based on the intrinsic value of the shares into which the
note is convertible, and a debt issue discount amounting to $248,200. The
original beneficial conversion amount was recorded as paid in capital and will
be amortized to interest expense along with the debt discount over the three
year term of the note or ratably upon any partial conversion. As a result of the
change in conversion price pursuant to the terms of the March 22, 2005
amendment, we have determined the term note's beneficial conversion feature
increased $1,485,594 to $1,549,594. The additional beneficial conversion amount
was recorded as paid-in-capital with $567,429 (the portion associated with the
first $1,000,000 of borrowings) being amortized to interest expense at $56,743
per month through December 31, 2005 or ratably upon any partial conversion with
the remaining balance of $918,165 amortized at $32,792 per month over the
remaining term of the note or ratably upon any partial conversion.

On July 20, 2005, we entered into an additional $1 million convertible
term note and related agreements with Laurus. (See Note 14) We will be required
to pay a premium of 2% of the amount of each principal payment made in cash
under the line of credit and/or the term note. In addition, we will be required
to pay a penalty of 20% of the then-outstanding balance of the term note if we
prepay that note.

The interest rate under each of the notes is subject to downward
adjustment on a monthly basis (but not to less than 0%). The downward adjustment
will be in the amount of 200 basis points (2.0%) for each incremental 25%
increase in the average closing price of our common stock over the then
applicable conversion price of the note for the five-day period preceding such
monthly determination date if we have at that time registered for resale all of
the shares of our common stock underlying the notes and warrants we are issuing
to Laurus in this transaction, or 100 basis points (1.0%) for each incremental
25% increase in the average closing price of our common stock over the then
applicable conversion price of the note for the five-day period preceding such
monthly determination date if we have not at that time registered for resale all
of such shares.

The credit facility is secured by a first-priority security interest in
substantially all of our assets, including the capital stock of our active
subsidiaries. Our active subsidiaries have guaranteed our obligations to Laurus
and have granted Laurus a security interest in their assets to secure these
guarantees.

We incurred investment banking costs amounting to $559,000, including
$455,000 in cash and $103,840 in the form of 57,252 shares of our unregistered
common stock valued at $75,000 and warrants to purchase up to 270,000 shares of
our common stock valued at $28,840. The warrants are immediately exercisable,
have a term of five years and have exercise prices ranging from $1.64 to $2.29.

Total debt issuance costs incurred in connection with securing the credit
facility amounted to approximately $674,000 of deferred financing costs which
will be amortized to interest expense over the three year term. Additionally, a
management fee amounting to $315,000 was paid to Laurus from the closing
proceeds, and was recorded as a debt discount to be amortized to interest
expense over the three year term.

We have agreed to register for resale under the Securities Act of 1933 the
shares of common stock issuable to Laurus upon conversion of borrowings under
the credit facility and upon exercise of the warrants. To date, we have
registered 3,801,237 shares of common stock for resale by Laurus. That number
represents the largest number of shares we were permitted to list on the
American Stock Exchange without first obtaining the approval of our
stockholders.

GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2005

9. Notes Payable/Credit Facility - (Continued)

We are required to file an additional registration statement with respect
to the resale of the balance of shares that we currently expect to be required
to issue to Laurus in connection with the credit facility. That registration
statement cannot be declared effective unless and until our stockholders approve
the issuance of such shares. On June 16, 2005, our stockholders approved the
issuance of up to 7,380,000 shares of our common stock to Laurus. The amount of
our common stock Laurus may hold at any given time is limited to no more than
4.99% of our outstanding capital stock and no more than 25% of our aggregate
daily trading volume determined over the five-day period prior to the date of
determination. These limitations may be waived by Laurus on 90 days' prior
notice, or without notice if we are in default.

The conversion price applicable to each of the notes and the exercise
price of each of the warrants is subject to downward adjustment on a "full
ratchet" basis if we issue shares of our common stock (or common stock
equivalents) at a price per share less than the applicable conversion or
exercise price. There are exceptions for issuances of stock and options to our
employees and for certain other ordinary course stock issuances.

Subject to applicable cure periods, amounts borrowed from Laurus are
subject to acceleration upon certain events of default, including: (i) any
failure to pay when due any amount we owe to Laurus; (ii) any material breach by
us of any other covenant made to Laurus; (iii) any misrepresentation made by us
to Laurus in the documents governing the credit facility; (iv) the institution
of certain bankruptcy and insolvency proceedings by or against us; (v) the entry
of any monetary judgment or similar final process against us for more than
$50,000 that remain unvacated, unbonded or unstayed for a period of 30 business
days; (vi) suspensions of trading of our common stock from our principal trading
market for five consecutive days or five days during any ten consecutive days;
(vii) any failure to deliver shares of common stock upon conversions under the
credit facility; (viii) certain defaults under agreements related to any of our
other indebtedness; (ix) changes of control of our company. Substantial fees and
penalties are payable to Laurus in the event of default.

10. Notes Payable-Related Party

Convertible Notes Payable-Related Party

One of our directors was owed $300,000 under the terms of an October 1999
private offering of 10% convertible notes and warrants and $75,000 under the
terms of a February 2000 offering of 11% convertible notes and warrants. The
convertible notes originally matured twelve months after issuance and were
payable in cash or unregistered shares of our 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, we 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 which range from October 2004 to February
2005.

On February 16, 2004, the director converted both notes, including
$375,000 of principal and $168,210 of accrued interest into 724,281 shares of
our unregistered common stock pursuant to the amended terms noted above.

In November 2000, we borrowed $200,000 from the same director who held 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. In June 2004, the director
agreed to extend the maturity of this note until the earlier of when all amounts
due under the Laurus credit facility (see Note 9) have been repaid or June 30,
2007.

During the period of June to August 2003, two immediate family members of
an officer loaned us a total of $400,000 under the terms of two-year, unsecured
promissory notes which bear interest at 12% per annum with interest due
quarterly and the principal due upon maturity. In March 2004, these same
individuals loaned us an additional $200,000 in aggregate, under similar terms
with the principal due upon maturity in March 2006. These individuals each
agreed to invest the entire $100,000 principal balance of their June 2003 notes
($200,000 in aggregate) into the April 2004 private placement of investment
units and each received 113,636 units in these transactions. At June 30, 2005,
the remaining balance due on these advances amounted to $400,000. In addition,
the two individuals agreed to extend

GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2005

10. Notes Payable-Related Party - (Continued)

the maturity of the remaining balance of these notes until the earlier of when
all amounts due under the Laurus credit facility (see Note 9) have been repaid
or June 30, 2007.

In September 2003, an officer loaned us $400,000 under the terms of a
September 30, 2003 unsecured promissory note which bears interest at 12% per
annum with interest due quarterly and the principal due March 31, 2004
(subsequently extended to September 30, 2004). In 2004, the officer applied
approximately $114,000 of the balance due him and accrued interest of
approximately $21,000 to exercise options to purchase 185,000 shares of common
stock . In addition, he agreed to extend the maturity of the remaining balance
of this note until the earlier of when all amounts due under the Laurus credit
facility (see Note 9) have been repaid or June 30, 2007. At June 30, 2005, the
remaining balance due on this note amounted to $99,320.

On September 30, 2003, our Georgia subsidiary's landlord, loaned us
$100,000 under the terms of a September 30, 2003 unsecured promissory note which
bears interest at 12% per annum with interest due quarterly and the principal
due September 30, 2004. In June 2004, the landlord agreed to invest the entire
$100,000 principal balance of the unsecured promissory note plus accrued
interest of $7,300 into the April 2004 private placement of investment units and
received 121,932 units in this transaction.

In October 2003, one of our officers loaned us $75,000 under the terms of
an October 22, 2003 unsecured promissory note payable which bears interest at
12% per annum with interest due quarterly and the principal due June 30, 2004.
During January and February 2004, the same officer advanced us an additional
$250,000 under substantially similar notes that are also due in June 2004. This
officer agreed to invest all unpaid principal and interest under these advances
amounting to approximately $350,000 into the April 2004 private placement of
units and received 339,806 units in this transaction.

11. Stock Options

We apply Accounting Principles Board Opinion No. 25 and related
interpretations in accounting for stock options issued to our employees and
directors. Had the compensation cost for the stock options issued to our
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 loss and net loss per share would have been adjusted to the proforma amounts
indicated below:

Three Months Ended Nine months Ended
June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004
------------- ------------- ------------- -------------

Net loss as reported .......................... $(1,806,653) $ (335,824) $(5,499,301) $(1,811,315)
Add: Compensation recognized under APB No.25 .. -- -- -- --
Less: Compensation recognized under FAS 123 ... (9,121) (22,066) (44,156) (61,757)
----------- ----------- ----------- -----------
Pro forma net loss ............................ $(1,815,774) $ (357,890) $(5,543,457) $(1,873,072)
=========== =========== =========== ===========

Net loss per share:
Basic and diluted- as reported ............. $ (0.09) $ (0.02) $ (0.29) $ (0.11)
=========== =========== =========== ===========
Basic and diluted - pro forma .............. $ (0.09) $ (0.02) $ (0.29) $ (0.11)
=========== =========== =========== ===========

2005 Stock Option Plan

On March 18, 2005, our Board of Directors adopted the 2005 Stock Option
Plan (the "2005 Plan"), which was subsequently approved by our stockholders on
June 16, 2005. The 2005 Plan is intended to replace our 1993 Stock Option Plan,
which expired on June 10, 2004. In April 2004, our Board adopted a replacement
stock option plan but did not submit it for ratification by our stockholders.
That plan was terminated by our Board on March 18, 2005, and all options granted
under that plan have been terminated.

GreenMan Technologies, Inc.
Notes To Unaudited Consolidated Financial Statements
June 30, 2005

12. Stockholder's Equity

Increase in Authorized Shares of Common Stock

On June 16, 2005, our stockholders approved an amendment to our Rested
Certificate of Incorporation to increase the number of authorized shares of our
common stock from 30,000,000 to 40,000,000.

Elimination of the Description of Class A Convertible Preferred Stock

On June 16, 2005, our stockholders approved an amendment to our Restated
Certificate of Incorporation to eliminate the description of Class A Convertible
Preferred Stock due to the fact no such shares were authorized for issuance
under the Restated Certificate of Incorporation.

13. Income Taxes

Previously, we had recorded a full valuation allowance on the net
operating loss carry forwards and other components of the deferred tax assets
based on our expected ability to realize the benefit of those assets. In the
year ending September 30, 2002, we reduced the valuation allowance by $270,000
based on our net income before taxes in the year then ending as well as expected
net income before income taxes for the next fiscal year.

Based on the unforeseen magnitude of our quarterly and year to date
losses, we determined the near-term realizability of the $270,000 non-cash
deferred tax asset to be questionable and therefore provided a valuation
allowance on the entire amount and wrote if off during the quarter ended
December 31, 2004. We will evaluate the realizability of these deferred tax
assets each quarter.

14. Subsequent Events

On July 14, 2005, we were notified that our Director's and Officer's
liability insurance policy, which expires on October 1, 2005, will not be
renewed by its current carrier. We are currently evaluating several
alternatives. Although we currently believe we will be able to obtain Director's
and Officer's Liability insurance coverage prior to the expiration of its
existing coverage, no assurances can be given that such new coverage will be
secured in the near future, on favorable terms, or at all.

On July 20, 2005, we entered into a $1 million convertible term note (the
"Term Note") and related agreements with Laurus. The Term Note has a maturity
date of June 30, 2007 and bears interest at the prime rate published in The Wall
Street Journal from time to time plus 1.75% (8% at July 20, 2005). Interest on
the loan is payable monthly commencing August 1, 2005. Principal will be
amortized over the term of the loan, commencing on February 1, 2006, with
minimum monthly payments of principal of $58,823.53. Laurus has the option to
convert some or all of the principal and interest payments into common stock at
a price of $.33 (the average closing price of our common stock on the American
Stock Exchange for the 3-day period ending July 18, 2005) (the "Fixed Conversion
Price"). In connection with the Term Note, we also issued to the Laurus Funds an
option to purchase up to an aggregate of 2,413,571 shares of our common stock at
an exercise price equal to $0.01 per share. This option, valued at $401,738, is
immediately exercisable, has a term of ten years, allows for cashless exercise
at the option of Laurus, and does not contain any "put" provisions. Net proceeds
received from issuance of the term note amounted to $955,000 and were allocated
to the term note and the warrant based on their relative fair values. The note
contained a beneficial conversion feature of $393,939 at issuance based on the
intrinsic value of the shares into which the note is convertible, and a debt
issue discount amounting to $446,738. The beneficial conversion amount will be
recorded as paid in capital and will be amortized to interest expense along with
the debt discount over the two year term of the note or ratably upon any partial
conversion. The Term Note contains repayment penalties and interest adjustments
similar to those of the notes issued to Laurus under June 2004 credit facility,
and borrowings under the Term Note are also secured by a first security interest
in substantially all of our assets and the assets of our active subsidiaries.
(See Note 9) We have agreed to register for resale under the Securities Act of
1933 the shares of common stock issuable to Laurus Funds upon conversion of
borrowings under the Term Note and upon exercise of the option.

Item 2. Management's Discussion and Analysis or Plan of Operation

The following information should be read in conjunction with the unaudited
consolidated financial statements and the notes thereto included in Item 1 of
the Quarterly Report, and the audited consolidated financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in our Form 10-KSB filed for the year ended
September 30, 2004.

Results of Operations

Three Months ended June 30, 2005 Compared to the Three Months ended
June 30,2004

Net sales for the three months ended June 30, 2005 increased $718,318 or
9% to $8,777,421 as compared to last year's net sales of $8,059,103. We
processed approximately 7.7 million passenger tire equivalents during the three
months ended June 30, 2005, compared to approximately 8 million passenger tire
equivalents during the quarter ended June 30, 2004. The increase in revenue was
attributable to a 25% increase in overall product revenues which offset a 4%
decrease in overall inbound tires processed.

Overall end product sales increased $563,353 to $2,843,004 during the
quarter ended June 30, 2005, compared to $2,278,651 for the same period last
year. The increase in end product sales is attributable to re-installation of
our Georgia waste wire processing equipment in November 2004 and stronger crumb
rubber, steel and tire derived fuel sales during the quarter ended June 30,
2005.

Gross profit for the quarter ended June 30, 2005 was $315,758 or 4% of net
sales, compared to $1,374,777 or 17% of net sales for the quarter ended June 30,
2004. Our cost of sales increased approximately $1,777,337 or 27% primarily due
to reduced processing capacity and equipment reliability issues at our Southeast
and Western operations, increased collection costs, continued operating
inefficiencies necessitated by processing a majority of our Tennessee-sourced
tires at our Georgia facility during the quarter. In addition, a change in the
specifications of our alternative fuel customers requiring a smaller tire chip
has contributed to our reduced processing capacity and higher operating costs.
To address these issues, during March 2005, we installed equipment which has
positively impacted but not totally resolved the reduced processing capacity
issues in the Southeast and during June 2005, we installed new shredding
equipment in the West. We have recently completed a corporate-wide review of all
tire collection accounts and implemented price increases where warranted and
terminated service in situations where price increases were not an alternative.
While these initiatives will result initially in lower inbound tire volumes, we
believe they will improve our performance. We estimate these changes should
generate further cost reductions in the form of lower labor, parts and
maintenance in the Southeast. Also, over the past year, we continued to build a
customer base outside of our Georgia market in anticipation of delivering whole
tires to several new cement kiln locations expected to begin accepting whole
tires on a regular basis during the fourth quarter of fiscal 2005. These tires,
while making marginal contributions to our performance when processed in
Georgia, will have a greater contribution when processed closer to their origin
at the respective cement kilns.

Selling, general and administrative expenses for the quarter ended June
30, 2005 increased $102,551 to $1,223,305 or 14% of net sales, compared to
$1,120,754 or 14% of net sales for the quarter ended June 30, 2004. The increase
was primarily attributable to increased outside professional expenses and
travel.

During June 2005 our Wisconsin subsidiary reached an agreement with the
lessor of certain transportation equipment to buy-out the remaining term of the
lease. Management determined that the carrying value of the purchased
transportation equipment was impaired. We recorded an impairment loss amounting
to $57,183 during the quarter ended June 30, 2005 based on the estimated fair
value based on replacement cost of similar equipment

As a result of the foregoing, we had an operating loss of $964,730 for the
quarter ended June 30, 2005 as compared to an operating profit of $254,023 for
the quarter ended June 30, 2004.

Interest and financing costs for the quarter ended June 30, 2005 increased
$337,119 to $925,687 (including $549,981 of non-cash deferred financing costs),
compared to $588,568 (including $238,000 of non-cash deferred financing costs)
during the quarter ended June 30, 2004. The increase in primarily attributable
to increased non-cash deferred financing associated with the Laurus credit
facility.

As a result of the foregoing, our net loss for the quarter ended June 30,
2005 increased $1,470,829 to $1,806,653 or $.09 per basic share, compared to a
net loss of $335,824 or $.02 per basic share for the quarter ended June 30,
2004.

Nine months ended June 30, 2005 Compared to the Nine Months ended June 30, 2004

Net sales for the nine months ended June 30, 2005 increased $2,698,211 or
12% to $24,468,329 as compared to last year's net sales of $21,770,118. We
processed 23.3 million passenger tire equivalents during the nine months ended
June 30, 2005, compared to approximately 22.4 million passenger tire equivalents
during the nine months ended June 30, 2004. The increase in revenue was
attributable to a 19% increase in overall product revenues, a 4% increase in
inbound scrap tires volume and a 1% increase in overall tipping fees per
passenger tire. Included in the results for the nine months ended June 30, 2005
was approximately $827,000 of revenue and 875,000 passenger tire equivalents
associated with an Iowa scrap tire cleanup project which was completed during
the period.

Overall end product sales increased $1,135,557 to $6,969,128 during the
nine months ended June 30, 2005, compared to $5,833,571 for the same period last
year. The increase in end product sales is attributable to re-installation of
our Georgia waste wire processing equipment in November 2004 and stronger crumb
rubber, steel and tire derived fuel sales during the nine months ended June 30,
2005.

Gross profit for the nine months ended June 30, 2005 was $529,090 or 2% of
net sales, compared to $2,861,604 or 13% of net sales for the nine months ended
June 30, 2004. Our cost of sales increased $5,030,725 or 27% primarily due to
reduced processing capacity and equipment reliability issues at our Southeast
and Western operations, increased collection costs, continued operating
inefficiencies necessitated by processing a majority of our Tennessee-sourced
tires at our Georgia facility as well as unforeseen decreases in inbound tire
volumes in the West due to severe weather conditions during the first half of
fiscal 2005. In addition, a change in the specifications of our alternative fuel
customers requiring a smaller tire chip has contributed to our reduced
processing capacity and higher operating costs. To address these issues, we took
the actions described above in the discussion of the three months ended June 30,
2005.

Selling, general and administrative expenses for the nine months ended
June 30, 2005 increased $397,996 to $3,754,586 or 15% of net sales, compared to
$3,356,590 or 15% of net sales for the nine months ended June 30, 2004. The
increase was primarily attributable to increased outside professional expenses
and travel.

As a result of the foregoing, we had an operating loss of $3,282,679 for
the nine months ended June 30, 2005 as compared to an operating loss of $494,986
for the nine months ended June 30, 2004.

Interest and financing costs for the nine months ended June 30, 2005
increased $421,816 to $1,916,292 (including $891,941 of non-cash deferred
financing costs), compared to $1,494,476 (including $400,000 of non-cash
deferred financing costs) during the nine months ended June 30, 2004. The
increase in primarily attributable to increased non-cash deferred financing
associated with the Laurus credit facility.

Included in other expenses for the nine months ended June 30, 2005 is
$101,378 relating to a portion of an acquisition deposit which was written off.
In addition to the lost product revenues caused by the March 2003 fire at our
Georgia facility, we also incurred additional direct costs relating to excess
disposal costs totaling approximately $95,000, which were offset by an insurance
recovery of $207,873 received during the nine months ended March 31, 2004. In
addition, we also recorded other income of approximately $90,000 relating to a
settlement for damaged product during the nine months ended June 30, 2004.

Based on the unforeseen magnitude of our quarterly and year to date
losses, we determined the near-term realizability of a $270,000 non-cash
deferred tax asset to be questionable and therefore have provided a valuation
allowance on the entire amount during the quarter ended December 31, 2004.

As a result of the foregoing, our net loss for the nine months ended June
30, 2005 increased $3,687,986 to $5,499,301 or $.29 per basic share, compared to
a net loss of $1,811,315 or $.11 per basic share for the nine months ended June
30, 2004.

Liquidity and Capital Resources

As of June 30, 2005, we had $526,102 in cash and cash equivalents and a
working capital deficiency of $7,408,130. Our continued existence is dependent
on our ability to reduce our operating costs, negotiate more favorable terms
with existing secured creditors, refinance existing long term debt, secure
additional financing and achieve profitable status on a sustained basis.

The Consolidated Statements of Cash Flows reflect events in 2005 and 2004
as they affect our liquidity. During the nine months ended June 30, 2005, net
cash used by operating activities was $374,120 which reflects a net loss of
$5,499,301 which was partially offset by depreciation and amortization of
$2,679,470, a $270,000 non-cash deferred tax asset write-off, a $287,028
decrease in accounts receivable and a $1,563,500 increase to accounts payable.
During the nine months ended June 30, 2004, net cash used by operating
activities was $195,753 reflecting a net loss of $1,811,315, an increase in
product inventory of $831,112 and accounts receivable of $375,118. These amounts
were partially offset by depreciation and amortization, an increase in accrued
expenses and the receipt of $634,172 in insurance proceeds.

Net cash used for investing activities was $870,577 for the nine months
ended June 30, 2005 reflecting the purchase of $1,640,874 of machinery and
equipment with a majority associated with the completion of our Georgia waste
wire processing equipment and new shredding capacity. This offset by proceeds
received from the sale of our Wisconsin property. Net cash provided by investing
activities was $455,116 for the nine months ended June 30, 2004 reflecting the
$1,400,000 of proceeds received from the sale of our Minnesota real estate which
offset the purchase of $807,469 of property and equipment.

Net cash provided by financing activities was $1,261,012 during the nine
months ended June 30, 2005 and was positively impacted by availability under our
new Laurus credit facility as well as increased availability under our First
American credit facility. This increase was offset by repayment of notes payable
of $1,222,540 and capital leases of $414,336. Net cash provided by financing
activities was $1,979,873 during the nine months ended June 30, 2004 and was
positively impacted by the new Laurus credit facility and the completion of the
April 2004 private placement of investment units which collectively generated
approximately $6,833,000 of new cash flow before expenses. These increases were
offset by repayment of notes payable of $4,213,803, including approximately
$3,800,000 associated with the payoff of our Minnesota real estate loan, WAMCO
Credit Facility and Cryopolymers Leasing note payable.

To attempt to reduce our operating costs, address our liquidity needs and
return to profitable status, we have implemented and/or are in the processing of
implementing the following actions:

Credit Facility Refinancing

Our liquidity had been significantly and adversely affected since our
primary source of working capital financing and long term debt, Southern Pacific
Bank and its wholly owned subsidiary Coast Business Credit, were closed by the
Commissioner of Financial Institutions of the State of California in February
2003. In particular, we have had to significantly slow down or delay the
implementation of several growth initiatives, including establishing a new high
volume tire processing facility in Tennessee, shredding and screening upgrades
in Georgia and Minnesota. These conditions have caused us to incur significant
expenses in the short-term and have limited our ability to grow in the
longer-term.

On June 30, 2004, we entered into a $9 million credit facility with Laurus
Master Fund, Ltd., ("Laurus") consisting of a $5 million convertible, revolving
working capital line of credit and a $4 million convertible term note loan. At
closing, we borrowed $4 million under the term loan and $2 million under the
line of credit, and used approximately $1,860,000 of the proceeds to repay the
outstanding indebtedness under our prior credit facility and approximately
$1,070,000 to repay in full the indebtedness due Cryopolymers Leasing.
Additional proceeds of the financing were used to increase working capital and
to pay certain costs and fees associated with this transaction including a
$425,000 placement fee paid to our investment bank. On March 22, 2005, the
credit facility was amended to permit us to maintain overadvances of up to
$2,000,000 under the line of credit through December 31, 2005. In addition, the
price at which the minimum borrowing note and term loan are convertible into our
common stock were adjusted (See Note 9). As of June 30, 2005, our overadvance
was $1,980,250. On July 20, 2005, we entered into a $1 million convertible term
note with Laurus. (See Note 14)

On February 10, 2005, First American Bank renewed our Iowa subsidiary's
working capital line until February 10, 2006 and increased our maximum
availability to under the line of credit to $800,000. In addition, First
American agreed to increase our overall maximum availability by an additional
$350,000 to $1,150,000 through June 10, 2005 to coincide with the performance of
a significant scrap tire cleanup project which was completed in April 2005 (See
Note 9)

Additional Steps to Increase Liquidity

Over the last several years, we have funded portions of our operating cash
flow and growth from sales of equity securities and loans from officers and
related parties.

In December 2003, we issued a 10% convertible note due December 2004 in
the aggregate principal amount of $375,000 to an investor. The note was
convertible at the option of the holder at any time prior to maturity into
investment units at a price equal to $1.07 per unit with each unit consisting of
one share of common stock and a warrant to purchase 1.5 shares of common stock
at an exercise price of $1.07 per share, exercisable nine months after issuance
for a period of five years from date of issuance. The note was converted on June
24, 2004 into 369,331 shares of common stock and we issued warrants to purchase
553,997 shares of our common stock. When originally issued, this note reflected
a beneficial conversion feature amounting to $154,226 and, upon conversion, the
remaining unamortized beneficial conversion discount of approximately $77,000
was charged to interest expense.

In April 2004, we commenced a private offering of investment units to
accredited investors, each unit consisting of one share of our common stock and
a warrant to purchase 0.5 shares of our common stock. As of June 30, 2004, when
the offering terminated, we had sold 1,594,211 units (1,594,211 shares of our
common stock and warrants to purchase 797,105 additional shares of our common
stock at prices ranging from $1.56 to $2.06 per share) to investors, including
our directors and existing shareholders, for gross proceeds of $1,547,800. We
used the net proceeds of this offering to commence re-establishing our Georgia
waste wire processing capacity and for general working capital purposes during
the seasonally slower portion of our fiscal year.

From June 2003 through March 2004, several of our officers and members of
their families loaned us an aggregate of $1,345,000. These advances bear
interest at 12% and mature at various times through March 2006. In April 2004,
several of these individuals agreed to invest approximately $550,000 of the
amounts due them under the terms of their loans into the private placement
described above. In April 2004, one of our officers applied approximately
$187,000 of amounts due him to pay off notes receivable due our company and in
June 2004 applied approximately $114,000 of amounts due him, plus $21,000 of
accrued interest to exercise options to purchase 185,000 shares of our common
stock. At June 30, 2005, the remaining balance on these advances amounted to
$699,320.

Operating Performance Enhancements

In order to position our company to be stronger and return to
profitability, and to enhance shareholder value in the future, we began
initiatives during fiscal 2003 to upgrade existing operations, expand into new
geographic locations to maximize existing transportation and marketing
infrastructures, and continue to identify better and more profitable uses for
existing and new products.

Historically, our tire shredding operations were able to recover and sell
approximately 60% of a processed tire with the balance disposed of as waste wire
residual (cross-contaminated rubber and steel) at an annual cost exceeding
$1,000,000 in prior years. We have previously purchased secondary equipment for
our Georgia (damaged in the March 2003 fire; reestablished in November 2004),
Iowa and Minnesota 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 significantly reduced our residual disposal costs. As a part of
the December 2004 lease agreement with TIRES (See Note 8), we are leasing
additional waste wire processing equipment which we anticipate to be installed
and operational in Georgia during the fourth quarter of fiscal 2005.

During the fourth quarter of fiscal 2002, we initiated a $1.5 million
equipment upgrade to our Des Moines, Iowa tire processing facility. We
completely replaced all tire shredders with more efficient, higher volume
equipment and installed a waste wire processing equipment line that reduced
waste wire disposal costs while increasing our production capacity to over 20
million pounds of rubber feedstock per year for our internal crumb rubber
operations. From July through December 2002, we experienced inevitable one-time
operational disruptions during the equipment installation. Additionally, we
incurred increased transportation costs because a significant portion of Iowa
tires were diverted to our Minnesota plant for processing during the upgrade.
These disruptive factors negatively impacted earnings in the first quarter of
fiscal 2003 by approximately $150,000. The capital investment in Iowa was funded
by a combination of internal cash flow and long-term debt provided by First
American Bank of Des Moines, Iowa and the State of Iowa.

On March 31, 2003, a portion of our Georgia facility and several pieces of
waste wire processing equipment were damaged by a fire. As of September 30,
2003, damaged equipment and parts with a net book value of approximately
$179,000 have been written off and we have incurred $225,000 of expenses
associated with the fire, including $211,000 of excess waste wire disposal. In
December 2003 we reached a $1.03 million settlement with our insurance carrier
in connection with the claims associated with the fire and have received all
remaining amounts due under this insurance claim. During the quarter ended
December 31, 2003, we recognized $207,873 of casualty income associated with the
insurance settlement before related costs of approximately the quarter. We
estimate that during the year ended September 30, 2004, reduced end product
revenue and excess waste disposal costs of over $1 million were associated with
the impact of the March 31, 2003 fire. In November 2004, all previously damaged
equipment was re-installed and became operational.

In August 2004, we executed a non-binding letter of intent and escrow
agreement with Tires Into Recycled Energy and Supplies, Inc. ("TIRES"), a
leading crumb rubber processor in the United States. Pursuant to the escrow
agreement, we made a "good faith" payment amounting to $350,000, which was to be
applied toward the purchase price upon completion of the transaction. On
December 8, 2004, we executed a new letter of intent which superseded the August
letter of intent in which we (1) to leased, with an option to buy, certain
pieces of tire processing equipment owned by TIRES, (2) entered a material
supply agreement and (3) were granted an exclusive purchase option to acquire
additional operating assets of TIRES. The operating leases were executed in
January 2005 but became effective in February and March 2005 and provide for
aggregate monthly payments of $25,300 over terms ranging from 48 to 60 months.

Pursuant to the terms of the material supply agreement, we are to supply
agreed upon minimum amounts of crumb rubber material to TIRES on a weekly basis.
If we do not meet the minimum weekly requirements, we are assessed a shortfall
fee equal to 150% of the purchase price for any shortfall tonnage. Due to
unexpected equipment downtime and delays in installing the additional rasper
which is being leased from TIRES, we were unable to meet the minimum material
requirements during the quarter and as a result, we recorded a shortfall expense
of approximately $117,000 during the quarter ended June 30, 2005. On June 6,
2005, we negotiated an amendment to the material supply agreement whereby the
minimum weekly requirement was reduced and the price at which TIRES would
purchase material was increased 15 percent for a period of 10 weeks. In return
for this short term consideration, we agreed to reduce our original pricing by
8% on the first 30,000 tons of material purchased by TIRES subsequent to the 10
week amendment period.

The exclusive purchase option to acquire additional operating assets of
TIRES is exercisable if predetermined financial performance criteria are met by
them during the subsequent fifteen to twenty four month period after December 8,
2004. The ultimate purchase price cannot be determined at this time. In return
for the exclusive purchase option, we issued 127,389 shares of our common stock
(valued at $200,000) to TIRES. If we exercise our exclusive purchase option and
close a transaction, the value of the shares will be applied against the
purchase price of the assets. If the exclusive purchase option expires or we
decide not to exercise the option, TIRES shall retain a sufficient number of our
shares to equal $200,000 (as of the date that the purchase option expires) and
return the balance of such shares of common stock to us. If at the time the
purchase option expires, the value of the shares is less than $200,000, we will
issue a sufficient number of additional shares to equal $200,000. If at the time
the purchase option expires, TIRES has not achieved the predetermined financial
performance criteria, TIRES will return to us a sufficient number of our shares
to equal $200,000 at the time.

We have also agreed to allow TIRES to retain $101,378 of the "good faith"
payment to upgrade their existing crumb rubber production capacity and have used
the remaining $248,622 to prepare and move the leased equipment for our use.
Accordingly, during the quarter ended March 31, 2005, the $101,378 was expensed
when it was released from escrow and approximately $243,597 has been capitalized
and is being amortized over the lease terms which range from 48 to 60 months.

Other Matters That Have Impacted Our Liquidity

New Market Development Initiatives.

The July 2002 acquisition of a scrap tire business in Azusa, California
marked our first location in the western portion of the United States. We have
devoted significant resources during the past three years to expand and enhance
our California market position in order to provide a solid foundation for future
growth and sustainable profitability.

On July 1, 2004, we acquired certain assets of American Tire Disposal,
Inc. a southern California based company in the business of collecting and
marketing approximately 1 million scrap tires for approximately $172,000 in
assumed liabilities, forgiveness of trade payables due to us and cash. We have
consolidated American Tire Disposal's business into our existing California
operations

In February 2003, we announced our intent to open a new high-volume tire
processing facility in LaVergne, Tennessee as a result of experiencing
significant market share growth during the last two years. Historically, we
transported all Tennessee-sourced tires to our Georgia facility to be processed.
We anticipated that a majority of the funding to implement this initiative would
come from our principal lender, which unfortunately was closed by the
Commissioner of Financial Institutions of the State of California in February
2003, shortly after we received verbal approval to move forward. In July 2003,
our Tennessee facility began processing local tires on a limited basis using
excess and idle equipment from various other locations. We initially allocated
approximately $1 million of proceeds from the Laurus credit facility to purchase
necessary shredding equipment for our Tennessee facility. In August 2004, we
used $350,000 of the proceeds as a "good faith deposit" with a third party
towards the acquisition of certain processing equipment that would be required
in Tennessee. In December 2004, we executed a letter of intent with the same
third party, providing among other things our agreement to lease certain pieces
of tire processing equipment which was initially intended to be utilized in

Tennessee (see Note 8) and agreed to apply a portion of the $350,000 to
preparation and moving of the equipment to be leased. Due to delays in
identifying the appropriate remaining equipment for Tennessee, we reallocated
approximately $650,000 of the proceeds to be used to re-establish our Georgia
waste wire processing equipment line in November 2004 as well as support the
limited Tennessee operation during this period. During February 2005, we
determined that based on increasing inbound tire volumes in the Southeast and
reduced existing processing capacity as well as equipment reliability issues, we
would install a majority of the new leased equipment in Georgia in order to
increase our plant processing capacity and reduce disposal expense. Based on
existing capital constraints and continued operating losses, we have reduced our
Tennessee staff and are currently evaluating several alternatives which will
allow us to reduce or eliminate our operating losses in Tennessee by September
30, 2005 when our facility lease expires. We are evaluating alternative
locations but believe we can extend our lease on a month by month basis if
needed during the interim period. If we are successful in reducing or
eliminating the need to transport Tennessee tires to Georgia, we estimate the
cost savings realized could exceed $120,000 per month. No assurance can be
given, however, that we will be able accomplish this in a timely manner or at
all. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.

Also in February 2003, we decided to reconfigure the operations of our
Wisconsin facility from an unprofitable low-volume size reduction facility to a
whole tire transfer station supplying compliant tires to a cement kiln. The
decision was made because the cement kiln is anticipated to continue consuming a
majority of the scrap tires collected by our Wisconsin facility. The
reconfiguration was completed during the first quarter of fiscal 2005. During
June 2005, we sold our Wisconsin property and intend to consolidate our
Wisconsin operations into our Minnesota location by September 30, 2005 in an
effort to further reduce operating costs.

Effects of Inflation and Changing Prices

Generally, we are exposed to the effects of inflation and changing prices.
Primarily because the largest component of our collection and disposal costs is
transportation, we are adversely affected by significant increases in the cost
of fuel. Additionally, because we rely on floating-rate debt for certain
financing arrangements, rising interest rates would have a negative effect on
our performance.

Based on our fiscal 2005 operating plan, our available working capital and
our revenues from operations, we believe that loans from affiliated and
unaffiliated lenders including additional funding from Laurus will be necessary
to satisfy our cash requirements for the foreseeable future. If we are unable to
obtain additional financing, our ability to maintain our current level of
operations could be materially and adversely affected and we may be required to
adjust our operating plans accordingly or to discontinue some or all of our
operations.

Off-Balance Sheet Arrangements

We lease various facilities and equipment under cancelable and
non-cancelable short and long term operating leases which are described in
Footnote 11 to the Audited Consolidated Financial Statements contained in our
annual report on Form 10-KSB.

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 That May Affect Future Results

Risks Related to our Business

We have lost money in the past eleven consecutive quarters and will need
additional working capital, which if not received, may force us to curtail
operations.

We have experienced eleven consecutive quarters of net losses. While
management has identified several significant non-recurring charges which have
contributed to these losses, we understand that our continued existence is
dependent on our ability to reduce our operating costs, negotiate more favorable
terms with existing secured creditors, to refinance existing long term debt,
secure additional financing and achieve profitable status on a sustained basis.
If we are unable to return to profitability before our cash is depleted, we will
need to seek additional capital. There can be no assurance that we will be
profitable in the future or, if we are not, that we will be able to obtain
additional capital on terms and conditions acceptable to us or at all.

We have substantial indebtedness to Laurus Master Fund secured by substantially
all of our assets. If an event of default occurs under the secured notes issued
to Laurus, Laurus may foreclose on our assets and we may be forced to curtail
our operations or sell some of our assets to repay the notes.

On June 30, 2004, we entered into a $9 million credit facility with Laurus
pursuant to secured promissory notes and related agreements which were amended
on March 22, 2005. On July 20, 2005, we borrowed an additional $1 million from
Laurus pursuant to a convertible term note and related agreements. Subject to
certain grace periods, the notes and agreements provide for the following events
of default (among others):

o failure to pay interest and principal when due;

o an uncured breach by us of any material covenant, term or condition
in any of the notes or related agreements;

o a breach by us of any material representation or warranty made in
any of the notes or in any related agreement;

o any money judgment or similar final process is filed against us for
more than $50,000 that remains unvacated, unbonded or unstayed for a
period of 30 business days;

o any form of bankruptcy or insolvency proceeding is instituted by or
against us;

o suspension of our common stock from our principal trading market for
five consecutive days or five days during any ten consecutive days;
and

o the occurrence of a change in control of our ownership.

In the event of a future default under our agreements with Laurus, Laurus
may enforce its rights as a secured party and we may lose all or a portion of
our assets, be forced to materially reduce our business activities or cease
operations.

We will require additional funding to sustain and grow our business, which
funding may not be available to us on favorable terms or at all. If we do not
obtain funding when we need it, our business will be adversely affected. In
addition, if we have to sell securities in order to obtain financing, the rights
of our current holders may be adversely affected.

We will have to seek additional outside funding sources to satisfy our
future financing demands if our operations do not produce the level of revenue
we require to maintain and grow our business. We cannot assure you that outside
funding will be available to us at the time that we need it and in the amount
necessary to satisfy our needs, or, that if such funds are available, they will
be available on terms that are favorable to us. If we are unable to secure
financing when we need it, our business will be adversely affected and we may
need to discontinue some or all of our operations. If we have to issue
additional shares of common stock or securities convertible into common stock in
order to secure additional funding, our current stockholders will experience
dilution of their ownership of our shares. In the event that we issue securities
or instruments other than common stock, we may be required to issue such
instruments with greater rights than those currently possessed by holders of our
common stock.

We may not realize the anticipated benefits associated with the establishment of
our Tennessee operations.

In February 2003, as a result of experiencing significant market share
growth during the last two years, we announced our intent to open a new
high-volume tire processing facility in LaVergne, Tennessee. Historically, we
have transported all Tennessee-sourced tires to our Georgia facility for
processing. In July 2003, we began processing tires on a limited basis in
Tennessee utilizing excess and idle equipment from various GreenMan
subsidiaries. Until we are successful in purchasing the appropriate high-volume
shredding and ancillary equipment for our Tennessee facility or implement an
alternative strategy to economically manage Tennessee sourced tires, we will
continue to incur excess transportation costs necessitated by transporting
Tennessee-sourced tires to Georgia instead of processing them locally.

We initially allocated approximately $1 million of proceeds from the
Laurus credit facility to purchase necessary shredding equipment for our
Tennessee facility. In August 2004, we used $350,000 of the proceeds as a "good
faith deposit" with a third party towards the acquisition of certain processing
equipment that would be required in Tennessee. In December 2004, we executed a
letter of intent with the same third party, providing among other things our
agreement to lease certain pieces of tire processing equipment which was
initially intended to be utilized in Tennessee (see Note 8) and agreed to apply
a portion of the $350,000 to preparation and moving of the equipment to be
leased. Due to delays in identifying the appropriate remaining equipment for
Tennessee, we reallocated approximately $650,000 of the proceeds to be used to
re-establish our Georgia waste wire processing equipment line in November 2004
as well as support the limited Tennessee operation during this period. During
February 2005, we determined that based on increasing inbound tire volumes in
the Southeast and reduced existing processing capacity as well as equipment
reliability issues, we would install a majority of the new leased equipment in
Georgia in order to increase our plant processing capacity and reduce disposal
expense. Based on existing capital constraints and continued operating losses,
we have reduced our Tennessee staff and are currently evaluating several
alternatives which will allow us to reduce or eliminate our operating losses in
Tennessee by September 30, 2005 when our facility lease expires. We are
evaluating alternative locations but believe we can extend our lease on a month
by month basis if needed during the interim period. If we are successful in
reducing or eliminating the need to transport Tennessee tires to Georgia, we
estimate the cost savings realized could exceed $80,000 per month. No assurance
can be given, however, that we will be able accomplish this in a timely manner
or at all. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.

Improvement in our business depends on our ability to increase demand for our
products and services.

Adverse events or economic or other conditions affecting markets for our
products and services, potential delays in product development, product and
service flaws, changes in technology, changes in the regulatory environment and
the availability of competitive products and services are among a number of
factors that could limit demand for our products and services.

Our business is subject to extensive and rigorous government regulation; failure
to comply with applicable regulatory requirements could substantially harm our
business.

Our tire recycling activities are subject to extensive and rigorous
government regulation designed to protect the environment. The establishment and
operation of plants for tire recycling 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 us from obtaining, or affect the timing
of, regulatory approvals.

The market in which we operate is highly competitive, fragmented and
decentralized and our competitors may have greater technical and financial
resources.

The market for our services is highly competitive, fragmented and
decentralized. Many of our competitors are small regional or local businesses.
Some of our larger competitors may have greater financial and technical
resources than we do. As a result, they may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources to the promotion and sale of their services. Competition could
increase if new companies enter the markets in which we operate or our existing
competitors expand their service lines. These factors may limit or prevent any
further development of our business.

Our success depends on the retention of our senior management and other key
personnel.

Our success depends largely on the skills, experience and performance of
our senior management, particularly, Robert H. Davis, our Chief Executive
Officer; Charles E. Coppa, our Chief Financial Officer; Mark T. Maust, our
Midwest Regional Vice President; Thomas A. Carter, our Southeastern Regional
Vice President; and James C. Dodenhoff, our Western Regional Vice President. The
loss of any of these personnel could have a material adverse effect on our
business, financial condition and results of operations.

Seasonal factors may affect our quarterly operating results.

Seasonality may cause our total revenues to fluctuate. We typically
process fewer tires during the winter and experience a more pronounced volume
reduction in severe weather conditions. In addition, a majority of our crumb
rubber is used for playground and athletic surfaces, running tracks and
landscaping/groundcover applications which are typically installed during the
warmer portions of the year. Similar seasonal or other patterns may develop in
our business.

Inflation and Changing Prices may hurt our business.

If we acquire other companies or businesses, we will be subject to risks that
could hurt our business.

A significant part of our business strategy entails future acquisitions,
or significant investments in, businesses that offer complementary products and
services. Promising acquisitions are difficult to identify and complete for a
number of reasons. Any acquisitions completed by our company may be made at
substantial premiums over the fair value of the net assets of the acquired
companies, and competition may cause us to pay more for an acquired business
than its long-term fair market value. There can be no assurance that we will be
able to complete future acquisitions on terms favorable to us or at all. In
addition, we may not be able to integrate future acquired businesses, at all or
without significant distraction of management from our ongoing business. In
order to finance acquisitions, it may be necessary for us to issue shares of our
capital stock to the sellers of the acquired businesses and/or to seek
additional funds through public or private financings. Any equity or debt
financing, if available at all, may be on terms which are not favorable to us
and, in the case of an equity financing or the use of our stock to pay for an
acquisition, may result in dilution to our existing stockholders.

As we grow, we are subject to growth related risks.

We are subject to growth-related risks, including capacity constraints and
pressure on our internal systems and personnel. In order to manage current
operations and any future growth effectively, we will need to continue to
implement and improve our operational, financial and management information
systems and to hire, train, motivate, manage and retain employees. We may be
unable to manage such growth effectively. Our management, personnel or systems
may be inadequate to support our operations, and we may be unable to achieve the
increased levels of revenue commensurate with the increased levels of operating
expenses associated with this growth. Any such failure could have a material
adverse impact on our business, operations and prospects. In addition, the cost
of opening new facilities and the hiring of new personnel for those facilities
could significantly decrease our profitability, if the new facilities do not
generate sufficient additional revenue.

Risks Related to the Securities Market

Our stock price may be volatile, which could result in substantial losses for
our shareholders.

Our common stock is thinly traded and an active public market for our
stock may not develop. Consequently, the market price of our common stock may be
highly volatile. Additionally, the market price of our common stock could
fluctuate significantly in response to the following factors, some of which are
beyond our control:

o changes in market valuations of similar companies;

o announcements by us or by our competitors of new or enhanced
products, technologies or services or significant contracts,
acquisitions, strategic relationships, joint ventures or capital
commitments;

o regulatory developments;

o additions or departures of senior management and other key
personnel;

o deviations in our results of operations from the estimates of
securities analysts; and

o future issuances of our common stock or other securities.

We have options, warrants and convertible promissory notes currently
outstanding. Exercise of these options and warrants, and conversions of these
promissory notes will cause dilution to existing and new shareholders. Future
sales of common stock by Laurus and our existing stockholders could result in a
decline in the market price of our stock.

As of June 30, 2005, we have options and warrants to purchase
approximately 6,290,359 shares of common stock outstanding in addition to
$8,436,136 of convertible promissory notes. The principal and interest amounts
of these notes are convertible into approximately 10,146,000 shares of common
stock. The exercise of our options and warrants, and the conversion of these
promissory notes, will cause additional shares of common stock to be issued,
resulting in dilution to investors and our existing stockholders. As of June 30,
2005, approximately 12,840,000 shares of our common stock were eligible for sale
in the public market. This represents approximately 67 percent of our
outstanding shares of common stock. After the effective date of the additional
registration statement we are required to file with respect to the Laurus credit
facility (see Note 9), approximately 23,000,000 shares of our common stock will
be eligible for resale in the public market. On July 20, 2005, we issued an
option to purchase 2,413,571 shares of our common stock to Laurus in connection
with a $1 million term note. (See Note 14) Sales of a significant number of
shares of our common stock in the public market could result in a decline in the
market price of our common stock, particularly in light of the illiquidity and
low trading volume in our common stock.

Our directors, executive officers and principal stockholders own a significant
percentage of our shares, which will limit your ability to influence corporate
matters.

Our directors, executive officers and other principal stockholders owned
approximately 39 percent of our outstanding common stock as of June 30, 2005.
Accordingly, these stockholders could have a significant influence over the
outcome of any corporate transaction or other matter submitted to our
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets and also could prevent or cause a change in
control. The interests of these stockholders may differ from the interests of
our other stockholders. In addition, limited number of shares held in public
float effect the liquidity of our common stock. Third parties may be discouraged
from making a tender offer or bid to acquire us because of this concentration of
ownership.

We have never paid dividends on our capital stock, and we do not anticipate
paying any cash dividends in the foreseeable future.

We have paid no cash dividends on our capital stock to date and we
currently intend to retain our future earnings, if any, to fund the development
and growth of our businesses. As a result, capital appreciation, if any, of our
common stock will be shareholders' sole source of gain for the foreseeable
future.

Anti-takeover provisions in our charter documents and Delaware law could
discourage potential acquisition proposals and could prevent, deter or delay a
change in control of our company.

Certain provisions of our Restated Certificate of Incorporation and
By-Laws could have the effect, either alone or in combination with each other,
of preventing, deterring or delaying a change in control of our company, even if
a change in control would be beneficial to our stockholders. Delaware law may
also discourage, delay or prevent someone from acquiring or merging with us.

Environmental Liability

There are no known material environmental violations or assessments.

Item 3 Controls and Procedures

Our management, with the participation of our chief executive officer and
chief financial officer, evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934) as of June 30, 2005. In designing and evaluating our
disclosure controls and procedures, we recognized that any controls and
procedures, no matter how well designed and operated, can provide only
reasonable assurance of achieving their objectives and management necessarily
applied its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based on this evaluation, our chief executive officer
and chief financial officer concluded that as of June 30, 2005, our disclosure
controls and procedures were (1) designed to ensure that material information
relating to the company, including our consolidated subsidiaries, is made known
to our chief executive officer and chief financial officer by others within
those entities, particularly during the period in which this report was being
prepared and (2) effective, in that they provide reasonable assurance that
information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported within
the time periods specified in the SEC's rules and forms.

No change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal
quarter ended June 30, 2005 that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the quarter ended June 30, 2005, we issued 25,000 shares of
common stock to Laurus Master Fund, Ltd. upon conversion of $19,750
outstanding under a line of credit. The issuance of these shares was
exempt from registration pursuant to Section 4(2) of the Securities
Act of 1933.

Item 4. Submission of Matters to a Vote of Security Holders

We conducted our Annual Meeting of Stockholders on June 16, 2005.
The matters considered at the meeting and the results for each vote
were as follows:

For Against Abstain
---------- --------- ---------

Vote 1 - Election of the Board of Directors
Maurice E. Needham ................................................ 15,757,780 151,292 N/A
Robert H. Davis ................................................... 15,749,980 159,092 N/A
Lew Boyd .......................................................... 15,790,680 118,392 N/A
Dr. Allen Kahn .................................................... 15,790,680 118,392 N/A
Lyle Jensen ....................................................... 15,194,080 714,992 N/A

Vote 2 - Approve an amendment to our Restated Certificate
of Incorporation to increase the number of authorized
shares of common stock from 30,000,000 to 40,000,000 ................ 15,524,125 308,792 76,155

Vote 3 - Approve an amendment to our Restated Certificate
of Incorporation to eliminate the description of Class A
Convertible Preferred Stock ......................................... 11,434,141 101,636 36,295

Vote 4 - Approve adoption of the 2005 Stock Option Plan ............. 10,861,901 696,816 13,355

Vote 5 - Approve the issuance of up to 7,380,000 shares of
our common stock to Laurus Master Fund, Ltd ......................... 11,304,268 163,381 104,423

Vote 6 - Ratify the selection of Wolf and Company as our
independent auditors for the fiscal year ended September 30, 2005 ... 15,462,027 434,250 12,795

None

Item 6. Exhibits
---------

(a) Exhibits

3.1 (1) Restated Certificate of Incorporation as filed
with the Secretary of State of the State of
Delaware on May 1, 2003, as amended

4.1 (1) Securities Purchase Agreement, dated July 20,
2005, by and between GreenMan Technologies,
Inc. and Laurus Master Fund, Ltd.

4.2 (1) Secured Convertible Term Note, dated July 20,
2005, made by GreenMan Technologies, Inc. to
Laurus Master Fund, Ltd.

4.3 (1) Term Note Registration Rights Agreement, dated
July 20, 2005 by and between GreenMan
Technologies, Inc. and Laurus Master Fund, Ltd.

4.4 (1) Option Agreement, dated July 20, 2005 by and
between GreenMan Technologies, Inc. and Laurus
Master Fund, Ltd.

4.5 (1) Funds Escrow Agreement, dated July 20, 2005 by
and between GreenMan Technologies, Inc.,
Laurus Master Fund, Ltd. And Loeb and Loeb,
LLP, as Escrow Agent

4.6 (1) Reaffirmaiton and Ratification Agreement,
dated July 20, 2005 by and between GreenMan
Technologies, Inc. and certain of its
subsidiaries, in favor of Laurus Master Fund,
Ltd.

10.1(1) Waiver Agreement by Republic Services of
Georgia, LP dated July 31, 2005.

31.1(2) Certification of Chief Executive Officer
pursuant to Rule 13a-14(a) or Rule 15d-14(a)

31.2(2) Certification of Chief Financial Officer
pursuant to Rule 13a-14(a) or Rule 15d-14(a)

32.1(2) Certification of Chief Executive Officer under
18 U.S.C Section 1350

32.2(2) Certification of Chief Financial Officer under
18 U.S.C Section 1350

Filed herewith

(b) Reports on Form 8-K

None

SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, the Registrant
certifies that it has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

By: GreenMan Technologies, Inc.

/s/ Robert H. Davis
-------------------
Robert H. Davis
Chief Executive Officer

By: GreenMan Technologies, Inc.

/s/ Charles E. Coppa
--------------------
Chief Financial Officer, Treasurer,
Secretary