Attached files
file | filename |
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EX-32.1 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - PERF Go-Green Holdings, Inc | f10q0909ex32i_perfgogreen.htm |
EX-31.1 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - PERF Go-Green Holdings, Inc | f10q0909ex31i_perfgogreen.htm |
EX-31.2 - CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - PERF Go-Green Holdings, Inc | f10q0909ex31ii_perfgogreen.htm |
EX-32.2 - CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 - PERF Go-Green Holdings, Inc | f10q0909ex32ii_perfgogreen.htm |
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
quarterly period ended: September 30,
2009
OR
¨ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For the
transition period
from
to
Commission
File Number 333-141054
Perf-Go
Green Holdings, Inc.
(Exact
name of smaller reporting company as specified in its charter)
Delaware
|
333-141054
|
20-3079717
|
||
(State
or other jurisdiction of
|
(Commission
File
|
(IRS
Employer Identification No.)
|
||
incorporation
or organization)
|
Number)
|
12E.
52nd Street, 4th Floor, New York, New
York 10022
|
(Address
of principal executive offices and Zip
code)
|
(212)
935 3550
|
(Issuer's
telephone number including area
code)
|
(Former
name, former address and former fiscal year, if changed since last
report)
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90
days. Yes x
No ¨
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See definitions of “large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer
£
|
Accelerated
filer
£
|
Non-accelerated
filer £
|
Smaller
reporting company
x
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes ¨
No x
As
of December 21, 2009, there were 36,186,738 shares outstanding of
the registrant’s common stock.
PERF-GO
GREEN HOLDINGS, INC. AND SUBSIDIARY
INDEX
PART
1 – FINANCIAL INFORMATION
|
||
Item
1. – Financial Statements
|
1 | |
Consolidated
Balance Sheets
|
1 | |
Consolidated
Statements of Operations (unaudited)
|
2 | |
Consolidated
Statement of Stockholders’ Equity (Deficit) (unaudited)
|
3 | |
Consolidated
Statements of Cash Flows (unaudited)
|
4 | |
Notes
to Consolidated Financial Statements (unaudited)
|
5-26 | |
Item
2. Management’s Discussion and Analysis of Financial Condition And Results
of Operations
|
27 | |
Item
3. Quantitative and Qualitative Disclosures about Market
Risk
|
35 | |
Item
4 Controls and Procedures
|
36 | |
PART
II - OTHER INFORMATION
|
||
Item
1. Legal Proceedings
|
37 | |
Item
1A. Risk Factors
|
37 | |
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
37 | |
Item
3. Defaults Upon Senior Securities
|
37 | |
Item
4. Submission of Matters to a Vote of Security
Holders
|
37 | |
Item
5. Other Information
|
37 | |
Item
6. Exhibits
|
37 | |
SIGNATURES
|
38 |
ITEM
1. FINANCIAL STATEMENTS.
Consolidated Balance Sheets
|
||||||||
September 30, 2009
|
March 31, 2009
|
|||||||
(Unaudited)
|
(Audited)
|
|||||||
Assets
|
||||||||
Current
Assets:
|
||||||||
Accounts
receivable - net
|
$ | 170,737 | $ | 481,614 | ||||
Inventory
|
313,258 | - | ||||||
Due
from factor
|
- | 92,106 | ||||||
Prepaid
and other current assets
|
177,414 | 61,328 | ||||||
Deposits
|
1,309,966 | 1,533,047 | ||||||
Total
Current Assets
|
1,971,375 | 2,168,095 | ||||||
Debt
issue costs - net
|
976,091 | 1,272,971 | ||||||
Equipment
- net
|
253,946 | 285,397 | ||||||
Total
Assets
|
$ | 3,201,412 | $ | 3,726,463 | ||||
Liabilities and Stockholders'
Deficit
|
||||||||
Current
Liabilities:
|
||||||||
Cash
overdraft
|
$ | 49,240 | $ | 67,811 | ||||
Accounts
payable
|
1,451,700 | 964,836 | ||||||
Accrued
expenses
|
408,806 | 84,668 | ||||||
Due
to factor
|
114,325 | - | ||||||
Deferred
revenue
|
- | 22,050 | ||||||
Derivative
liabilities
|
5,956,549 | 15,381,809 | ||||||
Registration
rights liability
|
892,500 | 892,500 | ||||||
Common
stock payable
|
550,000 | 100,000 | ||||||
Convertible
debt - net
|
- | 138,592 | ||||||
Total
Current Liabilities
|
9,423,120 | 17,652,266 | ||||||
Long
Term Liabilities
|
||||||||
Convertible
debt - net
|
1,475,671 | - | ||||||
Total
Liabilities
|
10,898,791 | 17,652,266 | ||||||
Commitments
and Contingencies
|
||||||||
Stockholders'
Deficit:
|
||||||||
Preferred
stock, ($0.0001 par value, 5,000,000 shares authorized,
|
||||||||
none
issued and outstanding)
|
- | - | ||||||
Common
stock, ($0.0001 par value, 100,000,000 shares authorized,
|
||||||||
36,186,738
and 34,265,368 shares issued and outstanding)
|
3,616 | 3,427 | ||||||
Additional
paid-in capital
|
22,961,664 | 20,372,598 | ||||||
Accumulated
deficit
|
(30,662,659 | ) | (34,301,828 | ) | ||||
Total
Stockholders' Deficit
|
(7,697,379 | ) | (13,925,803 | ) | ||||
Total
Liabilities and Stockholders' Deficit
|
$ | 3,201,412 | $ | 3,726,463 | ||||
See
accompanying notes to financial statements.
1
Perf-Go
Green Holdings, Inc. and Subsidiary
|
||||||||||||||||
Consolidated Statements of
Operations
|
||||||||||||||||
(Unaudited)
|
||||||||||||||||
For
the Three Months Ended
|
For
the Six Months Ended
|
|||||||||||||||
September
30, 2009
|
September
30, 2008
|
September
30, 2009
|
September
30, 2008
|
|||||||||||||
Sales
|
$ | 346,827 | $ | 425,000 | $ | 890,137 | $ | 426,000 | ||||||||
Cost
of sales
|
257,888 | 269,000 | 771,151 | 270,000 | ||||||||||||
Gross
profit
|
88,939 | 156,000 | 118,986 | 156,000 | ||||||||||||
General
and administrative
|
1,181,626 | 4,214,000 | 4,174,184 | 15,029,000 | ||||||||||||
Loss
from operations
|
(1,092,687 | ) | (4,058,000 | ) | (4,055,198 | ) | (14,873,000 | ) | ||||||||
Other
income (expense)
|
||||||||||||||||
Derivative
liabilities expense
|
- | - | - | (26,310,000 | ) | |||||||||||
Change
in fair value of derivative liabilities
|
8,711,815 | 10,564,000 | 9,961,831 | 16,003,000 | ||||||||||||
Registration
rights damages
|
- | - | - | (893,000 | ) | |||||||||||
Amortization
of debt discount
|
(567,029 | ) | (497,000 | ) | (1,182,079 | ) | (675,000 | ) | ||||||||
Amortization
of debt issue costs
|
(138,802 | ) | (153,000 | ) | (296,880 | ) | (204,000 | ) | ||||||||
Interest
expense
|
(136,490 | ) | (162,000 | ) | (266,370 | ) | (216,000 | ) | ||||||||
Interest
income
|
- | 23,000 | - | 34,000 | ||||||||||||
Total
other income (expense)
|
7,869,494 | 9,775,000 | 8,216,502 | (12,261,000 | ) | |||||||||||
Net
income (loss)
|
$ | 6,776,807 | $ | 5,717,000 | $ | 4,161,304 | $ | (27,134,000 | ) | |||||||
Net
income (loss) per common share :
|
||||||||||||||||
Basic
|
$ | 0.19 | $ | 0.17 | $ | 0.12 | $ | (0.90 | ) | |||||||
Diluted
|
$ | 0.14 | $ | 0.15 | $ | 0.09 | $ | (0.90 | ) | |||||||
Weighted
average number
|
||||||||||||||||
of
common shares outstanding:
|
||||||||||||||||
Basic
|
35,175,170 | 33,175,000 | 34,980,380 | 30,274,000 | ||||||||||||
Diluted
|
45,866,112 | 47,392,000 | 45,671,322 | 30,274,000 |
See
accompanying notes to financial statements.
2
Perf-Go
Green Holdings, Inc. and Subsidiary
|
||||||||||||||||||||
Consolidated
Statement of Changes in Stockholders' Equity (Deficit)
|
||||||||||||||||||||
For the Six Months Ended September 30, 2009
(Consolidated) and for the Year Ended March 31,
2009
|
||||||||||||||||||||
(Unaudited)
|
||||||||||||||||||||
Common
Stock
|
Additional
|
Accumulated
|
||||||||||||||||||
Shares
|
Amount
|
Paid
-in Capital
|
Deficit
|
Total
|
||||||||||||||||
Balance,
March 31, 2008
|
11,200,005 | 1,120 | 1,474,240 | (1,425,015 | ) | 50,345 | ||||||||||||||
Issuance
of shares in reverse acquisition treated as a
recapitalization
|
21,079,466 | 2,108 | 2,047,440 | - | 2,049,548 | |||||||||||||||
In-kind
contribution in connection with recapitalization
|
- | - | 51,088 | - | 51,088 | |||||||||||||||
Cash
paid as direct offering costs in connection with debt
financing
|
- | - | (210,000 | ) | - | (210,000 | ) | |||||||||||||
Warrants
paid as direct offering costs in connection with debt
financing
|
- | - | (480,246 | ) | - | (480,246 | ) | |||||||||||||
Debt
converted to equity
|
1,046,703 | 105 | 759,424 | - | 759,529 | |||||||||||||||
Recognition
of stock-based compensation
|
- | - | 13,148,682 | - | 13,148,682 | |||||||||||||||
Ratchet
warrant expense (Jan-Mar 2008 conv debt holders)
|
- | - | 47,136 | - | 47,136 | |||||||||||||||
Recognition
of stock-based consulting
|
- | - | 856,483 | - | 856,483 | |||||||||||||||
Stock
issued as compensation
|
10,000 | 1 | 25,699 | - | 25,700 | |||||||||||||||
Stock
issued for consulting
|
929,194 | 93 | 2,288,699 | - | 2,288,792 | |||||||||||||||
Reclassification
of derivative liability at fair value in connection with conversion of
convertible debt
|
- | - | 363,953 | - | 363,953 | |||||||||||||||
Net
Loss
|
- | - | - | (32,876,813 | ) | (32,876,813 | ) | |||||||||||||
Balance,
March 31, 2009
|
34,265,368 | 3,427 | 20,372,598 | (34,301,828 | ) | (13,925,803 | ) | |||||||||||||
Stock
issued for future services
|
300,000 | 30 | 140,970 | - | 141,000 | |||||||||||||||
Debt
converted to equity
|
90,000 | 5 | 44,995 | - | 45,000 | |||||||||||||||
Issuance
of common shares for common stock payable
|
1,037,594 | 104 | 349,896 | - | 350,000 | |||||||||||||||
Recognition
of stock-based compensation - employees
|
- | - | 1,627,140 | - | 1,627,140 | |||||||||||||||
Recognition
of stock-based compensation - consulting
|
- | - | 200,612 | - | 200,612 | |||||||||||||||
Stock
issued for consulting
|
493,776 | 50 | 192,449 | - | 192,499 | |||||||||||||||
Reclassification
of derivative liability at fair value in connection with conversion of
convertible debt
|
- | - | 33,004 | - | 33,004 | |||||||||||||||
Remeasurement
of derivative liability related to adoption of FASB ASC
815-40
|
- | - | - | (522,135 | ) | (522,135 | ) | |||||||||||||
Net
Income
|
- | - | - | 4,161,304 | 4,161,304 | |||||||||||||||
Balance,
September 30, 2009
|
36,186,738 | $ | 3,616 | $ | 22,961,664 | $ | (30,662,659 | ) | $ | (7,697,379 | ) |
See
accompanying notes to financial statements.
3
Consolidated Statements of Cash
Flows
|
||||||||
(Unaudited)
|
||||||||
For
the Six Months Ended
|
||||||||
September 30, 2009
|
September 30, 2008
|
|||||||
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
Net
income (loss)
|
$ | 4,161,304 | $ | (27,134,000 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Amortization
of debt issue costs
|
296,880 | 892,000 | ||||||
Amortization
of debt discount
|
1,182,079 | - | ||||||
Amortization
of future services
|
23,500 | - | ||||||
Depreciation
|
37,288 | 14,000 | ||||||
Warrant
expense
|
47,439 | - | ||||||
Derivative
expenses
|
- | 26,310,000 | ||||||
Change
in fair value remeasurement - embedded conversion option and
warrants
|
(9,961,831 | ) | (16,003,000 | ) | ||||
Stock
issued for compensation - employees
|
- | 8,716,000 | ||||||
Stock
issued for consulting
|
192,499 | 2,893,000 | ||||||
Recognition
of stock-based compensation - employees
|
1,627,140 | - | ||||||
Recognition
of stock-based compensation - consultants
|
200,612 | - | ||||||
Changes
in Operating Assets and Liabilities:
|
||||||||
(Increase)
Decrease in:
|
||||||||
Accounts
receivable
|
310,878 | (400,000 | ) | |||||
Due
from factor
|
92,106 | - | ||||||
Inventory
|
(313,258 | ) | - | |||||
Prepaids
and other current assets
|
1,414 | 10,000 | ||||||
Product
deposit
|
223,081 | (1,835,000 | ) | |||||
Increase
(Decrease) in:
|
||||||||
Accounts
payable and accrued liabilties
|
486,864 | 109,000 | ||||||
Accrued
expenses
|
324,138 | - | ||||||
Due
to factor
|
114,325 | |||||||
Deferred
revenue
|
(22,050 | ) | - | |||||
Registration
rights payable
|
- | 893,000 | ||||||
Net
Cash Used In Operating Activities
|
(975,592 | ) | (5,535,000 | ) | ||||
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
Cash
acquired in reverse acquisition with Esys
|
- | 2,100,000 | ||||||
Placement
agent fee paid in connection with reverse merger
|
- | (210,000 | ) | |||||
Cash
paid to acquire equipment
|
(5,837 | ) | (199,000 | ) | ||||
Net
Cash Provided By (Used In) Investing Activities
|
(5,837 | ) | 1,691,000 | |||||
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
Cash
overdraft
|
(18,571 | ) | - | |||||
Proceeds
from sale of convertible debt
|
200,000 | 5,950,000 | ||||||
Placement
agent fee in connection with fees for bridge and convertible
notes
|
- | (595,000 | ) | |||||
Proceeds
from common stock payable
|
800,000 | - | ||||||
Net
Cash Provided By Financing Activities
|
981,429 | 5,355,000 | ||||||
Net
Increase (Decrease) in Cash and Cash Equivalents
|
- | 1,511,000 | ||||||
Cash
and Cash Equivalents - Beginning of Period
|
- | 270,000 | ||||||
Cash
and Cash Equivalents - End of Period
|
$ | - | $ | 1,781,000 | ||||
SUPPLEMENTARY CASH FLOW
INFORMATION:
|
||||||||
Cash
Paid During the Period for:
|
||||||||
Interest
|
$ | 36 | $ | 131,000 | ||||
Taxes
|
$ | - | $ | - | ||||
SUPPLEMENTARY DISCLOSURE OF NON-CASH INVESTING AND
FINANCING ACTIVITIES:
|
||||||||
Derivative
liabilities associated with convertible debentures and warrants at
inception
|
$ | - | $ | 5,950,000 | ||||
Derivative
liabilities associated with placement agent warrants at
inception
|
$ | - | $ | 1,875,000 | ||||
Stock
issued for future services
|
$ | 141,000 | $ | - | ||||
Conversion
of debt and accrued interest to common stock
|
$ | 45,000 | $ | - | ||||
Reclassification
of derivative liability to APIC in connection with conversion of debt to
common stock
|
$ | 33,003 | $ | - | ||||
Remeasurement
of derivative liability related to bridge warrants upon adoption of FASB
ASC 815-40
|
$ | 522,135 | $ | - | ||||
Derivative
liabilities recorded at commitment date in conneciton with issuance of
convertible debt and warrants
|
$ | 47,439 | $ | 27,457,000 | ||||
Derivative
liability recorded in connection with placement agent warrants and debt
& equity financing
|
$ | - | $ | 1,875,000 | ||||
Common
shares issued for common stock payable
|
$ | 350,000 | $ | - | ||||
Derivative
liability recorded in connection with investor warrants at
inception
|
$ | - | $ | 4,802,000 |
See
accompanying notes to financial statements.
4
Perf-Go
Green Holdings, Inc. and Subsidiary
September
30, 2009
(Unaudited)
Note 1 - Organization and
Nature of Operations
Perf-Go
Green Holdings, Inc. (“Holdings”), formerly known as ESYS Holdings, Inc.
(“ESYS”) and La Solucion, Inc. (the “Company”), was incorporated in Delaware in
April 2005. Its business was originally intended to provide assistance to the
non-English speaking Hispanic population in building and maintaining a life in
North Carolina but it did not establish operations in connection with its
business plan.
On May
13, 2008, Holdings, a then public shell corporation, in a share exchange
transaction with the stockholders of Perf-Go Green, Inc. (“Perf-Go Green”), a
privately-owned Delaware corporation pursuant to which Holdings
acquired all of the outstanding shares of common stock of Perf-Go Green. Perf-Go
Green was originally incorporated as a limited liability company on November 15,
2007 and converted to a “C” corporation on January 7, 2008. Upon the
consummation of the transaction, Perf-Go Green became a wholly-owned subsidiary
of Holdings.
Perf-Go
Green became the surviving corporation, in a transaction treated as a reverse
acquisition. Holdings did not have any operations and majority-voting control
was transferred to Perf-Go Green. The transaction also required a
recapitalization of Perf-Go Green.
Since
Perf-Go Green acquired a controlling voting interest, it was deemed the
accounting acquirer, while Holdings was deemed the legal acquirer. The
historical financial statements of the Company are those of Perf-Go Green, and
of the consolidated entities from the date of merger and
subsequent.
Since the
transaction was considered a reverse acquisition and recapitalization, the
presentation of pro-forma financial information was not required.
Pursuant
to the merger, Holdings issued 21,079,466 shares of common stock to Perf-Go
Green in exchange for Perf-Go Green’s 20,322,767 shares outstanding (1.03:1
exchange ratio). Upon the closing of the reverse acquisition, Perf-Go
Green and its stockholders held 65% of the issued and outstanding shares of
common stock. The remaining 11,200,004 shares of Holdings commons stock was a
deemed issuance to the former shareholders of Holdings.
The
Company is focused on the development and global marketing of eco-friendly,
non-toxic, food contact compliant, biodegradable plastic products. The Company’s
biodegradable plastic products offer a practical and viable solution for
reducing plastic waste from the environment. The Company believes that its
plastic products will break down in landfill environments within twelve (12) to
twenty four (24) months, leaving no visible or toxic residue. The Company’s
activities have included capital raising to support its business plan,
recruiting board of directors and management personnel and establishing sources
of supply and customer relationships. During the year ended March 31, 2009, the
Company commenced principal operations with the initiation of significant
revenues and exited the development stage.
5
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
The
accompanying unaudited consolidated financial statements have been prepared in
accordance with the instructions to Form 10-Q and Articles 8 and 10 of
Regulation S-X for small business issuers and do not include all of the
information and disclosures required by accounting principles generally accepted
in the United States of America (“GAAP”). The unaudited consolidated financial
statements include the accounts of Perf-Go Green Holdings, Inc. and its
wholly-owned subsidiary, Perf-Go Green, Inc. (collectively, the "Company") and
all significant intercompany transactions and balances have been eliminated in
consolidation. All adjustments which are of a normal recurring nature and, in
the opinion of management, necessary for a fair presentation have been included.
These unaudited consolidated financial statements should be read in conjunction
with the more complete information and the Company's audited consolidated
financial statements as of March 31, 2009 and the related notes
thereto.
Note 2 - Summary of
Significant Accounting Policies
Principles
of Consolidation
All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP in the United States
of America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Significant
estimates in 2009 included the valuation of stock issued for compensation and
services, stock-based compensation arrangements with employees and third
parties, fair value of derivative financial instruments, estimated useful life
of equipment, and a 100% valuation allowance for deferred taxes due to the
Company’s continuing and expected future losses.
6
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Risks
and Uncertainties
The
Company operates in an industry that is subject to intense competition and rapid
technological change and is in a state of fluctuation as a result of the global
credit crisis. The Company's operations are subject to significant
risk and uncertainties including financial, operational, technological, and
regulatory risks including the potential risk of business failure.
The
Company has experienced, and in the future expects to continue to experience,
variability in sales and earnings. The factors expected to contribute to this
variability include, among others, (i) the cyclical nature of the
industries we sell and cater to, (ii) general economic conditions in the
various local markets in which the Company competes, including the general
downturn in the economy over the past year, and (iii) the volatility of
prices pertaining to our vendors and suppliers. These factors, among
others, make it difficult to project the Company’s operating results on a
consistent basis.
Cash
and Cash Equivalents
The
Company believes its current available cash along with anticipated revenues will
be insufficient to meet its cash needs for the near future and its ability to
continue as a going concern is in question. The Company has been
actively negotiating with a number of potential investors to obtain additional
financing to meet its cash flow needs for at least the next several
weeks. At the present time, these additional financings have not been
consummated and there can be no assurance that the Company will be able to
obtain sufficient financing on acceptable terms, if at all. In the
event the Company cannot obtain the needed financing within the next several
weeks, the Company may have to materially curtail or even cease its
operations. The Company is making every effort to remedy this
situation, but there can be no assurance such efforts will be successful, and
the Company is considering all options.
The
Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents. There were no cash
equivalents at September 30, 2009 and March 31, 2009, respectively.
The
Company minimizes its credit risk associated with cash by periodically
evaluating the credit quality of its primary financial institution. The balance
at times may exceed federally insured limits. At September 30, 2009 and March
31, 2009, there were no balances exceeding the insured limits.
Accounts
Receivable and Allowance for Doubtful Accounts
Accounts
receivable represents trade obligations from customers that are subject to
normal trade collection terms. The Company periodically evaluates the
collectability of its accounts receivable and considers the need to adjust an
allowance for doubtful accounts based upon historical collection experience and
specific customer information. Actual amounts could vary from the recorded
estimates.
At
September 30, 2009 and March 31, 2009, the Company recorded an allowance for
doubtful accounts receivable of $17,726 and $4,033, respectively.
7
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Due
(to) from Factor
On March
20, 2009, the Company entered into an agreement with a factor, which will
provide, on a discretionary basis, a combined credit facility of $10 million for
purchase order financing and factoring. Under the agreement, the
Company agreed to pay the factor a commission of 1.0% to 1.5% of the gross
amount of each receivable. In addition, the Company agreed that the
factor will receive a minimum of $100,000 in commissions in the first 12
months. As collateral for the Company’s obligations under this
agreement, the Company has granted the factor a security interest in all of the
company’s assets. The factor advances 80% of the factored receivables
and pays a percentage of the 20% when the factored receivable is
collected.
The
manufacturing of the Company’s biodegradable plastic products is outsourced to a
sole supplier (“supplier”). In order to secure initial product
shipments expected, the Company has deposits of $1,309,966 and $1,533,047 with
the supplier at September 30, 2009 and March 31, 2009, respectively. In order to
secure full payment, the supplier retains title and risk of loss to the
related inventory until final payment which occurs before shipment to the
customer. The Company does not currently carry inventory for any significant
period of time and inventory balances at September 30, 2009 and March 31, 2009,
was $313,258 and $0, respectively.
Long-Lived
Assets
The
Company carries long-lived assets at the lower of the carrying amount or fair
value. Impairment is evaluated by estimating future undiscounted cash flows
expected to result from the use of the asset and its eventual disposition. If
the sum of the expected undiscounted future cash flow is less than the carrying
amount of the assets, an impairment charge is recognized. Fair value, for
purposes of calculating impairment, is measured based on estimated undiscounted
future cash flows, discounted at a market rate of interest. For the three and
six month periods ended September 30, 2009 and 2008, the Company did not record
any impairment charges.
Equipment
is stated at cost, less accumulated depreciation computed on a straight-line
basis over the estimated useful life, which is three to seven
years.
Debt
Discount and Debt Issue Costs
These
amounts are amortized over the life of the debt to interest expense. If a
conversion of the underlying debt occurs, a proportionate share of these amounts
is immediately expensed.
8
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Fair
Value of Financial Instruments
The
carrying amounts of the Company’s short-term financial instruments, including
the Company’s current assets (exclusive of cash) and current liabilities,
approximate fair value due to the relatively short period to maturity for these
instruments.
Warrants
and Derivative Liabilities
The
Company reviews any common stock purchase warrants and other freestanding
derivative financial instruments at each balance sheet date and will classify on
the balance sheet as:
|
a)
|
Equity
if they (i) require physical settlement or net-share settlement, or
(ii) gives us a choice of net-cash settlement or settlement in our
own shares (physical settlement or net-share settlement), or
as
|
|
b)
|
Assets
or liabilities if they (i) require net-cash settlement (including a
requirement to net cash settle the contract if an event occurs and if that
event is outside our control), or (ii) give the counterparty a choice of
net-cash settlement or settlement in shares (physical settlement or
net-share settlement).
|
The
Company assesses classification of our common stock purchase warrants and other
freestanding derivatives at each reporting date to determine whether a change in
classification between assets and liabilities is required.
Segment
Information
During
2009 and 2008, the Company only operated in one segment; therefore, segment
information has not been presented.
Revenue
Recognition
The
Company records revenue when the risks and rewards of ownership have transferred
to customers which generally occurs when products are shipped and all of the
following have occurred; (1) persuasive evidence of an arrangement exists, (2)
product delivery has occurred, (3) the sales price to the customer is fixed or
determinable, and (4) collectability is reasonably assured. In arriving at net
sales, the Company estimates the amount of deductions that are likely to be
taken by customers and adjusts that periodically based on historical experience.
The Company records revenues upon shipment. In accordance with the revenue
recognition policy of the Company, the factor has held back $12,034 in factored
receivables. The Company has recorded a sales allowance reflecting this
holdback.
9
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Cost
of Sales
Cost of
sales represents the purchase of the Company’s products.
Costs
incurred for producing and communicating advertising for the Company are charged
to operations as incurred.
Advertising
expense for the three and six month periods ended September 30, 2009, and 2008
was $36,045, $90,324, $653,000 and $947,000, respectively.
Earnings
Per Share
Basic
earnings (loss) per share is computed by dividing net income (loss) by weighted
average number of shares of common stock outstanding during each
period. Diluted earnings (loss) per share is computed by dividing net
income (loss) by the weighted average number of shares of common stock, common
stock equivalents and potentially dilutive securities outstanding during the
period.
At
September 30, 2009 and 2008 the Company’s common stock equivalents
consisted of the following:
2009
|
2008
|
|||||||
Shares
underlying convertible debt
|
10,690,942
|
7,933,333
|
||||||
Stock
options
|
8,173,600
|
7,407,600
|
||||||
Warrants
|
40,488,340
|
22,929,999
|
||||||
Total
common stock equivalents
|
59,352,882
|
38,270,932
|
For the
three and six month periods ended September 30, 2009, all of the Company’s
common stock options and warrants had exercise prices in excess of the Company’s
average market price of the common stock into which they convert, accordingly,
there was no dilutive effect for these periods as it relates to the options and
warrants. Related to the Company’s convertible notes, for the three and six
month periods ended September 30, 2009, on an “as if” converted basis, the
Company had 10,690,942 dilutive common stock equivalents for both periods,
resulting in total dilutive common shares of 45,866,112 and 45,671,322,
respectively. Additionally, dilutive net income reflects the add back
of approximately $136,000 and $266,000 of interest expense related to the Senior
Secured Convertible Debentures for the three and six months ended September 30,
2009, respectively. For the six month period ended September
30, 2008, the Company reflected a net loss and the effect of considering any
common stock equivalents would have been anti-dilutive for this
period. For the three month period ended September 30, 2008, the
Company had 14,217,000 dilutive common stock equivalents, which resulted in
total dilutive shares of 47,392,000. Additionally, diluted income for the three
month period ended September 30, 2008 reflects the add back of approximately
$812,000 of interest expense and related amortization of the Senior Secured
Convertible Debentures.
Share
Based Payments
Generally,
all forms of share-based payments, including stock option grants, restricted
stock grants and stock appreciation rights, are measured at their fair value on
the awards’ grant date, and based on the estimated number of awards that are
ultimately expected to vest. Share-based payment awards issued to non-employees
for services rendered are recorded at either the fair value of the services
rendered or the fair value of the share-based payment, whichever is more readily
determinable. The expense resulting from share-based payments are recorded as a
component of general and administrative expense.
10
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Recent
Accounting Pronouncements
In April
2009, the FASB issued Accounting Standards Codification (“ASC”) Topic 805
(“Topic 805”), Business
Combinations. This topic requires that the acquisition method
of accounting be used for all business combinations and for an acquirer to be
identified for each business combination. The topic defines the acquirer as the
entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. The topic will require an entity to record
separately from the business combination the direct costs, where previously
these costs were included in the total allocated cost of the
acquisition. The topic will require an entity to recognize the assets
acquired, liabilities assumed, and any non-controlling interest in the acquired
at the acquisition date, at their fair values as of that
date. The
topic will require an entity to recognize as an asset or liability at fair value
for certain contingencies, either contractual or non-contractual, if certain
criteria are met. Finally, Topic 805 will require an entity to
recognize contingent consideration at the date of acquisition, based on the fair
value at that date. This Statement will be effective for business
combinations completed on or after the first annual reporting period beginning
on or after December 15, 2008. Early adoption of this standard is not
permitted and the standards are to be applied prospectively
only. Upon adoption of this standard, there would be no impact to the
Company’s results of operations and financial condition for acquisitions
previously completed. The adoption of Topic 805 is not expected to
have a material effect on its financial position, results of operations or cash
flows.
11
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
In
December 2007, the FASB issued ASC Topic 810 (“Topic 810”), “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51”. Topic 810 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent,
changes in a parent’s ownership of a noncontrolling interest, calculation and
disclosure of the consolidated net income attributable to the parent and the
noncontrolling interest, changes in a parent’s ownership interest while the
parent retains its controlling financial interest and fair value measurement of
any retained noncontrolling equity investment. Topic 810 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited. The
adoption of Topic 810 is not expected to have a material effect on its financial
position, results of operations or cash flows.
In March
2008, the FASB issued ASC Topic 815 (“Topic 815”) “Disclosures about Derivative
Instruments and Hedging Activities—An Amendment of FASB Statement No. 133.”
Topic 815 establishes the disclosure requirements for derivative
instruments and for hedging activities with the intent to provide financial
statement users with an enhanced understanding of the entity’s use of derivative
instruments, the accounting of derivative instruments and related hedged items,
and the effects of these instruments on the entity’s financial position,
financial performance, and cash flows. This statement is effective for
financial statements issued for fiscal years beginning after November 15,
2008. The Company does not expect its adoption of Topic 815 to have a material
impact on its financial position, results of operations or cash
flows.
In April
2008, the FASB issued ASC Topic 350 (“Topic 350”), “Determination of the Useful Life of
Intangible Assets” . This Topic amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. The intent of this Topic is to
improve the consistency between the useful life of a recognized intangible
asset and the period of expected cash flows used to measure the fair
value of the asset. This Topic is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early adoption is prohibited. The Company does not expect
the adoption of Topic 350, to have a material impact on its financial position,
results of operations or cash flows.
In May
2008, the FASB issued ASC Topic 470 (“Topic 470”) “Accounting for Convertible Debt
instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)”. Topic 470 requires the issuer of certain
convertible debt instruments that may be settled in cash (or other assets) on
conversion to separately account for the liability (debt) and equity (conversion
option) components of the instrument in a manner that reflects the issuer’s
non-convertible debt borrowing rate. Topic 470 is effective for fiscal years
beginning after December 15, 2008 on a retroactive basis. The Company does not
expect the adoption of this Topic to have a material impact on its financial
position, results of operations or cash flows.
12
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
In
October 2008, the FASB issued ASC Topic 820 (“Topic 820”), “ Determining the Fair Value of a
Financial Asset When the Market For That Asset Is Not Active” with an
immediate effective date, including prior periods for which financial statements
have not been issued. Topic 820 clarifies the application of fair value in
inactive markets and allows for the use of management’s internal assumptions
about future cash flows with appropriately risk-adjusted discount rates when
relevant observable market data does not exist. The objectives of Topic
820 has not changed and continues to be the determination of the price that
would be received in an orderly transaction that is not a forced liquidation or
distressed sale at the measurement date. The adoption of Topic 820 is not
expected to have a material effect on the Company’s financial position, results
of operations or cash flows.
In April
2009, the FASB issued ASC Topic 820 (“Topic 820”), “Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed,” which further clarifies the
principles established by previous GAAP. The guidance is effective for the
periods ending after June 15, 2009 with early adoption permitted for the periods
ending after March 15, 2009. The adoption of Topic 820 is not expected to have a
material effect on the Company’s financial position, results of operatio
ns, or
cash flows.
In May
2009, the FASB issued ASC Topic 855 (“Topic 855”) “Subsequent Events”. Topic 855
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. The Topic sets forth (1) The period after the
balance sheet date during which management of a reporting entity should evaluate
events or transactions that may occur for potential recognition or disclosure in
the financial statements, (2) The circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and (3) The disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. Topic 855 is
effective for interim or annual financial periods ending after June 15, 2009.
The Company is evaluating the impact the adoption of Topic 855 will have on its
financial statements.
In June
2009, the FASB issued ASC Topic 860 (“Topic 860”) “Accounting for Transfers of
Financial Assets—an amendment of FASB Statement No.
140”. Topic 860 improves the relevance, representational
faithfulness, and comparability of the information that a reporting entity
provides in its financial statements about a transfer of financial assets; the
effects of a transfer on its financial position, financial performance, and cash
flows; and a transferor’s continuing involvement, if any, in transferred
financial assets. Topic 860 is effective as of the beginning of each reporting
entity’s first annual reporting period that begins after November 15, 2009, for
interim periods within that first annual reporting period and for interim and
annual reporting periods thereafter. The Company is evaluating the impact the
adoption of Topic 860 will have on its financial statements.
13
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
In June
2009, the FASB issued ASC Topic 810 (“Topic 810”) “Amendments to FASB Interpretation
No. 46(R)”. Topic 810 improves financial reporting
by enterprises involved with variable interest entities and to address (1) the
effects on certain provisions of FASB Interpretation No. 46 (revised December
2003), “Consolidation of Variable Interest Entities”, as a result of the
elimination of the qualifying special-purpose entity concept in SFAS 166 and (2)
constituent concerns about the application of certain key provisions of
Interpretation 46(R), including those in which the accounting and disclosures
under the Interpretation do not always provide timely and useful information
about an enterprise’s involvement in a variable interest entity. Topic 810 is
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter. The Company is evaluating the impact the adoption of Topic 810 will
have on its financial statements.
In
June 2009, the FASB issued ASC Topic 105 (“Topic 105”) “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—a
replacement of FASB Statement No. 162”. The FASB Accounting Standards
Codification (“Codification”) will be the single source of authoritative
nongovernmental U.S. generally accepted accounting principles. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. Topic 105 is effective
for interim and annual periods ending after September 15, 2009. All existing
accounting standards are superseded as described in Topic 105. All other
accounting literature not included in the Codification is nonauthoritative. The
Codification is not expected to have a significant impact on the Company’s
financial statements.
Other
accounting standards have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date and
are not expected to have a material impact on the financial statements upon
adoption.
Note 3 - Going Concern and
Liquidity
As
reflected in the accompanying consolidated financial statements, the Company had
a net loss from operations of $4,161,304 and net cash used in operations of
$975,592 for the six month period ended September 30, 2009; and has a working
capital deficit of $7,451,745 and a stockholders’ deficit of
$7,697,379. The Company’s net income for this period reflects the
non-cash change in the unrealized gain related to derivative liabilities of
$9,961,831 as discussed in Note 6.
Further,
losses from operations are continuing subsequent to September 30, 2009 and the
Company anticipates that it will continue to generate significant losses from
operations for the near future. The Company believes its current available cash
along with anticipated revenues may be insufficient to meet its cash needs for
the near future. There can be no assurance that financing will be
available in amounts or terms acceptable to the Company, if at all.
14
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
These
conditions raise substantial doubt about the Company’s ability to continue as a
going concern. The ability of the Company to continue its operations is
dependent on Management's plans, which include the raising of capital through
debt and/or equity markets with some additional funding from other traditional
financing sources, including term notes, until such time that funds provided by
operations are sufficient to fund working capital requirements. The
Company may need to incur additional liabilities with certain related parties to
sustain the Company’s existence.
The
accompanying financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. These financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
The
Company has categorized our assets and liabilities recorded at fair value based
upon the fair value hierarchy specified by GAAP.
The
levels of fair value hierarchy are as follows:
|
·
|
Level
1 inputs utilize unadjusted quoted prices in active markets for identical
assets or liabilities that the Company has the ability to
access;
|
|
·
|
Level
2 inputs utilize other-than-quoted prices that are observable, either
directly or indirectly. Level 2 inputs include quoted prices for similar
assets and liabilities in active markets, and inputs such as interest
rates and yield curves that are observable at commonly quoted intervals;
and
|
|
·
|
Level
3 inputs are unobservable and are typically based on our own assumptions,
including situations where there is little, if any, market
activity.
|
In
certain cases, the inputs used to measure fair value may fall into different
levels of the fair value hierarchy. In such cases, the Company categorizes such
financial asset or liability based on the lowest level input that is significant
to the fair value measurement in its entirety. Our assessment of the
significance of a particular input to the fair value measurement in its entirety
requires judgment and considers factors specific to the asset or
liability.
Both
observable and unobservable inputs may be used to determine the fair value of
positions that are classified within the Level 3 category. As a result, the
unrealized gains and losses for assets within the Level 3 category
presented in the tables below may include changes in fair value that were
attributable to both observable and unobservable inputs.
15
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
The
following are the major categories of liabilities measured at fair value on a
nonrecurring basis during the year ended August 31, 2009, using quoted prices in
active markets for identical liabilities (Level 1); significant other
observable inputs (Level 2); and significant unobservable inputs
(Level 3):
Level
1:
Quoted
Prices in Active Markets for Identical Liabilities
|
Level
2:
Significant
Other Observable Inputs
|
Level
3:
Significant
Unobservable Inputs
|
Total
at September 30, 2009
|
|||||||||||||
Derivative
Liabilities
|
$ | - | $ | - | $ | 5,956,549 | $ | 5,956,549 | ||||||||
Total
|
$ | - | $ | - | $ | 5,956,549 | $ | 5,956,549 |
There
were derivative liabilities of $15,381,809 requiring a Level 3 fair value
classification at September 30, 2008.
Note 5 - Due from
Factor
Due (to)
from factor at September 30, 2009 and March 31, 2009 is as follows:
September
30, 2009
|
March
31, 2009
|
|||||||
Accounts
Receivable
|
$
|
134,674
|
$
|
253,272
|
||||
Less:
Advances
|
(229,405)
|
(156,216
|
)
|
|||||
Less:
Commissions
|
(8,533)
|
(2,829
|
)
|
|||||
Less:
Other Factoring Expenses
|
(11,061)
|
|
(2,121
|
)
|
||||
Due
(To) From Factor
|
$
|
(114,325)
|
$
|
92,106
|
Equipment
at September 30, 2009 and March 31, 2009 consist of the following:
September
30, 2009
|
March
31, 2009
|
|||||||
Furniture
and fixtures
|
$
|
177,018
|
$
|
171,181
|
||||
Computer
equipment
|
71,665
|
71,665
|
||||||
Software
|
83,392
|
83,392
|
||||||
332,075
|
326,238
|
|||||||
Less:
accumulated depreciation
|
(78,129
|
)
|
(40,841
|
)
|
||||
Equipment
– net
|
$
|
253,946
|
$
|
285,397
|
16
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Note 7 - Convertible Debt,
Warrants, Derivative Liabilities and Registration Rights
Liability
(A)
Senior Secured Convertible Debentures and Warrants
During
May and June 2008, the Company issued $5,950,000 of senior secured convertible
debentures with five-year detachable warrants to purchase shares of the
Company’s common stock. The convertible debt issued is secured by all assets of
the Company. The convertible debt accrues interest at 10%, and is payable
quarterly in arrears in cash or equity.
Additionally,
in August 2009, the Company issued $200,000 of senior secured convertible
debentures with 100,000 five year detachable warrants at an exercise price of
$.50 per share to purchase shares of the Company’s common stock. This debenture
is unsecured, accrues interest at 22%, and matures in November
2009. The detachable warrants have the same derivative features as
the other convertible debentures and warrants described below, and accordingly,
are recorded as derivative liabilities.
During
the six month period ended September 30, 2009, $45,000 of the
convertible debentures were converted into 90,000 shares of common stock,
respectively. There were no conversions for the six month period ended September
30, 2008. The remaining face amount of the debentures is $5,345,471 as of
September 30, 2009 and are due in May 2011, with respect to $2,250,000 of
principal amount, and in June 2011, with respect to $2,895,471 of principal
amount, and in December 2009, with respect to $200,000 of principal
amount. As discussed in Note 11, subsequent to September 30, 2009 a
significant amount of the convertible debentures were converted into common
stock.
The
Convertible Debentures contain various covenants which, among other things,
restrict the Company’s ability to incur additional debt or liens or engage in
certain transactions as specified therein. Additionally, the Convertible
Debentures define various events of default including non-payment of interest or
principal when due, failure to comply with covenants, breach of representations
or warranties, failure to obtain effective registration of the common stock
underlying the conversion feature or failure to deliver registered common stock,
when requested, within a specified timeframe as well as other matters discussed
therein. Various remedies exist for an event of default including the
acceleration of the maturity of the obligation, an increase in the interest rate
to 15% (related to the May and June 2008 notes), accrual of certain
costs of the debt holders and a reduction of the conversion rate, among other
things. The Convertible Debentures also provide that in the event of a
“fundamental transaction” such as a change in control, the holder may require
that such holder’s Convertible Note be redeemed at an “alternative
consideration” which can be, among other things, 135% of the principal amount of
the Convertible Note or 130% of the equity conversion value of the Convertible
Note.
The
Convertible Debentures are convertible at the option of the Investors into
shares of the Company’s common stock at the lower of the (a) “fixed conversion
price” of $0.50 per share. As of September 30, 2009, the debentures
can be converted into 10,690,942 shares of common stock based on the $0.50 per
share conversion price, subject to adjustment for stock splits, stock dividends,
or similar transactions, (b) “lowest conversion price” representing the lowest
price, conversion price or exercise price offered by the Company in a subsequent
equity financing, convertible security (subject to certain exceptions) or
derivative instruments or (c) “mandatory default amount” representing the amount
necessary to convert 110% of the face amount of the Convertible Debentures plus
accrued interest and costs at the lower of the price of the common stock on the
date of demand or the date of payment. The Company’s common stock price at the
time of issuance of both the May and June 2008 Convertible Debentures exceeded
the relevant conversion price (the fixed conversion price). As a result, the
Company determined that since the conversion feature can result in a variable
amount of shares being issued, the conversion feature is considered an embedded
derivative liability, not a beneficial conversion feature, that needs to be
separated from the “host contract” as described further below.
17
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
The Company is obliged to
issue registered shares of common stock upon the exercise of all the above
warrants and if it cannot do so within three business days, it is obliged to pay
in cash the market value, plus brokerage commissions, of the common stock.
Because of the “pay in cash” feature and the variability of the exercise price,
the warrants above are considered to be a derivative liabilities as discussed
further below.
(B)
Derivative Liabilities
The
embedded conversion option discussed above in the Convertible Debentures and the
detachable Warrants are deemed “freestanding financial instruments” that cannot
be classified as equity instruments at the commitment date related to their
issuance and instead are classified as “derivative liabilities subject to fair
value accounting.”
Because
the Convertible Debentures were issued with a variable conversion feature and
with detachable Warrants with net cash settlement features described above, the
fair value of these attributes are calculated and assigned before a value is
assigned to the Convertible Debentures. These derivative liabilities
are re-measured every reporting period.
The fair
value of the conversion feature of the Convertible Debentures and the initial
warrants that is assigned to debt discount (originally $5,950,000) is being
amortized over the life of the Convertible Debentures (three
years). During the six months ended September 30, 2009, the Company
recorded a derivative liability of $47,439 related to the fair value of the
detachable warrants issued with the $200,000 convertible debenture.
The debt
discount is amortized to interest expense for any conversions of the debentures
based on the pro-rata amount of debenture converted to total
debt. For the three and six months ended September 30, 2009 and 2008,
the Company amortized $567,029, $1,182,079, $497,000, and $675,000,
respectively, to interest expense related to amortization of the debt
discount. These amounts include accelerated amortization for any
conversions during these periods.
During
the six-month period ended September 30, 2009, the Debt holders converted
$45,000 of Convertible Debentures into 90,000 shares of common stock of the
Company (the “Conversion”). In connection with the Conversion, the Company
recorded the face amount of these Convertible Debentures at the date of
conversion ($45,000) plus the proportionate share of the related derivative
liability, as remeasured on the conversion date, of $33,004 (for a total
recorded of $78,004) to stockholders equity.
18
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Convertible
debt at September 30, 2009 is as follows:
Convertible
debt – net at March 31, 2009
|
$
|
138,592
|
||
Conversion
of debt and accrued interest to common stock
|
(45,000
|
)
|
||
Add:
|
||||
Debt
proceeds
|
200,000
|
|||
Amortization
of debt discount
|
1,182,079
|
|||
Convertible
debt – net at September 30, 2009
|
$
|
1,475,671
|
(C)
Placement Agent Warrants
In
connection with the issuance of the Convertible Debentures and Warrants during
fiscal year 2009, the Company paid a placement agent (the “Placement Agent”) a
cash fee of $595,000 and issued them warrants, that have an exercise price of
$.50 per share, and expire five years from issuance. These warrants have
the same anti-dilution provisions as the warrants issued to the convertible debt
investors. Because the above warrants have the same variable exercise price
feature, and cash settlement provisions as the Investor Warrants described
above, these warrants are also considered derivative liabilities. As such, their
fair value at inception of approximately $1,394,000 was charged to derivative
liability. During fiscal year 2009, the Company recorded the
aggregate of the cash and warrant compensation of approximately $1,989,000 as
debt issue costs. For the three and six months ended September 30, 2009 and
2008, amortization expense related to debt issuance costs was $138,802,
$296,880, $153,000 and $ 204,000, respectively.
(D)
Registration Rights Liability
The
Company also granted the Debt holders registration rights for the common stock
underlying the embedded conversion feature in the Convertible Debentures and the
Warrants. The Company can be assessed liquidated damages, as defined in the
related agreements, for the failure to file a registration statement in a
certain timeframe or for the failure to obtain or maintain effectiveness of such
registration statement. Such penalties shall not exceed, in the aggregate, 15%
of the aggregate Purchase Price (as defined in the Convertible Debentures). In
assessing the likelihood and amount of possible liability for liquidated
damages, the Company considered that obtaining and maintaining effectiveness of
the registration statement is not within the Company’s control, and concluded
that it is probable that a liability will be incurred and therefore recorded a
liability for $892,500 representing its estimate that such liability
will be 15% of the proceeds of the Convertible Debentures as registration rights
liability. The Company’s registration statement was declared effective on
February 10, 2009 and approximately $75,000, plus interest, of liquidated
damages had been incurred as of March 31, 2009 and approximately $225,000, plus
interest, as of February
10, 2009. The Company continues to be exposed to further registration
rights liquidated damages if it does not maintain the effectiveness of such
registration statement. At such time as it becomes clear that such effectiveness
can be maintained, the remaining liability would be reversed.
19
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
(E) Derivative
Liabilities As Remeasured – Summary at September 30, 2009 and March 31,
2009
September 30,
2009
|
March 31,
2009
|
|||||||
Fair
value of embedded conversion feature – convertible debt
|
$
|
832,158
|
$
|
2,738,529
|
||||
Fair
value of warrants – convertible debt
|
1,024,089
|
2,588,093
|
||||||
Fair
value of warrants - placement agent – in convertible debt
offering
|
99,260
|
260,557
|
||||||
Fair
value of warrant issued in connection with reverse
acquisition
|
51,746
|
136,070
|
||||||
Fair
value of warrants issued related to reverse acquisition to
Investors
|
523,510
|
1,366,781
|
||||||
Fair
value of additional warrants issued to investors
|
1,435,338
|
3,668,806
|
||||||
Fair
value of bridge warrants
|
199,645
|
|||||||
Fair
value of warrants issued to factoring agent
|
101,691
|
259,484
|
||||||
Fair
value of conversion feature and warrants - 2009
|
13,585
|
-
|
||||||
Fair
value of additional warrants to investors for anti-dilution
provision
|
1,675,527
|
4,363,489
|
||||||
Total
derivative liabilities
|
$
|
5,956,548
|
$
|
15,381,809
|
For the
three and six months ended September 30, 2009 and 2008, the Company
recorded income related to the total change in fair value due to remeasurement
of derivative liabilities of $8,711,815, $9,961,831, $10,564,000 and
$16,003,000, respectively. There was no derivative expense for any periods
presented, except for $26,310,00 for the six months ended September 30,
2008.
The
Company computed the fair value of the above derivatives as of September 30,
2009 and 2008 by using a Black-Scholes option pricing model calculation assuming
the following assumptions:
Septmeber 30, 2009
|
September 30,2008
|
|||||||
Expected dividends
|
0
|
%
|
0
|
%
|
||||
Expected
volatility
|
173.45
|
%
|
93
|
%
|
||||
Expected
term – embedded conversion option
|
1.62
– 1.69 years
|
3
years
|
||||||
Expected
term – warrants
|
3.62
– 4.88 years
|
5
years
|
||||||
Risk
free interest rate
|
2.54
|
%
|
2.7%
- 3.2
|
%
|
20
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Note
8 - Bridge Notes and Warrants
In
January and February 2008 Perf-Go Green sold an aggregate $750,000 of secured
convertible notes, due in January 2009 (with respect to $350,000) and February
2009 (with respect to $400,000) and bearing interest at 10% per year, together
with warrants to purchase Perf-Go Green’s common stock. The notes were
convertible at $0.48 per share and, together with approximately $11,000 of
accrued interest, were converted into 1,579,466 shares of the Company’s common
stock on March 27, 2008.
The
detachable warrants permit the holders to purchase an aggregate of 1,500,000
shares of common stock of the Company at a price of $0.69 until January 2013
(with respect to 700,000 shares) or February 2013 (with respect to 800,000
shares). The Company concluded that these warrants met the definition of a
freestanding financial instrument that could be classified as equity. The
Company determined the fair value of these warrants based upon a Black Scholes
valuation calculation with the following assumptions: one and one half year
expected life, 150% volatility, 2.11% risk free interest rate and a market price
of $0.48 for the underlying common stock. The market price was determined based
on the ultimate conversion of these notes into common stock at that price
shortly after issuance. The fair value, $669,000 was recorded to deferred
finance costs and then, upon the conversion of the notes in March 2008, written
off.
On April
1, 2009, upon review of EITF 07-5 (ASC 815-40), “Determining Whether an Instrument
(or Embedded Feature) Is Indexed to and Entity’s Own Stock”, the Company
determined that the bridge warrants should have been recorded as derivative
liability. The impact to the Company’s March 31, 2009 financial
statements was immaterial. On April 1, 2009, the Company recorded a
charge to retained earnings for $522,135, and recorded a derivative liability
associated with the value of the bridge warrants. There is no debt discount
recorded since the underlying debt was converted in March 2008. At
September 30, 2009, the Company remeasured the bridge warrants (see Note 6), and
recorded an unrealized gain of $283,570.
The
Company computed the fair value of the bridge warrants at September 30, 2009 and
April 1, 2009 with the following assumptions:
September 30, 2009
|
April 1,2009
|
|||||||
Expected dividends
|
0
|
%
|
0
|
%
|
||||
Expected
volatility
|
173.45
|
%
|
149
|
%
|
||||
Expected
term
|
3.62
years
|
3.87
|
||||||
Risk
free interest rate
|
1.45
|
%
|
1.39
|
%
|
21
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Note
9 - Stockholders’ Deficit
During the six months ended
September 30, 2009, the Company had the following equity
transactions:
(A)
Stock Issued for Future
Services
The
Company issued 300,000 shares of common stock for future consulting services,
having a fair value of $141,000 ($0.47/share). The value of these
services is being amortized over the requisite service period of the agreement,
which is two years. During the three and six months ended September
30, 2009, the Company amortized $17,625 and $23,500, respectively, of these
services.
(B)
Common Stock Payable
The
Company received $800,000 from certain investors. Related to $450,000 of the
$800,000, the Company has not accepted or formalized the related stock
subscriptions, and accordingly has not issued common shares until the terms of
the subscriptions become final. Accordingly, as of September 30, 2009, the
company has recorded a common stock payable of $550,000. During the
six months ended September 30, 2009, the Company issued 1,037,594 shares of
common stock related to the receipt of $350,000 in cash proceeds.
(C)
Stock Issued for Consulting
The
Company issued 493,776 shares of common stock for services rendered, having a
fair value of $192,499 (at share prices ranging from $0.22 to
$0.50).
(D) Stock
Options
In June
2008, the Company adopted the 2008 Share Incentive Plan (the “Plan”) which
permits the granting of stock options and other forms of stock-based
compensation to employees and consultants of the Company. Under the Plan, the
Company has reserved 10,000,000 shares of common stock for issuance under the
Plan.
The fair
value of each option grant is estimated on the date of the grant using the
Black-Scholes option pricing model with weighted average assumptions as
determined in part by management. The expected volatility for the current period
was developed by using historical volatility of the Company’s stock history
since the reverse acquisition. The risk-free interest rate was
developed using the U.S. Treasury yield curve for periods equal to the expected
term of the options grant date.
The total
grant date fair value of options issued to employees, directors, officers and
consultants during the six months ended September 30, 2009 and 2008 was $0.37
and $2.07 per share, respectively. For the three and six months ended
September 30, 2009 and 2008, the Company recognized $38,225, $1,827,752,
$2,534,000 and $9,304,000, respectively, in stock-based compensation for
employees, officer, directors, and consultants. Additionally,
for the six months ended September 30, 2009 and 2008, the Company recognized
$192,499 and $2,209,000, respectively, in compensation expense to consultants
for stock issued for past services.
22
Perf-Go
Green Holdings, Inc. and Subsidiary
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
The
Company valued the stock options as of September 30, 2009 and 2008 based
upon the use of a Black-Scholes option-pricing model using the following
management assumptions:
September 30, 2009
|
||||
Risk-free
interest rate
|
2.02%-
2.54
|
%
|
||
Expected
dividend yield
|
0
|
%
|
||
Expected
volatility
|
142.1%
- 173.5
|
%
|
||
Expected
term
|
5
years
|
|||
Expected
forfeitures
|
0
|
%
|
The
following is a summary of the Company’s stock option activity:
Options
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
– March 31, 2008
|
-
|
-
|
||||||
Exercised
|
-
|
-
|
||||||
Granted
|
7,723,600
|
$
|
1.51
|
|||||
Forfeited
|
-
|
-
|
||||||
Outstanding
– March 31, 2009
|
7,723,600
|
$
|
1.51
|
|||||
Granted
|
450,000
|
$
|
.68
|
|||||
Exercised
|
—
|
$
|
—
|
|||||
Forfeited
|
—
|
$
|
—
|
|||||
Outstanding
– June 30, 2009
|
8,173,600
|
$
|
1.46
|
|||||
Exercisable
– June 30, 2009
|
8,159,143
|
$
|
1.46
|
Range of
Exercise price
|
|
|
Number
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life (in
years)
|
|
Weighted
Average
Exercise Price
|
|
||
$
0.50-$2.00
|
8,173,600
|
4.12
years
|
$
|
1.46
|
23
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Options Exercisable
|
||||||||||
Range
of
Exercise
price
|
Number
Exercisable
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
Weighted
Average
Exercise
Price
|
|||||||
$
0.50 - $2.00
|
8,159,143
|
4.12
years
|
$
|
1.46
|
At
September 30, 2009, the total intrinsic value of options outstanding and
exercisable was $0.
Total
unrecognized share-based compensation expense from stock options at
September 30, 2009 was $6,395, which is expected to be recognized over a
weighted average period of approximately 1.0 years.
The total
grant date fair value of warrants issued to investors and consultants during the
six-month period ended September 30, 2009 was $.37 per
share. For the six-months ended September 30, 2009 and 2008,
the Company recognized $60,810 and $0 in stock-based compensation,
respectively. The warrants granted during 2008 were valued as
derivative liabilities as described in Note 6.
The
Company valued the warrants as of September 30, 2009 utilizing the Black-Scholes
option-pricing model using the following management assumptions:
Risk-free
interest rate
|
1.39%- 2.54
|
%
|
||
Expected
dividend yield
|
0
|
%
|
||
Expected
volatility
|
142%
- 166
|
%
|
||
Expected
term
|
3 -
5 years
|
|||
Expected
forfeitures
|
0
|
%
|
24
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
The
following is a summary of the Company’s warrant activity:
Warrants
|
Weighted
Average
Exercise
Price
|
|||||||
Outstanding
– March 31, 2008
|
1,650,000
|
$
|
.69
|
|||||
Exercised
|
-
|
-
|
||||||
Granted
|
38,688,340
|
$
|
.51
|
|||||
Forfeited
|
-
|
-
|
||||||
Outstanding
– March 31, 2009
|
40,338,340
|
$
|
. 51
|
|||||
Granted
|
250,000
|
$
|
.50
|
|||||
Exercised
|
—
|
$
|
—
|
|||||
Forfeited
|
—
|
$
|
—
|
|||||
Outstanding
– September 30, 2009
|
40,588,340
|
$
|
.51
|
|||||
Exercisable
– September 30 , 2009
|
40,588,340
|
$
|
.51
|
Range
of
exercise
price
|
Number
Outstanding
and
Exercisable
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
Weighted
Average
Exercise
Price
|
|||||||
$
0.50-$.69
|
40,588,340
|
3.62
years
|
$
|
.51
|
At
September 30, 2009 and 2008, the total intrinsic value of warrants outstanding
and exercisable was $0.
25
Notes
to Consolidated Financial Statements
September
30, 2009
(Unaudited)
Note 10 -
Commitments
(A)
Litigations, Claims and Assessments
From time
to time, the Company may become involved in various lawsuits and legal
proceedings, which arise in the ordinary course of business. However, litigation
is subject to inherent uncertainties, and an adverse result in these or other
matters may arise from time to time that may harm its business. The Company is
currently not aware of any such legal proceedings or claims that they believe
will have, individually or in the aggregate, a material adverse affect on its
business, financial condition or operating results.
(B) Employment
Agreements
During
the period ended March 31, 2009, the Company entered into employment agreements
with four officers and four employees. The significant terms of the
agreements are as follows::
(1)
Officers
3 year terms
Aggregate annual base salaries of $575,000
Eligibility of bonus up to 20% of base compensation
Annual salary increase of 20%
(2)
Employees
1 to 2 year terms
Aggregate annual base salaries of $366,000
Eligibility of bonus up to 20% of base compensation
Annual
salary increase of 20%
The
Company has evaluated for subsequent events between the balance sheet date of
September 30, 2009 and December 24, 2009, the date the financial statements
were issued.
In
October 2009, related to convertible debentures as described in Note 6, certain
investors converted $2,065,471 and $144,139 of principal and accrued interest,
respectively, into 22,096,108 shares of restricted common stock at a conversion
price of $.10 per share.
In August
2009, PGOG entered into a short term loan transaction with one of its
Noteholders in the principal amount of $200,000 in the form of an unsecured
convertible debenture to mature and be repaid in 90 days and to accrue an
interest rate of 22% per annum. The loan will be
convertible into 400,000 shares at a conversion price of $.50 per
share. In consideration for the loan, PGOG issued warrants to
purchase 100,000 shares of common stock at exercise price of $.50 per
share.
26
Item
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
Forward
Looking Statements
Some
of the statements contained in this Report on Form 10-Q that are not historical
facts are "forward-looking statements" which can be identified by the use of
terminology such as "estimates," "projects," "plans," "believes," "expects,"
"anticipates," "intends," or the negative or other variations, or by discussions
of strategy that involve risks and uncertainties. We urge you to be
cautious of the forward-looking statements, that such statements, which are
contained in this Report on Form 10-Q, reflect our current beliefs with respect
to future events and involve known and unknown risks, uncertainties, and other
factors affecting our operations, market growth, services, products, and
licenses. No assurances can be given regarding the achievement of
future results, as actual results may differ materially as a result of the risks
we face, and actual events may differ from the assumptions underlying the
statements that have been made regarding anticipated events. Factors
that may cause actual results, our performance or achievements, or industry
results to differ materially from those contemplated by such forward-looking
statements include without limitation:
1. Our
ability to attract and retain management, and to integrate and maintain
technical information and management information systems;
2. Our
ability to generate customer demand for our products;
3. The
intensity of competition; and
4.
General economic conditions.
All
written and oral forward-looking statements made in connection with this Report
on Form 10-Q that are attributable to us or persons acting on our behalf are
expressly qualified in their entirety by these cautionary
statements. Given the uncertainties that surround such statements,
you are cautioned not to place undue reliance on such forward-looking
statements.
Since our
common stock is considered a “penny stock” we are ineligible to rely on the safe
harbor for forward-looking statements provided in Section 27A of the Securities
Act and Section 21E of the Exchange Act.
Overview
Background
and History; Share Exchange
Perf-Go
Green Holdings, Inc., (“Holdings”) formerly known as ESYS Holdings, Inc.
(“ESYS”) and La Solucion, Inc., (collectively known as the “Company”) was
incorporated in Delaware in April 2005. Its business was originally intended to
provide assistance to the non-English speaking Hispanic population in building
and maintaining a life in North Carolina but it did not establish operations in
connection with its business plan.
On May
13, 2008, the Company entered into a Share Exchange Agreement (the “Share
Exchange”) with Perf-Go Green, Inc. (“Perf-Go Green”), a privately-owned
Delaware corporation and its stockholders pursuant to which the Company acquired
all of the outstanding shares of common stock of Perf-Go
Green. Perf-Go Green was originally incorporated as a limited
liability company on November 15, 2007 and converted to a “C” corporation on
January 7, 2008. As consideration for the Share Exchange, the Company
issued an aggregate of 21,079,466 shares of common stock, $0.0001 par value (the
“Common Stock”), for the 20,322,767 Perf-Go Green shares outstanding (a 1.03:1
exchange ratio), to the Perf-Go Green stockholders resulting in a change in
control of the Company with Perf-Go Green stockholders owning approximately 65%
out of a total of 32,279,470, and the former stockholders of the accounting
acquiree owning 11,200,004 shares, of the Company’s outstanding common stock at
the date of the Share Exchange. In addition, the directors and
officers of Perf-Go Green were elected as directors and officers of the
Company. As a result of the Share Exchange, the Company has succeeded
to the business of Perf-Go Green as its sole business.
The
accounting for the Share Exchange, commonly called a reverse acquisition, calls
for Perf-Go Green, to be treated as the accounting acquirer. The
acquired assets and assumed liabilities of the Company were carried forward at
their historical values, which approximated fair value. Perf-Go
Green’s historical financial statements, after the restatement the audited
consolidated financial statements, are carried forward as those of the combined
entity. The common stock and per share amounts have been
retroactively restated the earliest period presented to reflect the Share
Exchange.
Business,
Products and Plans
Our Perf
Go Green Brand represents an environmentally friendly “green” company. Our
mission continues to be the development and global marketing of eco-friendly,
non-toxic, food contact compliant, biodegradable plastic products and other
everyday green products that help ensure healthy environments and vibrant
communities for families, individuals, children and pets.
27
The
Perf Go Green Products include:
·
|
Biodegradable
Trash Bags (retail & commercial)
|
|
·
|
Biodegradable
Plastic Drop Cloths
|
·
|
Biodegradable
Doggie Duty™ Bags & Cat Pan Liners
|
|
·
|
PerfPower™
Alkaline Batteries
|
·
|
Perf
Go Clean™ Cleaning Products
|
After
launch of our Perf Go Green Biodegradable trash bags, availability has expanded
nationwide throughout 25,000 locations in supermarkets, hardware, and drug store
chains. The additional launch of Perf Go Green pet products, biodegradable
doggie duty bags and cat pan liners, is increasing growth into hardware chains
and independent pet stores across the country. In addition,
PerfPower™ Batteries and Perf Go Clean Products™ are now being introduced and
offered to our current retailers.
A
combination of brand building messages are being delivered through several
marketing and advertising vehicles, including television, radio, national print,
online marketing and search engine optimization, and retail store promotions. We
started off our first quarter of 2009 with the Retailers Choice
Award from the National Hardware Show. This award joins the
award we received in 2008 at the Chicago International Housewares Show Design Defined
Honoree .
The
Company’s activities have included capital raising to support its business plan,
recruiting board and management personnel, establishing sources of supply and
customer relationships.
The
Company is considered to be in the development stage as defined in Accounting
Standards Codifcation Topic 915 , “Development Stage Entity,” and is subject to
the risks associated with activities of development stage
companies. While we have raised a significant amount of financing in
connection with the Share Exchange, our operations are unproven and therefore it
is not certain that we will have sufficient cash to continue our activities for
the coming twelve months. We currently do not have any commitments
for new funding.
Recent
Financings
The
Company completed the following financings during the period from November 15,
2007 (inception) to September 30, 2009:
Equity Financing - In December
2007, prior to its merger with Perf-Go Green, Inc., Perf-Go Green Holdings, Inc.
(the accounting acquiree) raised $2,100,000 in proceeds in the private placement
of 4,200,000 common shares and warrants to purchase 4,200,000 shares of the
Company’s common stock. This financing was not conditioned on the
reverse acquisition and was done to enhance the ability of the accounting
acquiree to consummate a reverse merger transaction. In June 2008,
the warrants were reissued to conform to the same terms as the Warrants in the
Convertible Debenture and Warrants financing described below and in Note 6 to
the condensed consolidated financial statements instruments, and are considered
derivative liabilities and are marked-to-market each reporting period. In March
2009, the Company re-priced the above warrants, and issued an additional
4,200,000 warrants at $.50 per share to these investors
. These warrants have the same anti-dilution provision discussed
below, and this issuance relates to the anti-dilution provision. The
warrants have immediate vesting, and the same net cash settlement provisions as
the warrants issued to the convertible debenture
holders.
Bridge Notes and Warrants - In
January and February 2008, Perf-Go Green, Inc. raised an aggregate $750,000
proceeds through the sale of secured convertible notes (“Bridge Notes”) together
with warrants to purchase 1,500,000 shares of the Company’s common stock. The
Bridge Notes, together with approximately $11,000 of accrued interest, were
converted into 1,579,466 shares of the Company’s common stock in March
2008. In March 2009, the Company re-priced the above warrants, and
lowered the exercise price from $.75 per share to $.69, and issued an additional
145,010 detachable warrants. Because of the net cash settlement
features, and variability of the conversion option in the Convertible
Debentures, all of the above Warrants, the conversion option, and the warrants
that were re-issued in May 2008 to the December 2007 equity investors, together
with certain placement agent warrants all as discussed in Note 6 to the
condensed consolidated financial statements, are considered
derivative liabilities and are marked-to-market each reporting
period. The additional warrants that were granted to the equity
investors above was deemed to be a substantial modification of the above
debentures, and resulted in an extinguishment of the
debentures.
Convertible Debentures and Warrants -
In connection with the Share Exchange, on May 13, 2008 and June 10, 2008,
the Company raised an aggregate $5,950,000 proceeds a private placement of its
senior secured convertible debentures in the principal amount of $5,950,000 and
warrants to purchase 7,933,333 shares (“initial warrants”) of the Company’s
common stock. The conversion option associated with the debt has a
variable conversion feature, and the warrants have certain net cash settlement
features, and accordingly, these instruments are recorded as derivative
liabilities as described further in Note 6 to the condensed consolidated
financial statements. The warrants are subject to adjustment for
certain anti-dilution provisions. Additionally, during fiscal year
2009, we re-priced the initial warrants to $.50 per share and issued an
additional 10,800,000 and 7,933,333 warrants to the equity investors on the same
terms as the initial warrants above. The 7,933,333 additional warrants
were issued as a result of the anti-dilution
provision.
In March
2009, for no additional consideration to the Placement Agent, the Company
re-priced the above warrants to $.50 per share and issued an additional
1,213,333 warrants for $.50 per share. These warrants have the same
anti-dilution provisions as the warrants issued to the convertible debt
investors, and accordingly, this issuance relates to that
provision Because the above warrants
have the same variable exercise price feature, and cash settlement provisions,
as the Investor Warrants described above, these warrants are also considered
derivative liabilities. As such, their fair value at inception of approximately
$1,394,000 was charged to derivative liability expense and this amount is
required to be marked-to-market at each reporting
period.
28
In March
2009, we issued 800,000 warrants at $1.00 per share as part of a credit facility
to a lender . These warrants have the same net cash settlement
features as the above warrants, and accordingly, as more fully described in note
6 to the audited consolidated financial statements, were recorded as a
derivative liability.
In August
2009, we issued $200,000 in unsecured convertible debentures to an investor with
100,000 detachable common stock warrants at an exercise price of $.50 per share
with immediate vesting. The conversion option and warrants have the
same derivative features as the above convertible debentures and warrants, and
accordingly, are recorded as derivative liabilities as discussed in [Note 6] to
the condensed consolidated financial statements.
On
November 6, 2009, Perf-Go Green Holdings, Inc. (the “Company”) and its various
Noteholders including, Dr. Sadah and Ms. Dror, Bhansali Equities, Semper
Gestion, E.G.G. Pension, Whalehaven Capital LP (“Whalehaven”), Brio Capital and
Excalibur Special Opportunity Fund LP entered into a debt conversion
agreement (the “Debt Conversion Agreement”). Pursuant to the Debt
Conversion Agreement, all Noteholders agreed to convert the aggregate principal
amount of $2,565,471.25 and accrued interest of $179,695.12 of its indebtedness
into 27,451,664 restricted shares of common stock of the
Company.
Financial
Condition, Liquidity and Capital Resources
As
indicated in the accompanying condensed consolidated financial statements, at
September 30, 2009, the Company had $0 cash and $7,451,745 in negative
working capital and a stockholders’ deficit of $(7,697,379).
For the
six-month period ended September 30, 2009, the Company had a loss from
operations of $(4,161,304) and utilized $957,592 of cash in operating
activities. Further, losses from operations are continuing subsequent to
September 30, 2009 and the Company anticipates that it will continue to generate
significant losses from operations for the near future. These conditions raise
substantial doubt about the Company’s ability to continue as a going
concern.
The
Company believes its current available cash along with anticipated revenues will
be insufficient to meet its cash needs for the near future and its ability to
continue as a going concern is in question. The Company has been
actively negotiating with a number of potential investors to obtain additional
financing to meet its cash flow needs for at least the next several
weeks. At the present time, these additional financings have not been
consummated and there can be no assurance that the Company will be able to
obtain sufficient financing on acceptable terms, if at all. In the
event the Company cannot obtain the needed financing within the next several
weeks, the Company may have to materially curtail or even cease its
operations. The Company is making every effort to remedy this
situation, but there can be no assurance such efforts will be successful, and
the Company is considering all options. In addition to the Company’s
implementation of previous cost cutting measures, the Company is conducting an
internal review of all previous business expenses incurred including travel and
entertainment to confirm these expenditures were an appropriate use of company
resources.
We
currently have no material commitments for capital expenditures.
Results
of Operations
We began
operations on November 15, 2007 and emerged from the development stage during
the three months ended September 30, 2008 as we commenced principal operations
and generated significant revenues. Our activities from November 15, 2007
through the period ended September 30, 2009 have included capital raising
(resulting in the debt and equity-based financing described in Recent Financings
above), development and marketing of our biodegradable plastic products,
development of mass market product distribution networks for the intended
distribution of the products, recruiting personnel, development of an
infrastructure to support the planned business and commencement of
revenues.
Our
results of operations for the three-month periods ended September 30, 2009 and
2008 are as follows:
September
30, 2009
|
September
30, 2008
|
|||||||
Revenues
|
$
|
346,827
|
$
|
425,000
|
||||
Loss
from operations
|
(1,092,
687
|
)
|
(4,058,000
|
)
|
||||
Other
income
|
7,869,494
|
9,775,000
|
||||||
Net
income
|
$
|
6,776,807
|
$
|
5,717,000
|
Revenues
for the three-month period ended September 30, 2009 primarily
reflect shipments to Walgreens and CVS Pharmacy as well as sales to a
variety of smaller customers.
Loss from
operations was driven by general and administrative costs of $1,181,626and
$4,214,000 for the three-month periods ended September 30, 2009 and 2008,
respectively. Included in general and administrative costs for the three-month
period ended September 30, 2009 are non-cash charges for stock compensation
of $68,225, including stock compensation for employees, officers, and
directors of $2,252, and $65,973 to various consultants,
respectively. We may incur significant increases in
stock-based compensation as we issue additional options and stock grants to
employees, directors, officers and consultants. Stock-based
compensation included in general & administrative costs for the three-month
period ended September 30, 2008 was $2,575,000, including stock compensation for
employees, officers, and directors of $2,439,000, and $136,000 for
consultants.
29
Other
general and administrative expenses excluding stock-based compensation consisted
of the following for the three-month periods ended September 30, 2009 and
2008:
September
30, 2009
|
September
30, 2008
|
|||||||
Salary
expense and related
|
$
|
285,979
|
$
|
324,000
|
||||
Investor
relations & marketing
|
136,495
|
709,000
|
||||||
Legal
and professional
|
100,107
|
236,000
|
||||||
All
other general & administrative
|
590,820
|
370,000
|
||||||
$
|
1,113,401*
|
$
|
1,639,000
|
*Excludes
non-cash charges for stock compensation of $68,225.
We expect
that our operating expenses, to the extent we have cash to fund them, will
continue to increase in subsequent quarters as we focus our attention on
expanding our product introduction, marketing, investor and public relations and
investments in our operating infrastructure.
Other
income (expense) includes the following:
September
30, 2009
|
September
30, 2008
|
|||||||
Change
in value of derivative liability
|
8,711,815
|
10,564,000
|
||||||
Amortization
of debt discount
|
(567,029
|
)
|
(497,000)
|
|||||
Amortization
of debt issuance costs
|
(138,802
|
)
|
(153,000)
|
|||||
Interest
expense and amortization
|
(136,490
|
)
|
(162,000
|
)
|
||||
Interest
income
|
-0-
|
23,000
|
||||||
Total
other income
|
$
|
7,869,494
|
$
|
9,775,000
|
Derivatives – As
discussed further in Notes 6 to the consolidated financial statements, the
Company issued Convertible Debentures and Warrants which contain features that
have variability in the conversion or exercise price and, with respect to the
Warrants, contain a settlement in cash feature if sufficient registered shares
cannot be delivered upon exercise of the Warrant. As such, these instruments are
accounted for as derivative liabilities because (a) the ultimate amount of
shares which we could be required to issue is not known and may increase
significantly and (b) we could have to pay cash to the warrant holders for the
market value of the shares underlying the warrants. As Derivative liabilities,
these uncertainties are reflected as obligations of the Company until they are
resolved through conversion, exercise or expiration.
Fair
value accounting requires that these derivative liabilities be marked-to-market
at each reporting period. For the three-month periods ended
September 30, 2009 and 2008, the Company recorded other income of
$8,711,815 and $10,564,000, respectively related to the decrease in the fair
value of the derivatives. The decrease in value is driven primarily
by the decrease in the Company stock prices during these
periods. During the three month period ended September 30, 2009 the
Company’s stock price decreased from $.35 per share at June 30, 2009 to $.15 per
share at September 30, 2009. During the three month period ended
September 30, 2008, the Company’s stock price decreased from $1.75 per share at
June 30, 2008 to $1.10 per share at September 30, 2008. An
additional driver of the liability going forward could be any additional shares
which could become issuable if we trigger certain anti-dilution provisions, for
example if we did a dilutive financing. The derivative expense during the
three-month periods September 30, 2009 and 2008 was $-0-, as the Company did not
issue any derivative instruments that created derivative expense during these
time periods
Registration Rights Agreement
– Under a registration rights agreement, the common stock underlying the
conversion feature of the Convertible Debentures and the Warrants is required to
be registered and maintain such registration. The Company can be assessed
liquidated damages, as defined in the related agreements, for the failure to
file a registration statement in a certain timeframe or for the failure to
obtain or maintain effectiveness of such registration statement. Such penalties
are generally limited to approximately $893,000 in the aggregate. Because
obtaining and maintaining effectiveness of the registration statement is not
within the Company’s control, the Company has concluded to record a liability
for approximately $893,000 representing the liquidated damages that may be
assessed if the Company fails to satisfy its registration obligations. The
Company’s registration statement was declared
effective on February 10, 2009 at which time
an aggregate of approximately $225,000 of liquidated damages, before
interest thereon, had accrued under the agreement. If the Company ultimately
concludes that it can maintain effectiveness of the registration statement, the
remaining liability would be reversed.
Interest expense and amortization of
debt discount – The Company accrues interest on the face amount of
the convertible debentures at 10% per annum, and is payable quarterly in cash or
equity. For the three month periods ended September 30, 2009 and
2008, the Company recognized $136,490 and $162,000, respectively in interest
expense related to the convertible debentures. The debt discount is amortized
into interest expense for any conversions of the debentures based on the
pro-rata amount of debenture converted to total debt. For the three
month periods ended September 30, 2009 and 2008, the Company amortized $567,029
and $497,000 of debt discount into interest expense (this includes any
accelerated amortization for conversions during these periods). The
higher interest expense in the current period reflects additional discount
subsequent to September 30, 2008.
30
Interest income – Consists of
interest earned on bank deposits and deposits in an institutional money market
fund with a broker-dealer.
Our
results of operations for the six month periods ended September 30, 2009 and
2008 are as follows:
September
30, 2009
|
September
30, 2008
|
|||||||
Revenues
|
$
|
890,137
|
$
|
426,000
|
||||
Loss
from operations
|
(4,055,198
|
)
|
(14,873,000
|
)
|
||||
Other
income (expense)
|
8,216,502
|
(12,261,000)
|
||||||
Net
income (Loss)
|
$
|
4,161,304
|
$
|
(27,134,000)
|
Revenues
for the six month period ended September 30, 2009 primarily
reflect shipments to Walgreens and CVS Pharmacy as well as
sales to a variety of smaller customers.
Loss from
operations was driven by general and administrative costs of $4,174,184 and
$15,029,000 for the six month periods ended September 30, 2009 and 2008,
respectively. Included in general and administrative costs for the six month
period ended September 30, 2009 are non-cash charges for stock compensation of
$2,020,251, including stock compensation for employees, officers, and directors
of $1,627,140 and $393,111 to various consultants, respectively. We may incur
significant increases in stock-based compensation as we issue additional options
and stock grants to employees, directors, officers and consultants. Stock-based
compensation included in general & administrative costs for the six month
period ended September 30, 2008 was $11,609,000, including stock compensation
for employees, officers, and directors of $8,716,000, and $2,893,000 for
consultants. The large stock compensation in 2008 relative to 2009 is due to the
significant number of option grants in 2008 to directors that had immediate
vesting rights.
Other
general and administrative expenses excluding stock-based compensation consisted
of the following for the six month periods ended September 30, 2009 and
2008:
September
30, 2009
|
September
30, 2008
|
|||||||
Salary
expense and related
|
$
|
613,067
|
$
|
525,000
|
||||
Investor
relations & marketing
|
180,985
|
1,832,000
|
||||||
Legal
and professional
|
225,263
|
475,000
|
||||||
All
other general & administrative
|
1,134,615
|
588,000
|
||||||
$
|
2,153,930
|
$
|
3,420,000
|
We expect
that our operating expenses, to the extent we have cash to fund them, will
continue to increase in subsequent quarters as we focus our attention on
expanding our product introduction, marketing, investor and public relations and
investments in our operating infrastructure.
Other
income (expense) includes the following:
September
30, 2009
|
September
30, 2008
|
|||||||
Derivative
liability expense at
|
$
|
-0-
|
$(26,310,000)
|
|||||
Change
in value of derivative liability
|
9,961,831
|
16,003,000
|
||||||
Damages
accrued under registration rights agreement
|
-0-
|
(893,000)
|
||||||
Amortization
of debt discount
|
(1,182,079
|
)
|
(675,000)
|
|||||
Amortization
of debt issuance costs
|
(296,880
|
)
|
(204,000)
|
|||||
Interest
expense and amortization
|
(266,370
|
)
|
(216,000
|
)
|
||||
Interest
income
|
-0-
|
34,000
|
||||||
Total
other income (expense)
|
$
|
8,216,502
|
$
|
(12,261,000)
|
Derivatives
As
discussed further in Notes 6 to the condensed consolidated financial statements,
the Company issued Convertible Debentures and Warrants which contain features
that have variability in the conversion or exercise price and, with respect to
the Warrants, contain a settlement in cash feature if sufficient registered
shares cannot be delivered upon exercise of the Warrant. As such, these
instruments are accounted for as derivative liabilities because (a) the ultimate
amount of shares which we could be required to issue is not known and may
increase significantly and (b) we could have to pay cash to the warrant holders
for the market value of the shares underlying the warrants. As Derivative
liabilities, these uncertainties are reflected as obligations of the Company
until they are resolved through conversion, exercise or expiration.
31
Fair
value accounting requires that these derivative liabilities be marked-to-market
at each reporting period. For the six-month periods ended September
30, 2009 and 2008, the Company recorded other income of $9,961,831 and
$16,003,000, respectively related to the decrease in the fair value of the
derivatives. The decrease in value is driven primarily by the
decrease in the Company stock prices during these periods. During the
six month period ended September 30, 2009 the Company’s stock price decreased
from $.38 per share at March 31, 2009 to $.15 per share at September 30,
2009. During the six month period ended September 30, 2008, the
Company’s stock price decreased from $1.81 per share at May 22, 2008 to $1.10
per share at September 30, 2008. An additional driver of the
liability going forward could be any additional shares which could become
issuable if we trigger certain anti-dilution provisions, for example if we did a
dilutive financing. The derivative expense during the six month period ended
September 30, 2009 was $-0-, as the Company did not issue any derivative
instruments during this time period. For the six month period ended
September 30, 2008, the Company issued a significant amount of convertible
debentures and warrants with derivative features that resulted in significant
derivative expense upon the initial valuation of the respective
instruments.
Registration
Rights Agreement
Under a
registration rights agreement, the common stock underlying the conversion
feature of the Convertible Debentures and the Warrants is required to be
registered and maintain such registration. The Company can be assessed
liquidated damages, as defined in the related agreements, for the failure to
file a registration statement in a certain timeframe or for the failure to
obtain or maintain effectiveness of such registration statement. Such penalties
are generally limited to approximately $893,000 in the aggregate. Because
obtaining and maintaining effectiveness of the registration statement is not
within the Company’s control, the Company has concluded to record a liability
for approximately $893,000 representing the liquidated damages that may be
assessed if the Company fails to satisfy its registration obligations. The
Company’s registration statement was declared
effective on February 10, 2009 at which time
an aggregate of approximately $225,000 of liquidated damages, before
interest thereon, had accrued under the agreement. If the Company ultimately
concludes that it can maintain effectiveness of the registration statement, the
remaining liability would be reversed.
Interest
expense and amortization of debt discount
The
Company accrues interest on the face amount of the convertible debentures at 10%
per annum, and is payable quarterly in cash or equity. For the six
month periods ended September 30, 2009 and 2008, the Company recognized $266,370
and $216,000, respectively in interest expense related to the convertible
debentures. The debt discount is amortized into interest expense for any
conversions of the debentures based on the pro-rata amount of debenture
converted to total debt. For the six month periods ended September
30, 2009 and 2008, the Company amortized $1,182,079 and $675,000 of debt
discount into interest expense (this includes any accelerated amortization for
conversions during these periods). The higher interest expense in the
current period reflects additional discount subsequent to September 30,
2008.
Interest
income
Consists
of interest earned on bank deposits and deposits in an institutional money
market fund with a broker-dealer.
Off
Balance Sheet Arrangements
The
Company has no material off balance sheet arrangements that are likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
resources or capital expenditures.
Critical
Accounting Principles
We have
identified critical accounting principles that affect our condensed consolidated
financial statements by considering accounting policies that involve the most
complex or subjective decisions or assessments as well as considering newly
adopted principals. They are:
Use of Estimates, Going Concern
Consideration – The preparation of financial statements in conformity
with generally accepted accounting principles in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. Among the estimates we have made in the
preparation of the financial statements is an estimate of our projected
revenues, expenses and cash flows in making the disclosures about our liquidity
in this report. Many variables may affect our estimates of cash flows
that could materially alter our view of our liquidity and capital requirements
as our business develops. Our unaudited condensed consolidated
financial statements have been prepared assuming we are a “going
concern”. No adjustment has been made in the unaudited condensed
consolidated financial statements which could result should we be unable to
continue as a going concern.
Share-Based Payments – We
follow accounting principles generally accepted in the United States ("U.S.
GAAP") which establishes standards for share-based transactions in which an
entity receives employee’s or consultants services for (a) equity instruments of
the entity, such as stock options or warrants, or (b) liabilities that are based
on the fair value of the entity’s equity instruments or that may be settled by
the issuance of such equity instruments. U.S. GAAP requires that we
expense the fair value of stock options and similar awards, as measured on the
awards’ grant date. This applies to all awards granted after the date
of adoption, and to awards modified, repurchased or cancelled after that
date.
32
We
estimate the value of stock option awards on the date of grant using the
Black-Scholes option-pricing model (the “Black-Scholes model”). The
determination of the fair value of share-based payment awards on the date of
grant is affected by our stock price as well as assumptions regarding a number
of complex and subjective variables. These variables include our
expected stock price volatility over the term of the awards, expected term,
risk-free interest rate, expected dividends and expected forfeiture
rates.
If
factors change and we employ different assumptions in future periods,
the compensation expense that we record may differ significantly from
what we have recorded in the current period. There is a high degree of
subjectivity involved when using option pricing models to estimate share-based
compensation. Consequently, there is a risk that our estimates of the
fair values of our share-based compensation awards on the grant dates may bear
little resemblance to the actual values realized upon the exercise, expiration,
early termination or forfeiture of those share-based payments in the
future. Employee stock options may expire worthless or otherwise
result in zero intrinsic value as compared to the fair values originally
estimated on the grant date and reported in our financial
statements. Alternatively, value may be realized from these
instruments that are significantly in excess of the fair values originally
estimated on the grant date and reported in our financial
statements.
Derivative liabilities – U.S.
GAAP requires
bifurcation of embedded derivative instruments and measurement of their fair
value for accounting purposes. In addition, freestanding derivative instruments
such as certain warrants are also derivative liabilities. We estimate the fair
value of these instruments using the Black-Scholes option pricing model which
takes into account a variety of factors, including historical stock price
volatility, risk-free interest rates, remaining term and the closing price of
our common stock. Changes in the assumptions used to estimate the fair value of
these derivative instruments could result in a material change in the fair value
of the instruments. Although we believe the assumptions used to estimate the
fair values of the warrants are reasonable, we cannot assure the accuracy of the
assumptions or estimates. Derivative liabilities are recorded at fair value at
inception and then are adjusted to reflect fair value as at each period end,
with any increase or decrease in the fair value being recorded in results of
operations as an adjustment to fair value of derivatives.
At
September 30, 2009, we had derivative instruments principally related to our
issuance of Convertible Debentures and Warrants as discussed further in Note 6
to the condensed consolidated financial statements. The Convertible
Debentures and Warrants have features which make their conversion or exercise
price variable and the Warrants contain provisions calling for cash settlement
in certain circumstances. As of September 30, 2009, we have a derivative
liability of $5,956,549. The decrease in the derivative liability
from inception represents the decrease in the market price of our stock during
the periods presented.
Recent
Accounting Pronouncements
In April
2009, the FASB issued Accounting Standards Codification ("ASC") Topic 805,
"Business Combinations". This topic requires that the acquisition
method of accounting be used for all business combinations and for an acquirer
to be identified for each business combination. The topic defines the acquirer
as the entity that obtains control of one or more businesses in the business
combination and establishes the acquisition date as the date that the acquirer
achieves control. The Topic will require an entity to record
separately from the business combination the direct costs, where previously
these costs were included in the total allocated cost of the
acquisition. The Topic will require an entity to recognize the assets
acquired, liabilities assumed, and any non-controlling interest in the acquired
at the acquisition date, at their fair values as of that
date. The
Topic will require an entity to recognize as an asset or liability at fair value
for certain contingencies, either contractual or non-contractual, if certain
criteria are met. Finally, Topic 805 will require an entity to
recognize contingent consideration at the date of acquisition, based on the fair
value at that date. This Statement will be effective for business
combinations completed on or after the first annual reporting period beginning
on or after December 15, 2008. Early adoption of this standard is not
permitted and the standards are to be applied prospectively
only. Upon adoption of this standard, there would be no impact to the
Company’s results of operations and financial condition for acquisitions
previously completed. The adoption of Topic 805 is not expected to
have a material effect on its financial position, results of operations or cash
flows.
In
December 2007, the FASB issued ASC Topic 810, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51”. Topic 810 establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, changes in a
parent’s ownership of a noncontrolling interest, calculation and disclosure of
the consolidated net income attributable to the parent and the noncontrolling
interest, changes in a parent’s ownership interest while the parent retains its
controlling financial interest and fair value measurement of any retained
noncontrolling equity investment. Topic 810 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. Early adoption is prohibited. The
adoption of Topic 810 is not expected to have a material effect on its financial
position, results of operations or cash flows.
In March
2008, the FASB issued ASC Topic 815 “Disclosures about Derivative
Instruments and Hedging Activities—An Amendment of FASB Statement
No. 133.”. Topic 815 establishes the disclosure requirements for
derivative instruments and for hedging activities with the intent to provide
financial statement users with an enhanced understanding of the entity’s use of
derivative instruments, the accounting of derivative instruments and related
hedged items, and the effects of these instruments on the entity’s financial
position, financial performance, and cash flows. This statement is
effective for financial statements issued for fiscal years beginning after
November 15, 2008. The Company does not expect its adoption of Topic 815 to
have a material impact on its financial position, results of operations or cash
flows.
33
In April
2008, the FASB issued ASC Topic 350, “Determination of the Useful Life of
Intangible Assets” . This Topic amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset. The intent of this Topic is to
improve the consistency between the useful life of a recognized intangible
asset and the period of expected cash flows used to measure the fair
value of the asset. This Topic is effective for financial statements issued for
fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. Early adoption is prohibited. The Company does not expect
the adoption of Topic 350, to have a material impact on its financial position,
results of operations or cash flows.
In May
2008, the FASB issued ASC Topic 470 “Accounting for Convertible Debt
instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement)”. ASC Topic 470 requires the issuer of certain convertible
debt instruments that may be settled in cash (or other assets) on conversion to
separately account for the liability (debt) and equity (conversion option)
components of the instrument in a manner that reflects the issuer’s
non-convertible debt borrowing rate. Topic 470 is effective for fiscal years
beginning after December 15, 2008 on a retroactive basis. The Company does not
expect the adoption of this Topic to have a material impact on its financial
position, results of operations or cash flows.
In
October 2008, the FASB issued ASC Topic 820, “ Determining the Fair Value of a
Financial Asset When the Market For That Asset Is Not Active” with an
immediate effective date, including prior periods for which financial statements
have not been issued. Topic 820 clarifies the application of fair value in
inactive markets and allows for the use of management’s internal assumptions
about future cash flows with appropriately risk-adjusted discount rates when
relevant observable market data does not exist. The objectives of Topic
820 has not changed and continues to be the determination of the price that
would be received in an orderly transaction that is not a forced liquidation or
distressed sale at the measurement date. The adoption of Topic 820 is not
expected to have a material effect on the Company’s financial position, results
of operations or cash flows.
In April
2009, the FASB issued ASC Topic 820, “Determining Whether a Market Is Not
Active and a Transaction Is Not Distressed,” which further clarifies the
principles established by previous GAAP. The guidance is effective for the
periods ending after June 15, 2009 with early adoption permitted for the periods
ending after March 15, 2009. The adoption of Topic 820 is not expected to have a
material effect on the Company’s financial position, results of operatio
ns, or
cash flows.
In May
2009, the FASB issued ASC Topic 855 “Subsequent Events”. Topic 855 establishes
general standards of accounting for and disclosure of events that occur after
the balance sheet date but before financial statements are issued or are
available to be issued. The Topic sets forth (1) The period after the balance
sheet date during which management of a reporting entity should evaluate events
or transactions that may occur for potential recognition or disclosure in the
financial statements, (2) The circumstances under which an entity should
recognize events or transactions occurring after the balance sheet date in its
financial statements and (3) The disclosures that an entity should make about
events or transactions that occurred after the balance sheet date. Topic 855 is
effective for interim or annual financial periods ending after June 15, 2009.
The Company is evaluating the impact the adoption of Topic 855 will have on its
financial statements.
In June
2009, the FASB issued ASC Topic 860 “Accounting for Transfers of Financial
Assets—an amendment of FASB Statement No. 140”. Topic 860 improves
the relevance, representational faithfulness, and comparability of the
information that a reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its financial
position, financial performance, and cash flows; and a transferor’s continuing
involvement, if any, in transferred financial assets. Topic 860 is effective as
of the beginning of each reporting entity’s first annual reporting period that
begins after November 15, 2009, for interim periods within that first annual
reporting period and for interim and annual reporting periods thereafter. The
Company is evaluating the impact the adoption of Topic 860 will have on its
financial statements.
In June
2009, the FASB issued ASC Topic 810 “Amendments to FASB Interpretation No.
46(R)”. Topic 810 improves financial reporting by
enterprises involved with variable interest entities and to address (1) the
effects on certain provisions of FASB Interpretation No. 46 (revised December
2003), “Consolidation of Variable Interest Entities”, as a result of the
elimination of the qualifying special-purpose entity concept in SFAS 166 and (2)
constituent concerns about the application of certain key provisions of
Interpretation 46(R), including those in which the accounting and disclosures
under the Interpretation do not always provide timely and useful information
about an enterprise’s involvement in a variable interest entity. Topic 810 is
effective as of the beginning of each reporting entity’s first annual reporting
period that begins after November 15, 2009, for interim periods within that
first annual reporting period, and for interim and annual reporting periods
thereafter. The Company is evaluating the impact the adoption of Topic 810 will
have on its financial statements.
In
June 2009, the FASB issued ASC Topic 105 “The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles—a
replacement of FASB Statement No. 162”. The FASB Accounting Standards
Codification (“Codification”) will be the single source of authoritative
nongovernmental U.S. generally accepted accounting principles. Rules and
interpretive releases of the SEC under authority of federal securities laws are
also sources of authoritative GAAP for SEC registrants. Topic 105 is effective
for interim and annual periods ending after September 15, 2009. All existing
accounting standards are superseded as described in Topic 105. All other
accounting literature not included in the Codification is non-authoritative. The
Codification is not expected to have a significant impact on the Company’s
financial statements.
34
Other
accounting standards have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date and
are not expected to have a material impact on the financial statements upon
adoption.
Item
3. Quantitative and Qualitative Disclosures About Market Risk
We do not
hold any derivative instruments and do not engage in any hedging
activities.
Item
4. Controls and Procedures.
(a) Evaluation of Disclosure Controls
and Procedures. The Company’s senior management is responsible for
establishing and maintaining a system of disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934 (the “Exchange Act”) that is designed to ensure that the information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed by an
issuer in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the issuer’s management, including its principal
executive officer or officers and principal financial officer or officers, or
persons performing similar functions, as appropriate to allow timely decisions
regarding required disclosure.
The
Company has evaluated the effectiveness of the design and operation of its
disclosure controls and procedures under the supervision of and with the
participation of management, including the Chief Executive Officer and our
Acting Chief Financial Officer as of the end of the period covered by this
report. Based on that evaluation, our Chief Executive Officer and Acting Chief
Financial Officer have concluded that our disclosure controls and procedures are
not fully effective. We have identified certain material weaknesses
in the Company’s ability to timely and accurately generate the needed
information to fully comply with its reporting requirements. We have
recently begun reporting as a public company and are in the process of obtaining
the assistance needed to generate financial statements and reports to be filed
with the Securities and Exchange Commission which fully comply as to required
contents and which can be provided on a timely basis. In addition,
the recent departure of our Chief Financial Officer has hampered this
effort.
(b) Changes in Internal Control Over
Financial Reporting. Our management is responsible for establishing and
maintaining effective internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange Act (“ICFR”). Our ICFR
should be designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with U.S. generally accepted accounting principles. The
failure to maintain effective ICFR could result in a deficiency or deficiencies
in internal controls such that there is a reasonable possibility that a material
misstatement of our annual or interim financial statements would not be
prevented or detected on a timely basis.
The
Company’s predecessor, Perf-Go Green Holdings, Inc., was previously a shell
company with the objective to acquire an operating business. As such, it only
had to maintain internal and disclosure controls on a very limited number of
activities. On May 13, 2008, Perf-Go Green Holdings, Inc. acquired Perf-Go
Green, Inc., a privately held, development-stage company, in a transaction
accounted for as a reverse acquisition (the “Share Exchange”). Upon the
consummation of the Share Exchange, Perf-Go Green Holdings, Inc.’s former
internal controls and management were entirely supplanted by those of Perf-Go
Green, Inc.
Our
current management acknowledges that they are responsible for establishing and
maintaining effective internal control over financial reporting for the Company.
Because of the abbreviated period of approximately twelve months during
which the Company, operating as Perf-Go Green, Inc., was a reporting company
during the period ended Septemeber 30, 2009, management had not
completed an assessment of the Company’s internal control over financial
reporting under a recognized control framework. That assessment
process is ongoing and will be completed during the fiscal year ending March 31,
2010. Accordingly, the Company will include management’s required and formal
report on its assessment of the effectiveness of the Company’s internal control
over financial reporting in its annual report for that period.
Management
has identified the following material weaknesses in the Company’s ICFR set forth
below during the period covered by this report. Management has taken and
continues to take steps required, in its opinion, to correct these
deficiencies.
35
Financial
Statements for Perf-Go Green, Inc.
The
financial statements of Perf-Go Green, Inc., a private company that we acquired
in a reverse acquisition in May 2008, included in our Form 8-K filing on May 16,
2008 have been restated for an accounting error. Such restatement arose due to
the failure to record the fair value of warrants issued with convertible
debentures as required by generally accepted accounting principles. As we
migrate our internal controls as described below, in July 2008 we retained a
financial reporting consultant to assist us with our financial and SEC reporting
and in June and July we added director with financial expertise to our Board of
Directors. We also formed an audit committee of the board of
directors. It is through the addition of these resources and processes that the
error was discovered and, as such, we consider this particular weakness to be
subsequently remediated by the addition of those resources and
processes.
Financial
Statement Close Process
There are
insufficient written policies and procedures for accounting and financial
reporting with respect to the requirements and applications of US GAAP and SEC
disclosure requirements.
There is
a lack of formal process and timeline for closing the books and records at the
end of each reporting period.
There is
insufficient expertise with US generally accepted accounting principles, SEC
rules and regulations, for review of critical accounting areas and disclosures
and material non-standard transactions.
The
Company currently has an insufficient level of monitoring and oversight controls
for review and recording of stock issuances, agreements and contracts, including
insufficient documentation and review of the selection and application of
generally accepted accounting principles to significant non-routine
transactions.
These
weaknesses restrict the Company’s ability to timely gather, analyze and report
information relative to the financial statements.
Entity
Level Controls
The
Company currently has insufficient resources (including a dedicated Chief
Financial Officer) and an insufficient level of monitoring and oversight, which
may restrict the Company’s ability to gather, analyze and report information
relative to the financial statements in a timely manner, including insufficient
documentation and review of the selection and application of generally accepted
accounting principles to significant non-routine transactions. Due to
insufficient resources, the Company does not have the capacity nor does it take
action to monitor the functioning of its system of internal control, which is a
material weakness.
Functional
Controls and Segregation of Duties
We have
ineffective controls relating to the recording of revenue.
Because
of our limited resources, there are limited controls over information
processing, and insufficient internal controls over the accuracy, completeness
and authorization of transactions.
There is
an inadequate segregation of duties consistent with control
objectives. Our management is composed of a small number of
individuals resulting in a situation where limitations on segregation of duties
exist a situation, which is common in new companies. In order to
remedy this situation, we would need to hire additional staff to provide greater
segregation of duties, which the Company is presently
evaluating. Management will continue to reassess this matter in the
following year to determine whether improvement in segregation of duties is
feasible.
Management
believes that the material weaknesses as set forth above were the result of the
scale of our operations and are intrinsic to our small
size. Management believes these weaknesses did not have a material
effect on our financial results.
Remedial
Action
We are
committed to improving our financial organization. As part of this commitment,
we will hire a qualified chief financial officer to oversee our accounting and
financial reporting functions and increase our personnel resources and technical
accounting expertise within the accounting function when funds are available to
us. Management believes that the hiring of additional personnel who have the
technical expertise and knowledge will result in proper segregation of duties
and provide more checks and balances within the department. These personnel will
provide the depth of knowledge and time commitment to provide a greater level of
review for corporate activities. Until we have a qualified full-time Chief
Financial Officer, we have retained the services of qualified consultants to
assist the Company in the preparation of its financial statements and the
satisfaction of its SEC regulatory requirements.
We will
continue to monitor and evaluate the effectiveness of our internal controls and
procedures and our internal controls over financial reporting on an ongoing
basis and are committed to taking further action and implementing additional
enhancements or improvements, as necessary and as funds allow. We intend to take
appropriate and reasonable steps to make the necessary improvements to remediate
these deficiencies and others which we may identify during the fiscal year ended
March 31, 2010.
This
annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report
herein.
(c) Changes in Internal Controls
Over Financial Reporting. There were no significant changes in our
internal controls over financial reporting that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting for period ended September 30, 2009.
36
PART
II - OTHER INFORMATION
ITEM
1. LEGAL PROCEEDINGS.
We are
currently not involved in any litigation that we believe could have a material
adverse effect on our financial condition or results of operations. There is no
action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, self-regulatory organization or body pending
or, to the knowledge of the executive officers of our company or any of our
subsidiaries, threatened against or affecting our company, our common stock, any
of our subsidiaries or of our companies or our subsidiaries’ officers or
directors in their capacities as such, in which an adverse decision could have a
material adverse effect.
Item
1A. Risk Factors
We
believe there are no changes that constitute material changes from the risk
factors previously disclosed in our Annual Report of Form 10-K for the year
ended March 31, 2009, filed with the SEC on July 14, 2009 and our Form 8-K filed
on May 13, 2008 and Form S-1/A filed on February 9, 2009.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
On August
26, 2009, we entered into a short term loan transaction (the “Offering”) with
Whalehaven Capital Fund Limited (“Whalehaven”) in the principal amount of
$200,000 in the form of an unsecured convertible debenture (the “Debenture”).
The Debenture shall: (i) mature and be repaid in 90 days, (ii) accrue interest
at a rate of 22% per annum and (iii) shall be initially convertible into 400,000
shares of common stock of the Company at an initial conversion price of $.50 per
share, at the election of the holder of the Debenture. In connection with this
loan transaction we issued Whalehaven warrants to purchase 100,000 shares of our
common stock at an exercise price of $.50 per share. The warrant is exercisable
for a period of five years (the “Warrant”).
In
effecting the Offering, we relied on the exemption from registration provided by
Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 promulgated
thereunder. We did not engage in any public advertising or general solicitation
in connection with this transaction. We provided Whalehaven with disclosure of
the material aspects of its business. Whalehaven represented to the Company that
it was an “accredited investor” as defined under Regulation D under the
Securities Act of 1933, as amended.
Item
3. Defaults Upon Senior Securities
There
were no defaults upon senior securities during the period ended September 30,
2009.
Item
4. Submission of Matters to a Vote of Security Holders.
There
were no matters submitted for a vote of our security holders during the period
ended September 30, 2009.
Item
5. Other Information.
There is
no other information required to be disclosed under this item which was not
previously disclosed.
Item
6. Exhibits
31.1
|
Certification
of Principal Executive Officer pursuant to Exchange Act Rule 13a – 14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
31.2
|
Certification
of Principal Financial Officer pursuant to Exchange Act Rule 13a – 14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
|
32.1
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
32.2
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
37
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PERF-GO
GREEN HOLDINGS, INC.
|
||
(Registrant)
|
||
Date: December
24, 2009
|
By:
|
/s/ Anthony
Tracy
|
Anthony
Tracy, Chairman of the Board and
|
||
Chief
Executive Officer (Principal Executive Officer)
|
||
By:
|
/s/
Michael Caridi
|
|
Michael
Caridi, Chief Operating Officer and
|
||
Interim
Chief Financial Officer
|
||
(Principal
Financial and Accounting Officer)
|
38