Attached files
file | filename |
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EX-31.2 - 302 CERTIFICATION OF CFO - GREEN PLANET GROUP, INC. | p0755a1_ex31-2.htm |
EX-31.1 - 302 CERTIFICATION OF CEO - GREEN PLANET GROUP, INC. | p0755a1_ex31-1.htm |
EX-32.1 - 906 CERTIFICATION OF CEO - GREEN PLANET GROUP, INC. | p0755a1_ex32-1.htm |
EX-21.1 - LIST OF SUBSIDIARIES - GREEN PLANET GROUP, INC. | p0755a1_ex21-1.htm |
EX-32.2 - 906 CERTIFICATION OF CFO - GREEN PLANET GROUP, INC. | p0755a1_ex32-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K/A
Amendment
No. 1 to Form 10-K
þ |
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the fiscal year ended March 31,
2009
|
OR
|
|
o |
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For
the transition period from _______________ to
_______________
|
Commission
File No. 333-136583
GREEN
PLANET GROUP, INC.
(Name of
the small business issuer as specified in its charter)
Nevada
|
41-2145716
|
(State
or other jurisdiction of
incorporation
or organization)
|
(I.R.S.
Employer
Identification
Number)
|
|
|
7430
E. Butherus, Suite D, Scottsdale, AZ
|
85260
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s telephone
number, including area code: (480)
222-6222
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to section 12(g) of the Act: Common Stock, $0.001 par value
Indicate
by check mark if the registrant is a well-known seasoned issuer (as defined in
Rule 405 of the Act). Yes
o No þ
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
o No þ
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes þ No o
Indicate
by check mark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K þ
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 the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act:
Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company þ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No þ
The
aggregate market value of Common Stock, $.001 par value, held by non-affiliates
of the registrant based on the closing sales price of the Common Stock on the
OCT:BB on July 10, 2009, was $11,502,629.
The
number of shares of common stock outstanding as of July 10, 2009 was
123,300,764.
Documents
incorporated by reference: None.
2
EXPLANATORY
NOTE:
This
Amendment on Form 10-K/A amends our annual report on Form 10-K for the year
ended March 31, 2009 filed with the Securities and Exchange Commission on July
17, 2009, and earlier periods as included in this filing. It is in response to
comment letters received from the Securities and Exchange Commission dated
January 22, 2009. June 15, 2009 and October 15, 2009 requesting clarifications
and expansion of certain portions of the original Form 10-K as listed
below:
-
Restated consolidated balance sheets, consolidated statements of operations, consolidated statements of stockholders’ equity/(deficit) and consolidated statements of cash flows on Pages F-3 through F-7;
-
Note 17 explaining the restatements for all periods from September 30, 2006 through March 31, 2009;
-
Changes to Note 7 regarding the balances and maturities of certain debt instruments;
-
Changes to Notes 9, 10 and 11 as a result of the change in derivative values from the restatement;
-
Changes to the management discussion and analysis sections on results of operations and financial liquidity and capital resources based on the above changes;
-
Certain renumbering of prior notes, grammatical and presentation errors noted during the Company’s general review;
-
Reevaluated and updated report on the effectiveness of internal controls; and
-
Updated Exhibits 31.1, 31.2, 32.1 and 32.2.
This
filing has been updated for the items listed above and does not include
subsequent events or the results of operations subsequent to March 31, 2009
except as noted above. Readers are encouraged to read subsequent filings on
forms 10-Q and 8-K for periods subsequent to March 31, 2009 for current
information.
3
TABLE
OF CONTENTS
Page
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|||
Part
I
|
6
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||
Item
1
|
Description
of Business
|
6
|
|
Item 1A | Risk Factors |
14
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|
Item 1B | Unresolved Staff Comments |
23
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Item
2
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Description
of Property
|
23
|
|
Item
3
|
Legal
Proceedings
|
23
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|
Item
4
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Submission
of Matters to a Vote of Security Holders
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23
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Part
II
|
23
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||
Item
5
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Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
23
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|
Item
6
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Selected
Financial Data
|
25
|
|
Item
7
|
Management’s Discussion
and Analysis of Financial Condition and Results of
Operations
|
26
|
|
Item
7A
|
Quantitative
and Qualitative Disclosure About Market Risk
|
34
|
|
Item 8 | Financial Statements and Supplementary Data |
34
|
|
Item
9
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
34
|
|
Item
9A(T)
|
Controls
and Procedures
|
35
|
|
Item 9B | Other Information |
37
|
|
Part
III
|
37
|
||
Item
10
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Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act
|
37
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|
Item
11
|
Executive
Compensation
|
39
|
|
Item
12
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
41
|
|
Item
13
|
Certain
Relationships and Related Transactions, and Director
Independence
|
43
|
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Item
14
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Principal
Accountant Fees and Services
|
43
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|
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Part
IV
|
44
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Item
15
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Exhibits
|
44
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|
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|||
Signatures
|
45
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||
Exhibit Index |
46
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||
Financial Statements |
F-1
|
EXHIBIT
21.1 List of Subsidiaries
|
EXHIBIT
31.1 Officer’s
Certificate Pursuant to Section 302
|
EXHIBIT
31.2 Officer’s
Certificate Pursuant to Section 302
|
EXHIBIT
32.1 Certificate Pursuant to 18 U.S.C. Section
1350
|
EXHIBIT
32.2 Certificate Pursuant to 18 U.S.C. Section
1350
|
4
STATEMENT
REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical
information, this Annual Report on Form 10-K (“Annual Report”) for Green Planet
Group, Inc. (“Green Planet,” “GPG,” the “Company,” “we,” “our” or “us”) contains
“forward-looking” statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), including statements
regarding the growth of product lines, optimism regarding the business,
expanding sales and other statements. Words such as expects, anticipates,
intends, plans, believes, sees, estimates and variations of such words and
similar expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve certain
risks and uncertainties that are difficult to predict. Actual results could vary
materially from the description contained herein due to many factors including
continued market acceptance of our products. In addition, actual results could
vary materially based on changes or slower growth in the fuel additive products
market; the potential inability to realize expected benefits from new products
and products under development; domestic and international business and economic
conditions; changes in the petroleum industry; unexpected difficulties in
penetrating the commercial and industrial markets for our products; changes in
customer demand or ordering patterns; changes in the competitive environment
including pricing pressures or technological changes; technological advances;
shortages of manufactured raw material and manufacturing capacity; future
production variables impacting excess inventory and other risk factors listed in
the section of this Annual Report entitled “Risk Factors” and from time to time
in our Securities and Exchange Commission filings under “risk factors” and
elsewhere.
Each
forward-looking statement should be read in context with, and with an
understanding of, the various disclosures concerning our business made elsewhere
in this Annual Report, as well as other public reports filed by us with the
United States Securities and Exchange Commission. Readers should not place undue
reliance on any forward-looking statement as a prediction of actual results of
developments. Except as required by applicable law or regulation, we undertake
no obligation to update or revise any forward-looking statement contained in
this Annual Report.
DESCRIPTION
OF BUSINESS
|
Introduction
We are
engaged in the research, development, manufacturing and distribution of a
variety of products that improve overall energy efficiency with a specific
concentration on petroleum based energy sources. We currently have four wholly
owned operating subsidiaries, EMTA Corp, XenTx Lubricants, Inc. (formerly Dyson
Properties, Inc.), White Sands, LLC. and Lumea, Inc.
EMTA Corp
has developed a new type of lubricant (metal conditioner) that interacts with
metal surfaces. It hardens and smoothes the metals’ surface which results in
reduced friction and therefore improves efficiency. We market this unique
product under the brand name XenTx Extreme Engine Treatment, to both
commercial/industrial users and to the general public. Today XenTx is available
at a variety of retail stores, as well as many smaller auto-parts chains
throughout the U.S. The product is also available in Canada and, more recently,
in Mexico. In addition to our core products, we utilize the same technology in
three new products that are in the initial stages of distribution, including an
all purpose spray lubricant (XenTx Extreme Lubricating Spray), friction reducing
automatic transmission fluid (XenTx Extreme Transmission Treatment), and a
gasoline system cleaner (XenTx Extreme Fuel System Treatment).
XenTx
Lubricants, Inc. (“XenTx Lube”) manufactures and sells automotive, industrial
and racing performance oils and lubricants under the name Synergyn Racing or
Synergyn Performance. The Synergyn products have been manufactured and
distributed for the past 20 years and are sold throughout the U.S.
White
Sands’ core products are primarily designed to aid in the combustion of diesel
fuel. It has developed two distinct diesel fuel additives, Clean Boost improves
combustion efficiency and reduces pollution and particulate emissions
significantly. In addition, Clean Boost Low-Emissions (“Clean Boost LE”) insures
that diesel fuel users will be able to meet or exceed the new, more stringent
emissions rules. This product was first certified by the EPA and the Texas
Commission on Environmental Quality (“TCEQ”) on March 26, 2007. In
June 2008, the Company received an unconditional approval for the Clean Boost LE
product from the TCEQ.
Lumea,
Inc. was formed for the purpose of implementing a roll-up strategy in the light
industrial (green) staffing space. This type of staffing company provides
unskilled and semi-skilled laborers to large industrial and commercial
corporations that have significant fluctuations in manpower needs. The strategy
of acquiring well established light industrial staffing companies provides
access to major industrial/commercial customers that are targets for the
Company’s energy efficiency and emission reducing technologies.
Corporate
History
We were
incorporated under the laws of Louisiana on June 5, 1978 under the name Forum
Mortgage Corp. We were reincorporated under the laws of the State of Nevada in
July 2004 under the name Omni Alliance Group, Inc.
On March
31, 2006 we acquired EMTA Corp., Inc. (“EMTA”) in consideration for the issuance
to EMTA’s shareholders of 30,828,989 shares of our common stock. At that time we
also implemented a 233 for one reverse stock split and changed our name to EMTA
Holdings, Inc. The acquisition of EMTA was accounted for as a reverse merger. As
a result, the financial statements of EMTA Corp. became our financial
statements. On May 20, 2009, the Company merged with a wholly owned
Nevada subsidiary and changed its name to Green Planet Group, Inc.
6
EMTA
Corp. was incorporated in March 2002 under the laws of the State of Nevada under
the name Wiltex A, Inc. On October 1, 2004, Wiltex acquired the assets of Alaco
Corporation in exchange for approximately 94% of the common stock of Wiltex. On
that same date, it changed its name to EMTA Corp. Inc.
The
Company acquired White Sands, L.L.C. (“White Sands”) for 897,487 shares of
Holdings common stock as of March 31, 2006, at which time White Sands became a
wholly-owned subsidiary of Green Planet Group, Inc.
Effective
January 1, 2007, the Company took control of XenTx Lubricants, Inc. (formerly
Dyson Properties, Inc.) for an aggregate purchase price of $2,100,000 which
includes cash, stock and warrants. An initial payment of $100,000 was made on
January 9, 2007 and a second cash payment of $150,000 was made on July 5, 2007
with the balance of $254,240 due in October, 2009. On March 26, 2007, the
Company issued the seller 1,400,000 shares of common stock and cashless warrants
to acquire 1,400,000 shares of common stock at an exercise price of $0.75 per
share. In addition, the Company agreed to pay a royalty on all products sold
that contain the Synergyn formulations.
Lumea,
Inc and its three subsidiaries: Lumea Staffing, Inc., Lumea Staffing of
California and Lumea Staffing of Illinois, Inc. were incorporated
on February 26, 2009 under the laws of the State of Nevada. Lumea was
formed to acquire selected assets and liabilities from Easy Staffing Solutions,
Inc. The effective date of the asset purchase was March 1, 2009. The Company
acquired these assets for 21.7 million shares of GPG common stock valued at
$1,084,983, of which 6.7 million shares were issued to consultants, and notes
for $8,750,000. In addition, it agreed to assume $2,505,694 of Accounts Payable
debt and issued 2,500,000 stock options valued at $124,075 exercisable over 8
years.
Our
Products
XenTx
Extreme Engine Treatment
Through
our wholly-owned subsidiary, EMTA Corp., we market XenTx Extreme Engine
Treatment, a 100% synthetic metal conditioner that provides benefits to
automobile engines in that it prevents the build up of engine metal particles in
the walls of the engine. As an additive to standard engine oils, it attracts the
loose particles of ferrous metals present in most oils and directs those
particles to broken molecular chains that exist on the surface of the friction
environment, in this case the engine walls. The product penetrates the carbon
build up on the cylinder walls and attaches to the surface of the metal carrying
wear metals molecules with it. The product continuously fills the pits, cracks,
and slight imperfections present in all engine cylinders. In this way, it
creates a dense protective surface that is highly resistant to scuffing and
galling.
The
process has both a cleaning effect on the engine and a smoothing effect on the
engine cylinder surface. This results in less friction, lower operating
temperatures and less power loss due to frictions and heat. With less rotations
per minute producing the same power, less fuel is consumed leading to greater
fuel efficiency as well as a reduction in exhaust emissions.
Clean
Boost
Through
our wholly-owned subsidiary, White Sands, we market Clean Boost™, a fuel oil
additive that improves fuel and combustion efficiency by liberating more of the
fuel’s chemical energy, in the flame zone of boilers, or during the power stroke
of diesel engines. Soot formation is prevented and less fuel is wasted in the
form of particulate emissions. Greenhouse gas and acid rain gases, soot (black
smoke), carbon build-up and fouling, slagging and cold-end corrosion are all
reduced, while engine and boiler performance improves. Turbochargers and exhaust
gas boilers remain cleaner and require less maintenance and water
washing.
7
Clean
Boost™ reduces fuel consumption by 2 to 5% across a wide range of fossil fuels,
from coal and heavy residual fuel oils to intermediate fuel oil blends, refined
diesel fuels. It also lessens the emission of harmful gasses.
Clean
Boost™ is effective in industrial boilers and diesel engines of all sizes and is
used in marine shipping, power generation, mining, construction, ground
transportation and wherever high fuel prices or compliance with emissions or
opacity regulations is a concern.
Clean
Boost when mixed with diesel fuel, reduces the exhaust gases from combustion to
meet the most stringent requirements of both Texas and California. Clean Boost
LE™ was tested at a renowned test facility with both the TCEQ and EPA as
observers. The test results were submitted to Texas and then to the EPA which
subsequently certified that Clean Boost LE™ met the goals of reducing diesel
fuel emissions. The EPA Certification #201920002CB-LE and the TCEQ products
#TXLED-A-00009 was issued in March of 2007. In June 2008, the Company
received an unconditional approval for the Clean Boost LE product from the
TCEQ.
These
products are used in the automotive, oil and gas, shipping and mining sectors.
We believe that both Clean Boost™ products help in the following ways in diesel
applications in the automotive and other industries to:
●
|
Lower
fuel consumption (i.e., better fuel efficiency)
|
|
●
|
Reduce
exhaust emissions
|
|
●
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Lower
maintenance requirements
|
|
●
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Reduce
soot (carbon particles) in lubricating oil
|
|
●
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Carbon
deposits in the combustion chamber are reduced
|
|
●
|
Provide
easier starting in cold weather
|
Synergyn
Through
our wholly-owned subsidiary, XenTx Lubricants, Inc. (formerly Dyson Properties),
which was acquired effective January 1, 2007, we continue the sales and
distribution of a 64 item product line known as Synergyn Racing, Synergyn
Performance and Synergyn Lubricants. This product line was introduced over 20
years ago and has been improved as lubrication requirements have changed. With
its focus on performance products, Synergyn sells many of its products to
NASCAR, NHRA and similar racing organization participants.
XenTx
Lube also manufactures private label products for a number of customers on a
long-term contractual basis. Although some customers have unique formulas which
XenTx Lube manufactures to their specifications, most customers utilize
Synergyn’s formulas and package and rebrand these products for their customers’
use.
Lumea,
Inc.
Through
our wholly owned subsidiary Lumea Staffing, Inc., that was formed for purposes
of implementing a roll-up strategy in the industrial (green) staffing space.
Lumea currently has 26 offices in 10 states and manages approximately 4,000
temporary employees. The company currently has three subsidiaries: Lumea
Staffing, Inc., Lumea Staffing of California, Inc., and Lumea Staffing of
Illinois, Inc. The services available through Lumea Staffing
include:
8
●
|
Full
service staffing with volume discounted rates
|
|
●
|
Drug
testing though our drug division, DOT Certified, Hair testing, DNA
testing, Complete chain custody compliance, Certified results, multiple
panel configurations available
|
|
●
|
Human
Resources services
|
|
●
|
Full
range of Risk Management services that include Site Safety Evaluations,
Early Intervention Programs, Safety Training, OSHA Compliance, Workers
Compensation Premium Review, Case Management, Claims Review, Preferred
Provider Networks, Back to Work Programs and Accident
Investigation
|
|
●
|
A
full set of financial services products that improve recruiting and
employee retentions
|
|
●
|
Flu
shots and CPR training for our Illinois
clients
|
Other
Products
We have
commenced shipping small quantities of XenTx spray lubricant, which is used as a
general multi-purpose lubricant, and a transmission fluid that is a variation of
the XenTx Extreme Engine Treatment and is primarily used for automatic
transmissions. We may from time to time introduce additional
products.
Sales
and Marketing
Our
objective is to market, sell and distribute our products in the most efficient,
cost effective manner possible with our distribution channel strategy providing
the widest range of customer coverage possible. We believe sales to automotive
retailers through independent sales representatives affords us the best overall
chance to gain and hold customers and allows us to control and maximize the
product value chain benefits for us and the end-user.
We sell
our products through retailers, auto parts suppliers, internet sales at our web
sites: www.xentx.com, www.synergynracing.com and direct
sales through sales representatives to commercial customers. We sell our retail
and commercial product through our sales force of three and through independent
sales representatives. Each sales representative tends to service one to a few
retail outlets with which they have long term, strong relationships. Our
compensation arrangement with these representatives is commission
only.
Our
products are currently sold in retail outlets in the United States and Canada.
During the year ended March 31, 2009, no retailers accounted for more than 10%
of our sales volume. These outlets include a variety of small independent
retailers.
During
the last three years, we have devoted substantial efforts to developing our
sales force and retail distribution channels not only as an avenue to our
original product, XenTx Extreme Engine Treatment, but for other products some of
which are just now beginning to enter the marketplace.
We
participate with retailers in advertising campaigns, marketing promotions and
other direct and indirect marketing techniques to promote and sell the products.
We expense the cost of these advertising efforts as incurred.
9
We also
market our products directly to companies. These efforts include the sharing of
laboratory and field trial test data, sponsorship of individual customer field
trials, technical and non-technical communication through industry trade media
with messages emphasizing fuel performance enhancement through technical
innovation, fuel efficiency, maintenance cost savings, improved air quality and
“no harm” to engine or environment product attributes.
We sell
our complete line of staffing services utilizing our in-house national sales
team. Each potential customer’s needs are thoroughly evaluated and our sales
person creates a customized proposal. The Company’s senior management must sign
and approve each proposal prior to it being submitted to the potential customer.
We have been successful in that the majority of our customers establish long
term relationships with us. Customers that have seasonal needs return year after
year for us to fulfill their labor needs. In addition, our staffing company
currently provides services to approximately 191 commercial/industrial customers
and these are the same customers that we target to sell our high technology,
fuel efficiency, emission reducing products. As a result we have completed our
initial sales cross training and now have a total of 14 sales people on our
national sales team.
Intellectual
Property
The
formula and composition of XenTx is proprietary to us and is safeguarded from
disclosure through secrecy agreements with various parties. At least one of the
components of the formula is covered by a patent that is owned by Dover Chemical
Corporation (“Dover”). In addition, we have filed provisional patents on both
diesel fuel additives as the first step in patenting both formulas.
We have
obtained trademark registration of our marks XenTx and Clean Boost. Generally,
these trademarks do not expire if we continue to use the trademarks and file the
required periodic forms with the United States Patent and Trademark Office. With
the acquisition of XenTx Lube we acquired both the trademark for Synergyn and
all of the related formulas. None of the Synergyn formulas are
patented.
Production
and Manufacturing
With the
acquisition of XenTx Lube we acquired our own manufacturing facilities. With
this acquisition, the Company now has the ability to manufacture, package and
distribute its products. The plant consists of approximately 54,000 sq. ft. of
office, manufacturing and product storage located on approximately 5.03 acres in
Durant, Oklahoma. The majority of the manufacturing process is blending various
raw materials into a finished product based upon a specific formula and a
customer purchase order.
Our XenTx
Extreme Engine Treatment product is produced by Dover. We do not have a written
agreement with Dover that requires us to place minimum orders or guarantees the
delivery of certain quantities of product by Dover to us. If for any reason we
lost the relationship with Dover, a disruption of the supply of our products
could result until a substitute manufacturer was found. We have entered into a
Secrecy Agreement with Dover pursuant to which that entity is required to
safeguard the proprietary nature of the XenTx formula.
The
Company now manufactures and packages its own products, therefore we assume
substantially all of the risks associated with environmental, hazardous
materials, and transportation of the products from our plant through delivery to
the retailers.
We carry
a product liability insurance policy for the losses customers might suffer as a
result of proper use of our products. To date there have been no claims against
this policy.
10
Research
and Development
We
continuously research new products and possible applications of our existing
product and have a R&D consultant who devotes substantially all his time
working on our projects.
Testing
We
utilize two primary methods of testing: laboratory bench tests and field trials.
We utilize both testing methods to further develop the body of test data
necessary to support marketing and sales efforts. As we have matured, we have
become aware of the importance of developing and managing specific testing
protocols for field-based testing and adhering to already developed, industry
recognized testing standards when engaged in laboratory bench tests. Numerous
variables exist in any testing protocol, and if not carefully managed, one
change in one variable could skew the test results. To address this challenge, a
standardized testing and trial evaluation protocol has been developed. The use
of this protocol allows us to:
●
|
understand
the size of the opportunity;
|
|
●
|
help
prioritize available resources;
|
|
●
|
ensure
approved testing is structured and conducted in a controlled
way; and
|
|
●
|
ensure
we will have full access to all testing results conducted by third
parties.
|
In
addition to extensive field-based customer trials completed or under way, we
have funded extensive laboratory bench testing at a well-known independent
testing laboratory, Southwest Research Institute in San Antonio, Texas.
Test results have confirmed the effectiveness of Clean Boost. In particular,
Clean Boost achieved an average percent reduction in fuel consumption of
approximately 3%. It also showed improved combustion efficiency, reduced ash
formation and the virtual elimination of unburned carbon in the exhaust system
and bottom ash.
The test
was conducted using two identical tractors that hauled 48-foot flat beds with
concrete ballast. Fuel consumption for each vehicle was measured during a
baseline segment with commercially available #2 diesel fuel. Each of the test
trucks vehicles accumulated 1,500 miles for conditioning prior to conducting of
the test segment. Next, Clean Boost was added to the diesel fuel of the
vehicles. This procedure resulted in measurable percentage differences in fuel
consumption for each truck using fuel with the Clean Boost additive versus fuel
without the additive as follows:
%
Improvement in Fuel Economy
|
||||||||
Diesel
Fuel
|
Test
Truck A
|
Test
Truck B
|
Average
of two trucks
|
|||||
Test
Segment
|
Commercially
available #2 diesel with Clean Boost
|
3.63%
|
2.49%
|
3.06%
|
11
A second
test was done by Southwest Research Institute regarding our low emission diesel
fuel additive, Clean Boost-LE ™, with both Texas and EPA observers. The test
required approximately 15 days of running on a certified diesel engine in a
calibrated test cell. The results were then documented and presented to the
Texas Low Emission Diesel Board which after review, submitted them to the EPA
for their analysis. On March 26, 2007, the EPA certified that our product, Clean
Boost LE ™, met the stringent emissions reduction requirements and the Company
received its certification, #201920002CB-LE. In May 2008, the TCEQ reevaluated
and implemented new standards and determined that our CB-LE meet all of the
requirements without restrictions or retesting and issued its unconditional
approval.
Fuel
Efficient/Emission Reducing Technologies
Our
business is a part of the wider industry that seeks to improve overall energy
efficiency with a specific concentration on petroleum based energy sources. The
industry is composed of a few relatively large companies and a large number of
smaller, niche segment participants.
Industry
participants’ products center around improved engine cleanliness and efficiency
(for example, detergency characteristics applicable to fuel injector nozzles),
improved fuel flow (for example, mitigation of fuel problems caused by low
ambient temperature) and fuel system protection (for example, improved
lubricity). These are common focus areas for the full range of gasoline and
distillate fuels. Additives designed to address specific problem areas in
specific fuel applications (for example, Cetane improver in diesel fuel) and
static electricity dissipation in turbine engines are also
significant.
There are
many existing technologies that claim to have solved engine emissions problems
from alternative fueled vehicles (electric cars, fuel cell vehicles, etc.) to
engine magnets. Despite the vast amount of research that has been performed with
the intention of solving emissions problems, we believe no single technology has
yet to gain widespread acceptance from both the public (regulatory) and private
sectors. The United States government and the governments of other countries
have tried using economic incentives and tax breaks to promote the development
of a variety of emissions reduction technologies. However, the base cost of many
of these promotions, coupled with issues such as lack of appropriate
infrastructure (for example, compressed natural gas storage and delivery
systems) and technical limitations (for example, keeping alternative fuels
emulsified, significant loss of power and fuel economy with current alternative
fuels), currently makes market acceptance of many technologies and economic
feasibility unlikely over the long term.
Our
direct competitors include major oil and chemical companies, many of which have
financial, technical and marketing resources significantly greater than ours. It
is possible that developments by others will render our products obsolete or
noncompetitive, that we will be not able to keep pace with new developments and
that our products will not be able to supplant established
products.
Some of
our main competitors include the following:
Z-Max: a
division of Speedway Motorsports, Inc. Z-Max is a widely recognized brand
product has a retail shelf price of between $29.99 and $39.99. Speedway is a
financially strong entity that markets Z-Max in a distinct package. In addition,
Z-Max has significant signage at racetracks owned by Speedway.
DuraLube: although
the company is currently in bankruptcy, there has been talk that an investor
group may revive the company and its products. DuraLube is a recognized brand
that holds shelf placement in major stores, including Wal-Mart.
12
Slick
50: is currently a Shell Lubricant Company product. The
brand is owned by Shell Oil, a well capitalized company that has the ability to
underwrite major advertising campaigns. Slick 50 is the leader in our product
market that has significant shelf placement with all major retailers except
Target.
As energy
costs increase, and businesses are looking for ways to make energy products more
efficient, competition within this sector itself is growing, so we will
encounter competition from existing firms that offer competitive solutions in
this area. These competitive companies could develop products that are superior
to, or have greater market acceptance, than the products being developed and
marketed by our company. We will have to compete against other companies with
greater market recognition and greater financial, marketing and other
resources.
Staffing
The light
industrial staffing market is highly competitive with limited barriers to entry.
We compete with several multi-national full-service companies, specialized
temporary staffing companies, as well as local companies. The majority of
temporary staffing companies serving the light industrial staffing market have
local operations with fewer than five branches. In most geographic areas, no
single company has a dominant share of the market. One or more of these
competitors may decide at any time to enter or expand their existing activities
in the temporary staffing market and provide new and increased competition to
us. While entry to the market has limited barriers, lack of working capital
frequently limits the growth of smaller competitors.
We
believe that the primary competitive factors in obtaining and retaining
customers are:
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The
customer bill rates for temporary workers;
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The
temporary employee pay rates;
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Attracting
and retaining quality temporary workers;
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Deploying
temporary employees on time and for the required duration; and
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The
number and location of branches convenient to temporary employees and
customer work sites.
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Competitive
forces have historically limited our ability to raise our prices to immediately
and fully offset increased costs of doing business, including increased labor
costs, costs for workers’ compensation and state unemployment insurance. As a
result of these forces, we have in the past faced pressure on our operating
margins.
Government
Regulations and Supervision
Government
regulations across the globe regarding fuels are continually changing. Most
regulation focuses on reducing fuel emissions. However, there is also growing
concern about dependence on oil-based fuels. Fuels regulation exists at various
levels of development and enforcement around the globe. In general, regulations
to reduce harmful emissions and to reduce dependence on oil for fuel needs will
only become more stringent. We believe this will be an advantage to us as our
products’ benefits reduce fuel consumption and can peacefully co-exist with
alternative fuel blends. As fuels regulatory compliance becomes more burdensome
to fuel suppliers and users, we anticipate that demand for the benefits our
products deliver will increase.
13
Since we
now manufacture, store, and ship all of our products, we are required to be in
compliance regarding all applicable environmental rules and regulations that
regulate these types of activities. In addition, only our Clean Boost product
requires governmental license as this substance is used in interstate trucking.
In order for Clean Boost to be used in the United States, registration with the
Environmental Protection Agency, or EPA, is required. In Fiscal Year 2007, we
received EPA registration for one of our products and a EPA certification for
the other product both of which are used in base fuels and fuel blends. We are
also subject to similar international laws and regulations in the countries in
which we operate, such as Canada and Mexico.
Employees
Our staff
works for us on a consultant basis. Currently we have 5 such consultants, two of
which are executives, one of which works in sales and two of which work in
various administrative functions. At XenTx Lubricants there are 11 employees
located in Durant, Oklahoma, which are divided into 2 management personnel, 3
administrators and 6 production personnel. These employees are paid on a weekly
basis. The Lumea, Inc. group of companies involved in the industrial staffing
business has approximately 85 direct and 2,600 temporary staff employees that
work for the Company. None of our employees are represented by any labor
union.
RISK
FACTORS
|
We are
subject to a number of risks that could have a significant impact on the
Company, its shareholders and lenders. Some of these are detailed
below.
Change
in Marketing and Sales Approach
We may
experience a reduction in sales and marketing activity in our fuel efficiency
emissions reducing technologies due to the Company’s significant change in the
performance of these functions. In the year ended 2008, the Company has reduced
its in house sales staff and is transitioning to an outside sales representative
and an independent distributor strategy. We continue to try to implement the
representative and distributor program and have been constrained by the lack of
marketing funds. There can be no assurance that this strategy will not damage
customer relationships as well as have a negative impact on
revenues.
The loss of or a substantial
reduction in, or change in the size or timing of, orders from distributors could
harm our business.
The
Company’s sales strategy is to establish long term contracts with independent
sales representatives and fuel and lubrications distributors. Our goal is to
convince the sales rep/distributor to invest a substantial amount of their
resources into selling the Company’s products to both current and future
customers. Although we believe we have established good relationships with these
sales organizations, there can be no assurances that this sales strategy will be
successful and that we can maintain a long term relationship with these
companies.
14
We
do not have long term commitments from our suppliers and
manufacturers.
We may
experience shortages of supplies and inventory because we do not have long-term
agreements with our suppliers or manufacturers. The success of our Company is
dependent on our ability to provide our customers with our products. Although we
manufacture most of our products, we are dependent on our suppliers for
component parts which are necessary for our manufacturing operations. In
addition, certain of our present and future products and product components are
(or will be) manufactured by third party manufacturers. Since we have no
long-term contracts or other contractual assurances with these manufacturers for
continued supply, pricing or access to component parts, no assurance can be
given that such manufacturers will continue to supply us with adequate
quantities of products at acceptable levels of quality and price. While we
believe that we have good relationships with our suppliers and our
manufacturers, if we are unable to extend or secure manufacturing services or to
obtain component parts or finished products from one or more manufacturers on a
timely basis and on acceptable terms, our results of operations could be
adversely affected.
We
face intense competition, and many of our competitors have substantially greater
resources than we do.
We
operate in a highly competitive environment. In addition, the competition in the
market for fuel and engine enhancement additive products may intensify in the
future as demands for greater efficiencies in vehicle mileage and pollutant
reductions are demanded and legislated. There are numerous well-established
companies and smaller entrepreneurial companies based in the United States with
significant resources who are developing and marketing products and services
that will compete with our products. In addition, many of our current and
potential competitors have greater financial, operational and marketing
resources. These resources may make it difficult for us to compete with them in
the development and marketing of our products, which could harm our
business.
Our
success will depend on our ability to update our technology to remain
competitive.
The
engine and fuel additive industry is subject to technological change. As
technological changes occur in the marketplace, we may have to modify our
products in order to become or remain competitive. While we are continuing our
research and development in new products in efforts to strengthen our
competitive advantage, no assurances can be given that we will successfully
implement technological improvements to our products on a timely basis, or at
all. If we fail to anticipate or respond in a cost-effective and timely manner
to government requirements, market trends or customer demands, or if there are
any significant delays in product development or introduction, our revenues and
profit margins may decline which could adversely affect our cash flows,
liquidity and operating results.
We
depend on market acceptance and recognition of the products of our customers. If
our products do not gain market acceptance, our ability to compete will be
adversely affected.
The fuel
additive and engine additive industry is noted for manufacturing products that
are ineffective and have no economic value. Although the Company has developed
unique products that have been tested by independent testing and research
facilities to verify the Company’s claims, there can be no assurance that these
tests and related marketing materials will gain acceptance in the marketplace.
If we cannot convince new customers to purchase our products, our revenues will
be negatively affected.
15
Failure to meet customers’
expectations or deliver expected performance of our products could result in
losses and negative publicity, which will harm our business.
If our
products fail to perform in the manner expected by our customers, then our
revenues may be delayed or lost due to adverse customer reaction, negative
publicity about us and our products, which could adversely affect our ability to
attract or retain customers. Furthermore, disappointed customers may initiate
claims for substantial damages against us, regardless of our responsibility for
such failure.
We
may have difficulty managing our growth.
We have
been experiencing significant growth in the scope of our operations and the
number of our employees. This growth has placed significant demands on our
management as well as our financial and operational resources. In order to
achieve our business objectives, we anticipate that we will need to continue to
grow. If this growth occurs, it will continue to place additional significant
demands on our management and our financial and operational resources, and will
require that we continue to develop and improve our operational, financial and
other internal controls. Further, to date our business has been primarily in the
United State, Canada and Mexico and were we to launch sales and distribution in
other countries outside North America, we would further increase the challenges
involved in implementing appropriate operational and financial systems,
expanding manufacturing capacity and scaling up production, expanding our sales
and marketing infrastructure and capabilities and providing adequate training
and supervision to maintain high quality standards. The main challenge
associated with our growth has been, and we believe will continue to be, product
recognition, and effective marketing and advertising campaigns. Our inability to
scale our business appropriately or otherwise adapt to growth would cause our
business, financial condition and results of operations to suffer.
If we are unable to protect our
intellectual property rights or our intellectual property rights are inadequate,
our competitive position could be harmed or we could be required to incur
expenses to enforce our rights.
Our
future success will depend, in part, on our ability to obtain and maintain
patent protection for our products and technology, to preserve our trade secrets
and to operate without infringing the intellectual property of others. In part,
we rely on patents to establish and maintain proprietary rights in our
technology and products. While we hold licenses to a number of issued patents
and have other patent applications pending on our products and technology, we
cannot assure you that any additional patents will be issued, that the scope of
any patent protection will be effective in helping us address our competition or
that any of our patents will be held valid if subsequently challenged. Other
companies also may independently develop similar products, duplicate our
products or design products that circumvent our patents.
In
addition, if our intellectual property rights are inadequate, we may be exposed
to third-party infringement claims against us. Although we have not been a party
to any infringement claims and are currently not aware of any anticipated
infringement claim, we cannot predict whether third parties will assert claims
of infringement against us, or whether any future claims will prevent us from
operating our business as planned. If we are forced to defend against
third-party infringement claims, whether they are with or without merit or are
determined in our favor, we could face expensive and time-consuming litigation.
If an infringement claim is determined against us, we may be required to pay
monetary damages or ongoing royalties. In addition, if a third party
successfully asserts an infringement claim against us and we are unable to
develop suitable non-infringing alternatives or license the infringed or similar
intellectual property on reasonable terms on a timely basis, then our business
could suffer.
16
If
we are required to further write down goodwill or identifiable intangible
assets, the related charge could materially impact our reported net income or
loss for the period in which it occurs.
We have
recorded goodwill and intangibles in conjunction with the acquisition of the
staffing business. We will perform annual reviews of each of these
items for impairment. We did not record any such charges in 2009, the year of
acquisition. However, we continue to have approximately $8.9 million in goodwill
on our balance sheet at March 31, 2009, as well as $3.7 million in identifiable
intangible assets. As part of the analysis of goodwill impairment, SFAS No.
142, “Goodwill and Other Intangible Assets” (SFAS 142) requires the
Company’s
management to estimate the fair value of the reporting units on at least an
annual basis. At December 31,
2008, we performed our annual goodwill and indefinite lived intangible
assets impairment test and concluded that there was no further impairment of
goodwill and intangible assets. In addition, at March 31, 2009, we determined
that there were no events or changes in circumstances that indicated that the
carrying values of other identifiable intangible assets subject to amortization
may not be recoverable. We believe that our goodwill was not impaired at March
31, 2009. Although a future impairment of goodwill and identifiable intangible
assets would not affect our cash flow, it would negatively impact our operating
results.
If we are unable to meet customer
demand or comply with quality regulations, our sales will
suffer.
We own
our own manufacturing, production and bottling plant in Durant Oklahoma. We
manufacture and blend many of our products at this facility. In order to achieve
our business objectives, we will need to significantly expand our capabilities
to produce the quantities necessary to meet demand. We may encounter
difficulties in scaling-up production of our products, including problems
involving production capacity and yields, quality control and assurance,
component supply and shortages of qualified personnel. In addition, our
manufacturing facilities are subject to periodic inspections by governmental
regulatory agencies. Our success will depend in part upon our ability to
manufacture our products in compliance with regulatory requirements. Our
business will suffer if we do not succeed in manufacturing our products on a
timely basis and with acceptable manufacturing costs while at the same time
maintaining good quality control and complying with applicable regulatory
requirements.
Substantially
all of our assets are secured under credit facilities with a group of lenders
and in the event of default under the credit facility we may lose all of our
assets.
The
Company has entered into four separate financing arrangements whereby these
lenders have collateralized their loans with substantially all of our assets.
One of these loans is currently in default and both the lender and the Company
are currently negotiating new terms and a resolution. Subsequent to the
end of the year the lender and the Company have negotiated a modified payment
schedule to bring this loan current. The Company’s manufaucturing operations are
pledged as collateral for this loan. If the Company were to have a future
default and lose the property by foreclosure it would be forced to move its
operations and to find additional third party manufacturing, if possible, that
would agree to produce our products at our current prices. Our business would
suffer and our ability to raise any additional funds would be negatively
impacted, both of which would impact our ability to continue in
business.
17
We
may not be able to secure additional financing to meet our future capital
needs.
We
anticipate needing significant capital to manufacture product, carry adequate
inventory levels and continue or further develop our existing products and
introduce new products, increase awareness of our brand names and expand our
operating and management infrastructure as we grow sales. We may use capital
more rapidly than currently anticipated. Additionally, we may incur higher
operating expenses and generate lower revenue than currently expected, and we
may be required to depend on external financing to satisfy our operating and
capital needs. We may be unable to secure additional debt or equity financing on
terms acceptable to us, or at all, at the time when we need such funding. If we
do raise funds by issuing additional equity or convertible debt securities, the
ownership percentages of existing stockholders would be reduced, and the
securities that we issue may have rights, preferences or privileges senior to
those of the holders of our common stock or may be issued at a discount to the
market price of our common stock which would result in dilution to our existing
stockholders. If we raise additional funds by issuing debt, we may be subject to
debt covenants, such as the debt covenants under our secured credit facility,
which could place limitations on our operations including our ability to declare
and pay dividends. Our inability to raise additional funds on a timely basis
would make it difficult for us to achieve our business objectives and would have
a negative impact on our business, financial condition and results of
operations.
If
we cannot build and maintain strong brand loyalty our business may
suffer.
We
believe that the importance of brand recognition will increase as more companies
produce competing products. Development and awareness of our brands will depend
largely on our ability to advertise and market successfully. If we are
unsuccessful, our brands may not be able to gain widespread acceptance among
consumers. Our failure to develop our brands sufficiently would have a material
adverse effect on our business, results of operations and financial
condition.
Economic
conditions may cause reduced demand for staffing services.
The
current recession has negatively affected our customers and our business, and
could continue to negatively affect our customers and materially adversely
affect our results of operations and liquidity.
The
current recession is having a significant negative impact on businesses around
the world. The full impact of this recession on our customers, especially our
customers engaged in construction, cannot be predicted and may be quite severe.
These and other economic factors, such as consumer demand, unemployment,
inflation levels and the availability of credit could have a material adverse
effect on demand for our services and on our financial condition and operating
results. We sell our services to a large number of small and mid-sized
businesses and these businesses have been and are more likely to be impacted by
unfavorable general economic and market conditions than larger and better
capitalized companies. If our customers cannot access credit to support
increased demand for their product or if demand for their products declines,
they will have less need for our services.
18
Competition
for customers in the staffing markets we serve is intense, and if we are not
able to effectively compete, our financial results could be harmed and the price
of our securities could decline.
The
temporary services industry is highly competitive, with limited barriers to
entry. Several very large and mid-sized full-service and specialized temporary
labor companies, as well as small local operations, compete with us in the
staffing industry. Competition in the markets we serve is intense and these
competitive forces limit our ability to raise prices to our customers. For
example, competitive forces have historically limited our ability to raise our
prices to immediately and fully offset increased costs of doing business,
including increased labor costs, costs for workers’ compensation and state
unemployment insurance. As a result of these forces, we have in the past faced
pressure on our operating margins. Pressure on our margins remains intense, and
we cannot assure you that it will not continue. If we are not able to
effectively compete in the staffing markets we serve, our operating margins and
other financial results will be harmed and the price of our securities could
decline.
If
we are not able to obtain or maintain insurance on commercially reasonable
terms, our financial condition or results of operations could
suffer.
We
maintain various types of insurance coverage to help offset the costs associated
with certain risks to which we are exposed. We have previously experienced, and
could again experience, changes in the insurance markets that result in
significantly increased insurance costs and higher deductibles. For example, we
are required to pay workers’ compensation benefits for our temporary and
permanent employees. While we have secured coverage with AIG Holdings, Inc. for
occurrences during the period from March 2009 to March 2010, our insurance
policies must be renewed annually, and we cannot guarantee that we will be able
to successfully renew such policies for any period after March 2010. In the
event we are not able to obtain workers’ compensation insurance, or any of our
other insurance coverages, on commercially reasonable terms, our ability to
operate our business would be significantly impacted and our financial condition
and results of operations could suffer. If our financial results deteriorate,
our insurance carrier may accelerate our premium payments or require all
premiums to be paid in one initial payment. Such a change in our insurance
payment terms could impact our available cash, and our financial condition or
operations could suffer.
Our
reserves for workers’ compensation claims, other liabilities, and our allowance
for doubtful accounts may be inadequate, and we may incur additional charges if
the actual amounts exceed the estimated amounts.
We incur
and process workers’ compensation claims for those claims for small or routine
injuries and our risk management and medical staff process these claims. For
more complex or extensive injuries the claims are immediately turned over to the
insurance carrier. We will evaluate losses and coverage regularly
throughout the year and make adjustments accordingly. If actual
losses under our workers’ compensation policy exceed anticipated losses the
Company may be subject to increased premiums or cancelation of the
policy. We have established an allowance for doubtful accounts for
estimated losses resulting from the inability of our customers to make required
payments. Although we continually review the financial strength and
credit worthiness of our customers and make necessary adjustments when
indicated, if the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, we may incur
additional losses.
19
Our
operations expose us to the risk of litigation which could lead to significant
potential liability and costs that could harm our business, financial condition
or results of operations.
We are in
the business of employing people and placing them in the workplaces of other
businesses. As a result, we are subject to a large number of federal and state
laws and regulations relating to employment. This creates a risk of potential
claims that we have violated laws related to discrimination and harassment,
health and safety, wage and hour laws, criminal activity, personal injury and
other claims. We are also subject to other types of claims in the ordinary
course of our business. Some or all of these claims may give rise to litigation,
which could be time-consuming for our management team, costly and harmful to our
business.
We
are continually subject to the risk of new regulation, which could harm our
business.
Each year
a number of bills are introduced to Federal, State, and local governments, any
one of which, if enacted, could impose conditions which could harm our business.
This proposed legislation has included provisions such as a requirement that
temporary employees receive equal pay and benefits as permanent employees,
requirements regarding employee health care, and a requirement that our
customers provide workers’ compensation insurance for our temporary employees.
We actively oppose proposed legislation adverse to our business and inform
policy makers of the social and economic benefits of our business. However, we
cannot guarantee that any of this legislation will not be enacted, in which
event demand for our service may suffer.
The
cost of compliance with government laws and regulations is significant and could
harm our operating results.
We incur
significant costs to comply with complex federal, state, and local laws and
regulations relating to employment, including occupational safety and health
provisions, wage and hour requirements (including minimum wages), workers’
compensation unemployment insurance, and immigration. In addition, from time to
time we are subject to audit by various state and governmental authorities to
determine our compliance with a variety of these laws and regulations. We may,
from time to time, incur fines and other losses or negative publicity with
respect to any such allegations. If we incur additional costs to comply with
these laws and regulations or as a result of fines or other losses and we are
not able to increase the rates we charge our customers to fully cover any such
increase, our margins and operating results may be harmed.
Our
credit facility requires that we meet certain levels of financial performance.
In the event we fail either to meet these requirements or have them waived, we
may be subject to penalties and we could be forced to seek additional
financing.
We have a
revolving credit agreement with certain unaffiliated financial institutions (the
“Credit Facility”) that expires in March 2010. The Credit Facility requires that
we comply with certain financial covenants. Among other things, these covenants
require us to maintain certain leverage and coverage ratios. Deterioration of
our financial results would make it harder for us to comply with these financial
covenants. We cannot be assured that our lenders would consent to any
modifications on commercially reasonable terms in the future. In the event that
we do not comply with the covenants and the lenders do not waive such
non-compliance, then we will be in default of the Credit Facility, which could
subject us to penalty rates of interest and accelerate the maturity of the
outstanding balances. Accordingly, in the event of a default under the Credit
Facility, we could be required to seek additional sources of capital to satisfy
our liquidity needs. These additional sources of financing may not be available
on commercially reasonable terms, or at all.
20
We
have significant working capital requirements.
We
require significant working capital in order to operate our business. We may
experience periods of negative cash flow from operations and investment
activities, especially during seasonal peaks in revenue experienced in the
second and third quarter of the year. We invest significant cash into the
opening and operations of new branches until they begin to generate revenue
sufficient to cover their operating costs. We also pay our temporary employees
before customers pay us for the services provided. As a result, we must maintain
cash reserves to pay our temporary employees prior to receiving payment from our
customers. Our collateral requirements may increase in future periods, which
would decrease amounts available for working capital purposes. If our available
cash balances and borrowing base under our existing credit facility do not grow
commensurate with the growth in our working capital requirements, or if our
banking partners experience cash shortages or are unwilling to provide us with
necessary cash, we could be required to explore alternative sources of financing
to satisfy our liquidity needs.
Our
management information and computer processing systems are critical to the
operations of our business and any failure, interruption in service, or security
failure could harm our ability to effectively operate our business.
The
efficient operation of our business is dependent on our management information
systems. We rely heavily on our management information systems to manage our
order entry, order fulfillment, pricing, and point-of-sale processes. The
failure of our management information systems to perform as we anticipate could
disrupt our business and could result in decreased revenue, increased overhead
costs and could require that we commit significant additional capital and
management resources to resolve the issue, causing our business and results of
operations to suffer materially. Failure to protect the integrity and security
of our customers’ and employees’ information could expose us to litigation and
materially damage our standing with our customers.
Our
business would suffer if we could not attract enough temporary employees or
skilled trade workers.
We
compete with other temporary personnel companies to meet our customer needs and
we must continually attract reliable temporary employees to fill positions. In
certain geographic areas of the United States the predecessor has experienced
short-term worker shortages and we may continue to experience such shortages in
the future. If we are unable to find temporary employees or skilled trade
workers to fulfill the needs of our customers over an extended period of time,
we could lose customers and our business could suffer.
21
Failure
in our pursuit or execution of new business ventures, strategic alliances and
acquisitions could have a material adverse impact on our business.
Our
long-term growth strategy includes expansion via new business ventures and
acquisitions. While we employ several different valuation methodologies to
assess a potential growth opportunity, we can give no assurance that new
business ventures and strategic acquisitions will positively affect our
financial performance. Acquisitions may result in the diversion of our capital
and our management’s attention from other business issues and opportunities.
Unsuccessful acquisition efforts may result in significant additional expenses
that would not otherwise be incurred. We may not be able to assimilate or
integrate successfully companies that we acquire, including their personnel,
financial systems, distribution, operations and general operating procedures. If
we fail to assimilate or integrate acquired companies successfully, our business
could suffer materially. In addition, we may not realize the revenues and cost
savings that we expect to achieve or that would justify the acquisition
investment, and we may incur costs in excess of what we anticipate. We may also
encounter challenges in achieving appropriate internal control over financial
reporting in connection with the integration of an acquired company. In
addition, the integration of any acquired company, and its financial results,
into ours may have a material adverse effect on our operating
results.
We
are highly dependent on the cash flows and net earnings we generate during our
second and third fiscal quarters.
A
majority of our cash flow from operating activities is generated during the
2nd and
3rd
quarters which include the summer months. Unexpected events or developments such
as natural disasters, manmade disasters and adverse economic conditions in our
second and third quarter could have a material adverse effect on our operating
cash flows.
Risks
Relating To Our Common Stock
There
is a limited public trading market for our common stock.
Our
Common Stock presently trades on the Over the Counter Bulletin Board under the
symbol “GNPG:OB.” We cannot assure you, however, that such market will continue
or that you will be able to liquidate your shares acquired at the price you paid
or otherwise. We also cannot assure you that any other market will be
established in the future. The price of our common stock may be highly volatile
and your liquidity may be adversely affected in the future.
We
have a substantial number of shares authorized but not yet issued.
Our
Articles of Incorporation authorize the issuance of up to 250,000,000 shares of
common stock and 1,000,000 preferred capital shares. Our Board of Directors has
the authority to issue additional shares of common stock and to issue options
and warrants to purchase shares of our common stock without stockholder
approval. Future issuance of common stock and preferred stock could be at values
substantially below current market prices and therefore could represent further
substantial dilution to our stockholders. In addition, the Board could issue
large blocks of voting stock to fend off unwanted tender offers or hostile
takeovers without further shareholder approval.
22
We
have historically not paid dividends and do not intend to pay
dividends.
We have
historically not paid dividends to our stockholders and management does not
anticipate paying any cash dividends on our common stock to our stockholders for
the foreseeable future. The Company intends to retain future earnings, if any,
for use in the operation and expansion of our business.
DESCRIPTION
OF PROPERTY
|
The
Company owns its operating plant and facilities in Durant Oklahoma. This
property consists of 5.03 acres of land with three buildings totaling 53,459
square feet of industrial and office space. The property is subject to a first
mortgage loan of approximately $806,853. This facility is the Company’s
blending, bottling and distribution center for its XenTx and Synergyn products.
The Company also leases 2,800 square feet of office space in Scottsdale Arizona
for its corporate offices at an annual rental of $48,752 increasing annually to
$53,774 in 2012. The staffing company also leases office space of
3,100 square feet, also located in Scottsdale, Arizona at an annual rate of
$83,676. In addition, the company also leases 27 small offices
throughout the U.S. at an annual cost of approximately
$320,000.
LEGAL
PROCEEDINGS
|
None.
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
No
matters were submitted for shareholders vote during the fourth
quarter.
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
Market
Information
Our
common stock has been traded on the Over the Counter Bulletin Board under the
symbol EMHD:OB since February 9, 2007. Since April 8, 2006, our stock has been
trading on the Pink Sheets. On July 8, 2009, our stock symbol was changed to
GNPG:OB.
The
following is the range of high and low bid prices for our common stock for the
periods indicated:
23
Bid
Prices
|
||||||||
High
|
Low
|
|||||||
Quarter
ended June 30, 2007
|
$
|
0.95
|
$
|
0.14
|
||||
Quarter
ended September 30, 2007
|
$
|
0.44
|
$
|
0.06
|
||||
Quarter
ended December 31, 2007
|
$
|
0.25
|
$
|
0.06
|
||||
Quarter
ended March 31, 2008
|
$
|
0.35
|
$
|
0.13
|
||||
Quarter
ended June 30, 2008
|
$
|
0.45
|
$
|
0.16
|
||||
Quarter
ended September 30, 2008
|
$
|
0.25
|
$
|
0.06
|
||||
Quarter
ended December 31, 2008
|
$
|
0.09
|
$
|
0.02
|
||||
Quarter
ended March 31, 2009
|
$
|
0.09
|
$
|
0.02
|
||||
Quarter
ended June 30, 2009
|
$
|
0.10
|
$
|
0.03
|
Bid
quotations represent interdealer prices without adjustment for retail markup,
markdown and/or commissions and may not necessarily represent actual
transactions.
Stockholders
As of
July 10th, 2009, the number of stockholders of record was approximately
1,400.
Dividends
We have
not paid any dividends on our common stock, and we do not anticipate paying any
dividends in the foreseeable future. Our Board of Directors intends to follow a
policy of retaining earnings, if any, to finance the growth of the Company. The
declaration and payment of dividends in the future will be determined by our
Board of Directors in light of conditions then existing, including the Company’s
earnings, financial condition, capital requirements and other
factors.
Securities
Authorized for Issuance under Equity Compensation Plans
In March
2008, the Company issued 5,415,000 stock options to employees, directors and
consultants. One third of which each become vested on October 1, 2008, April 1,
2009 and October 1, 2009 provided the participant’s continue service to the
Company. The options are exercisable for three years from the grant date. At
March 31, 2009, 450,000 of the original options had been forfeited and no
options have been exercised.
24
Equity
Compensation Plan Information
Plan
category
|
Number of securities to be
issued upon
exercise of outstanding options, warrants and
rights
|
Weighted-average exercise
price of
outstanding options, warrants and
rights
|
Number of securities
remaining available for future issuance
under equity
compensation plans excluding securities reflected
in column
(a)
|
|||
(a)
|
(b)
|
(c)
|
||||
Equity
compensation plans
approved
by security holders
|
0
|
0
|
0
|
|||
Equity
compensation plans not
approved
by security holders
|
4,965,000
|
$0.20
|
15,293,354
|
|||
Total
|
4,965,000
|
$0.20
|
15,293,354
|
____________
(1)
|
The
options were issued pursuant to a Registration Statement on Form S-8 filed
by the Company.
|
Recent
Sales of Unregistered Securities.
None.
SELECTED
FINANCIAL DATA
|
Smaller
reporting companies are not required to provide the information required by this
item.
25
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
In
addition to historical information, this section contains “forward-looking”
statements, including statements regarding the growth of product lines, optimism
regarding the business, expanding sales and other statements. Words such as
expects, anticipates, intends, plans, believes, sees, estimates and variations
of such words and similar expressions are intended to identify such
forward-looking statements. These statements are not guarantees of future
performance and involve certain risks and uncertainties that are difficult to
predict. Actual results could vary materially from the description contained
herein due to many factors including continued market acceptance of our
products. In addition, actual results could vary materially based on changes or
slower growth in the fuel additive products market; the potential inability to
realize expected benefits from new products and products under development;
domestic and international business and economic conditions; changes in the
petroleum industry; unexpected difficulties in penetrating the commercial and
industrial markets for our products; changes in customer demand or ordering
patterns; changes in the competitive environment including pricing pressures or
technological changes; technological advances; shortages of manufactured raw
material and manufacturing capacity; future production variables impacting
excess inventory and other risk factors listed in the section of this Annual
Report entitled “Risk Factors” and from time to time in our Securities and
Exchange Commission filings under “risk factors” and elsewhere.
Each
forward-looking statement should be read in context with, and with an
understanding of, the various disclosures concerning our business made elsewhere
in this Annual Report, as well as other public reports filed by us with the
Securities and Exchange Commission. Readers should not place undue reliance on
any forward-looking statement as a prediction of actual results of developments.
Except as required by applicable law or regulation, we undertake no obligation
to update or revise any forward-looking statement contained in this Annual
Report. This section should be read in conjunction with our consolidated
financial statements.
RESULTS
OF OPERATIONS
The
following table sets forth our restated results of operations for the years
ended March 31, 2009 and 2008 as a percentage of net sales:
2009
|
2008
|
||||||
NET
SALES
|
100.0
|
%
|
100.0
|
%
|
|||
COST
OF SALES
|
76.7
|
%
|
47.1
|
%
|
|||
GROSS
PROFIT
|
23.3
|
%
|
52.9
|
%
|
|||
OPERATING
EXPENSES
|
|||||||
Selling,
general and administrative
|
41.4
|
%
|
97.4
|
%
|
|||
Depreciation
and amortization
|
3.4
|
%
|
8.9
|
%
|
|||
Allowance
for bad debts
|
10.6
|
%
|
0.0
|
%
|
|||
Research
and development
|
0.0
|
%
|
4.3
|
%
|
|||
TOTAL
OPERATING EXPENSES
|
55.4
|
%
|
110.6
|
%
|
|||
(Continued)
26
2009
|
2008
|
||||||
LOSS FROM
OPERATIONS
|
(32.0)
|
%
|
(57.7)
|
%
|
|||
Other
income (expense)
|
0.0
|
%
|
0.0
|
%
|
|||
Interest
expense
|
2.6
|
%
|
(76.7)
|
%
|
|||
LOSS BEFORE
INCOME TAXES
|
(29.4)
|
%
|
(134.4)
|
%
|
|||
Income
tax benefit
|
0.0
|
%
|
0.0
|
%
|
|||
NET
INCOME (LOSS)
|
(29.4)
|
%
|
(134.4)
|
%
|
Year
ended March 31, 2009 as compared to year ended March 31, 2008
Net Sales: Net Sales increased
from $2,769,949 in 2008 to $9,170,794 in 2009 or an increase of $6,400,845. This
represents an increase of 231% over the prior year. This increase was due to
improved XenTx sales to the commercial/industrial market and the increase in
Dyson sales. During the fourth quarter of 2009 sales for Lumea
were $5,784,408. Also, the company reduced its emphasis on retail
sales and concentrated on the commercial/industrial market, particularly with
long haul trucking fleets and large earth moving equipment
companies.
Gross Margin: Gross Margin
decreased to 23.3% from 52.9% or a decrease of 29.6%. This was due to
increased petroleum based product costs used by the Dyson product mix and the
impact of lower margins from our staffing companies.
Selling, General and Administrative
Expenses: The Company increased its SG&A from $2,696,506 to
$3,798,290 or an increase of $1,101,784. This was due to the increase in
consulting costs and sales and promotional expenses and the acquisition of the
staffing sales team.
Research and Development: The
expense for research and development was reduced from $118,546 to $0 or a
reduction of $118,546. This was due to our decision to delay all product
development and testing until the next year and allow more funds to be directed
to inventory and receivables as a result of increase sales
demand.
Restatement: The restatement
for the year ended March 31, 2009 had the effect of reducing interest expense by
$1,127,138 from an expense of $886,945 to a benefit of $240,193 and a reduction
in the loss from $3,823,415 to $2,696,277 and from $0.05 loss per share to $0.04
loss per share. The restatement for the year earlier, March 31, 2008,
had the effect of increasing interest expense by $1,272,445 from $851,843 to
$2,214,289 and an increase in the loss from $2,450,084 ($0.06 per share) to
$3,722,529 ($0.08 loss per share). These restatements had no impact on the cash
position of the Company and were all non-cash adjustments. These restatements
were the result of:
27
1)
|
The
Company treated the convertible debt and related warrants under EITF 00-27
under which such converted or exercised instruments are recognized as
equity and under the EITF 00-19, and owing to the unlimited nature of the
potential issuances, the instruments are to be treated as liabilities or
assets and revalued each reporting
period.
|
2)
|
Under
Statement of Financial Accounting Standards No. 150 “Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity,” Statement of Financial Accounting Standards No. 133 “Accounting
for Derivative Instruments and Hedging Activities,” and Emerging Issues
Task Force Staff Position EITF 00-19 “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own,”
which state in part that convertible instruments should be valued at their
fair value at date of issuance and derivatives, such as warrants, should
be valued at their fair value at issuance and each subsequent reporting
date.
|
3)
|
Accordingly,
the Company is restating the financial statements included herein. In
summary, at March 31, 2008, the year end fair market
adjustment resulted in additional interest expense of $1,272,446 and
a increase in the net loss for the period of a like amount and at March
31, 2009 the Company has a reduction of interest expense by $1,127,138 and
a decrease in the net loss for the period of the same
amount.
|
IMPACT OF INFLATION
Inflation
has not had a material effect on our results of operations. We expect
the cost of petroleum base products to track the increase and decrease in the
worldwide oil prices.
SEASONALITY
The
seasons of the year have no material impact on the Company’s fuel
efficiency/emission reducing products or services but it does have an impact on
both revenues and margin of our staffing companies. Revenues are lowest in the
first calendar quarter and largest in the third calendar quarter.
FINANCIAL
LIQUIDITY AND CAPITAL RESOURCES
We have
experienced net losses and negative cash flows from operations and investing
activities for the fiscal years 2009 and 2008. The aggregate restated net losses
for the last two fiscal years aggregated $2,696,277 and $3,722,529,
respectively, resulting in a decreased loss in the current year of
$1,026,252. Contributing factors to the 2009 results of operations
were an increase in the allowance for bad debts of $970,501, an increase in
selling, general and administrative expenses of $1,100,783, offset by $2,127,500
from the issuance of stock for services and interest and stock option expense of
$358,362 compared to only $301,722 for stock issue for services in 2008 and the
credit to interest expense for the year of $1,127,138 from the reduction in the
derivative liability for the year. Therefore, on a net cash basis, the selling,
general and administrative expenses declined from $2,394,785 to $1,312,428, or a
reduction of 45%. We have funded our operations to date by borrowings from third
parties and investors, a substantial portion of which are convertible into our
common stock. In fiscal 2008, we completed a long-term debt financing in the
gross amount of $1,469,482 and sales of common stock of $1,115,312. The
inability of the Company to raise capital through the private sale of common
stock or through the issuance of debt instruments at acceptable prices and in a
timely manner will have a negative impact on the results of operations and
viability of the Company.
28
At March
31, 2009, the Company does not have any significant commitments for capital
expenditures. The Company is discussing with potential customers the
manufacturing and delivery logistics and depending on the results of such
negotiations, the Company may be required to expand its manufacturing
capabilities. We have no special purpose entities or off balance
sheet financing arrangements, commitments, or guarantees other than certain
long-term operating lease arrangements for our corporate facilities and
short-term purchase order commitments to our suppliers.
At March
31, 2009, the Company aggregate of accounts payable, accrued liabilities and
notes due within one year has increased to $12,676,920 from
$4,424,717. These obligations together with operation costs will have
to be funded from operations and additional funding from debt and equity
offerings.
The
effects of the restatements had the cumulative effect of increasing the net
working capital deficits at March 31, 2009 and 2008 by $3,318,782 and
$1,683,325 from those previously reported to $11,736,639 and $4,600,640,
respectively. The adjustments had the cumulative effect of reducing additional
paid in capital in each period by $13,611,459 and $13,487,384,
respectively, and reducing the accumulated deficit at March 31, 2009 and
2008 by $10,292,677 and $9,165,538, respectively, which resulted in restated
stockholders’ equity/(deficit) of $(5,753,161) and $(8,053,745),
respectfully.
The
Company was in default at year end on a loan secured by substantially all of the
assets of the manufacturing business as a result of non-payment of principal and
interest as due. Subsequently, the lender and the Company negotiated a new
payment schedule and the payment of fees and expenses aggregating approximately
$39,000,
thereby curing the breach.
The
Company’s cost of raw materials is highly dependent on the cost of petroleum
products and synthetic materials. To the extent that such prices
fluctuate significantly the Company may be unable to adjust sales prices to
reflect cost increased and secondarily price increases may negatively influence
sales.
OFF
BALANCE SHEET ARRANGEMENTS
Not
applicable.
SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The
consolidated financial statements include the accounts of Green Planet Group,
Inc. and its consolidated subsidiaries and wholly-owned limited liability
company. The financial statements for the year ended March 31, 2009 include the
operations of Lumea since March 1, 2009. All significant intercompany
transactions and profits have been eliminated.
Use of Estimates -
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities. The
more significant estimates relate to revenue recognition, contractual allowances
and uncollectible accounts, intangible assets, accrued liabilities, derivative
liabilities, income taxes, litigation and contingencies. Estimates are based on
historical experience and on various other assumptions that the Company believes
to be reasonable under the circumstances, the results of which form the basis
for judgments about results and the carrying values of assets and liabilities.
Actual results and values may differ significantly from these
estimates.
29
Cash Equivalents -
The Company invests its excess cash in short-term investments with various banks
and financial institutions. Short-term investments are cash equivalents, as they
are part of the cash management activities of the company and are comprised of
investments having maturities of three months or less when
purchased.
Allowance
for Doubtful Accounts - The Company provides an allowance for
doubtful accounts when management estimates collectibility to be uncertain.
Accounts receivable are continually reviewed to determine which, if any,
accounts are doubtful of collection. In making the determination of the
appropriate allowance amount, the Company considers current economic and
industry conditions, relationships with each significant customer, overall
customer credit-worthiness and historical experience. The allowance for doubtful
accounts was $806,846 and $34,149 at March 31, 2009 and
2008.
Inventories
- Inventories are stated at the lower of cost or market value. Cost of
inventories is determined by the first-in, first-out (FIFO) method.
Obsolete or abandoned inventories are charged to operations in the period that
it is determined that the items are not longer viable sales
products.
Property, Plant, and
Equipment - Plant and equipment are carried at cost. Repair and
maintenance costs are charged against operations while renewals and betterments
are capitalized as additions to the related assets. The Company depreciates its
plant and equipment and computers on a straight line basis. Estimated useful
life of the plant is 39.5 years and the equipment ranges from 3 to
10 years.
Intangible Assets -
Intangible assets consist of patents, trademarks, government approvals and
customer relationships (including client contracts). For financial statement
purposes, identifiable intangible assets with a defined life are being amortized
using the straight-line method over the estimated useful lives of 7 years for
the EPA license and 5 years for the customer relationships. Costs incurred by
the Company in connection with patent, trademark applications and approvals from
governmental agencies such as the Environmental Protection Agency, including
legal fees, patent and trademark fees and specific testing costs, are expensed
as incurred. Purchased intangible costs of completed developments are
capitalized and amortized over an estimated economic life of the asset,
generally 7 years. commencing on the acquisition date. Costs subsequent to the
acquisition date are expensed as incurred.
Goodwill - Goodwill
represents the excess of the purchase price over the fair value of the net
assets acquired. Goodwill and other intangible assets having an indefinite
useful life are not amortized for financial statement purposes. The Company
performs an annual impairment test each year and in the event that facts and
circumstances indicate that goodwill and other identifiable intangible assets
may be impaired, an interim impairment test would be required. The Company’s
testing approach will utilize a discounted cash flow analysis to determine the
fair value of its reporting units for comparison to their corresponding book
values. If the book value exceeds the estimated fair value for a reporting unit,
a potential impairment is indicated and Statement of Financial Accounting
Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets,” prescribes the
approach for determining the impairment amount, if any.
Impairment of Long-Lived
Assets - In accordance with the Statement of Financial Accounting
Standards No. 144 (“FAS 144”), “Accounting for the Impairment or Disposal
of Long-Lived Assets,” the Company reviews long-lived assets, including, but not
limited to, property and equipment, patents and other assets, for impairment
annually or whenever events or changes in circumstances indicate the carrying
amounts of assets may not be recoverable. The carrying value of long-lived
assets is assessed for impairment by evaluating operating performance and future
undiscounted cash flows of the underlying assets. If the sum of the expected
future cash flows of an asset is less than its carrying value, an impairment
measurement is required. Impairment charges are recorded to the extent that an
asset’s carrying value exceeds fair value. Accordingly, actual results could
vary significantly from such estimates. There were no impairment charges during
the periods presented.
30
Fair Value
Disclosures - The carrying values of cash, accounts receivable, deposits,
prepaid expenses, accounts payable and accrued expenses generally approximate
the respective fair values of these instruments due to their current
nature.
The fair
values of debt instruments for disclosure purposes only are estimated based upon
the present value of the estimated cash flows at interest rates applicable to
similar instruments.
The
Company generally does not use derivative financial instruments to hedge
exposures to cash flow or market risks. However, certain other financial
instruments, such as warrants and embedded conversion features that are indexed
to the Company’s common stock, are classified as liabilities when either (a) the
holder possesses rights to net-cash settlement or (b) physical or net-share
settlement is not within the control of the Company. In such instances, net-cash
settlement is assumed for financial accounting and reporting, even when the
terms of the underlying contracts do not provide for net-cash settlement. Such
financial instruments are initially recorded at fair value and subsequently
adjusted to fair value at the close of each reporting period.
Revenue Recognition -
Revenues are recognized at the time of shipment of products to customers, or at
the time of transfer of title, if later, and when collection is reasonably
assured. All amounts in a sales transaction billed to a customer related to
shipping and handling are reported as revenues. Staffing revenue is
recognized for work performed at the completion of the work week and the client
is billed.
Provisions
for sales discounts and rebates to customers are recorded, based upon the terms
of sales contracts, in the same period the related sales are recorded, as a
deduction to the sale. Sales discounts and rebates are offered to certain
customers to promote customer loyalty and encourage greater product
sales.
Components of Cost of
Sales - Cost of sales is comprised of raw material costs including
freight and duty, inbound handling costs associated with the receipt of raw
materials, contract manufacturing costs, third party bottling and packaging,
maintenance and storage costs, plant and engineering overhead allocation,
terminals and other warehousing costs, and handling costs. Lumea’s cost of goods
sold is comprised of gross labor and related payroll taxes and
fees.
Selling Expenses -
Included in selling and general administrative expenses are the commission
expenses for both employees and outside sales representatives ranging from 1.5%
to 11.5% per dollar of sales. The Company expends significant amounts to
advertise and distinguish its products from those of its competitors through the
use of in-store advertising, printed media, internet and broadcast media.
Lumea’s sales staff is compensated with a base pay plus commissions on new
business developed.
Research, Testing and
Development - Research, testing and development costs are expensed as
incurred. Research and development expenses, including testing, were $0 and
$118,546 for the years ended March 31, 2009 and 2008, respectively. Costs to
acquire in-process research and development (IPR&D) projects that have no
alternative future use and that have not yet reached technological feasibility
at the date of acquisition are expensed upon acquisition.
Income Taxes - We
provide for income taxes in accordance with SFAS No. 109, “Accounting for
Income Taxes.” SFAS No. 109 requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases
of the assets and liabilities.
31
The
recording of a net deferred tax asset assumes the realization of such asset in
the future; otherwise a valuation allowance must be recorded to reduce this
asset to its net realizable value. The Company considers future pretax income
and, if necessary, ongoing prudent and feasible tax planning strategies in
assessing the need for such a valuation allowance. In the event that the Company
determines that it may not be able to realize all or part of the net deferred
tax asset in the future, a valuation allowance for the deferred tax asset is
charged against income in the period such determination is made. The Company has
recorded full valuation allowances as of March 31, 2009 and 2008.
Concentrations of Credit
Risks - Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. Although the amount of credit exposure to
any one institution may exceed federally insured amounts, the Company limits its
cash investments to high-quality financial institutions in order to minimize its
credit risk. With respect to accounts receivable, such receivables are primarily
from distributors and retailers located in the United States and foreign
distributors. The Company extends credit based on an evaluation of the
customer’s financial condition, generally without requiring collateral. Exposure
to losses on receivables is dependent on each customer’s financial
condition. At March
31, 2009 and 2008, the amounts due from foreign distributors were $1,363,756 and
$495,952, which represent 32.2% and 53.2% of accounts receivable,
respectively.
Segment
Information
We
operate in two industry segments, the development, manufacture and sale of
private and commercial vehicle energy efficient enhancement products and the
industrial staffing areas. The products are designed to extend engine life,
promote fuel efficiency and reduce emissions. During the years ended At March
31, 2009 and 2008, these products were being marketed by the Company and sales
were predominantly in the United States of America, Nigeria and Canada. The
staffing industry revenues in 2009 were from the United States of
America.
Litigation - The
Company is and may become a party in routine legal actions or proceedings in the
ordinary course of its business. The Company is a defendant in one case for the
payment of advertising costs in which the Company does not believe that the
services were adequately performed. Management does not believe that the outcome
of these routine matters will have a material adverse effect on the Company’s
consolidated financial position or results of operations.
Environmental - The
Company’s operations are subject to extensive federal, state and local laws,
regulations and ordinances in the United States relating to the generation,
storage, handling, emission, transportation and discharge of certain materials,
substances and waste into the environment, and various other health and safety
matters. Governmental authorities have the power to enforce compliance with
their regulations, and violators may be subject to fines, injunctions or both.
The Company must devote substantial financial resources to ensure compliance,
and it believes that it is in substantial compliance with all the applicable
laws and regulations.
32
New
Accounting Pronouncements
GAAP
Hierarchy
In
May 2008, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 162, “The Hierarchy of
Generally Accepted Accounting Principles.” SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). SFAS No. 162 will become effective 60 days following
the SEC’s approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.” GPG does not expect the adoption of
SFAS No. 162 to have a material effect on its results of operations and
financial position.
Convertible
Debt
In
May 2008, the FASB issued Financial Statement Position (FSP) Accounting
Principles Board (APB) 14-1 “Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).” FSP APB 14-1 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. FSP APB 14-1 is effective for fiscal
years beginning after December 15, 2008 on a retroactive basis and will be
adopted by GPG in the first quarter of fiscal 2010. GPG is currently evaluating
the potential impact, if any, of the adoption of FSP APB 14-1 on its
results of operations and financial position.
Non-controlling
Interests
In
December 2007, the FASB issued SFAS No. 160, “Non-controlling
Interests in Consolidated Financial Statements – an amendment of
Accounting Research Bulletin No. 51.” SFAS No. 160 establishes
accounting and reporting standards for ownership interests in subsidiaries held
by parties other than the parent, the amount of consolidated net income
attributable to the parent and to the non-controlling interest, changes in a
parent’s ownership interest, and the valuation of retained non-controlling
equity investments when a subsidiary is deconsolidated. SFAS No. 160 also
establishes disclosure requirements that clearly identify and distinguish
between the interests of the parent and the interests of the non-controlling
owners. SFAS No. 160 is effective for fiscal years beginning after
December 15, 2008 and will be adopted by the Company in the first quarter
of fiscal 2010. We do not expect the adoption of SFAS No. 160 to have a
material effect on its results of operations and financial
position.
33
Fair
Value Option
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option
for Financial Assets and Financial Liabilities – Including an
Amendment of FASB Statement No. 115,” which permits an entity to measure
many financial assets and financial liabilities at fair value that are not
currently required to be measured at fair value. Entities that elect the fair
value option will report unrealized gains and losses in earnings at each
subsequent reporting date. The fair value option may be elected on an
instrument-by-instrument basis, with few exceptions. SFAS No. 159 amends
previous guidance to extend the use of the fair value option to
available-for-sale and held-to-maturity securities. The statement also
establishes presentation and disclosure requirements to help financial statement
users understand the effect of the election. This statement is effective for
fiscal years beginning after November 15, 2007. GPG has not elected to
adopt the provisions of SFAS No. 159 and will evaluate its adoption in future
periods.
Fair
Value Measurements
In
September 2006, the FASB issued SFAS No. 157, “Fair Value
Measurements.” SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. This statement applies under other
accounting pronouncements that require or permit fair value measurement where
the FASB has previously determined that under those pronouncements fair value is
the appropriate measurement. This statement does not require any new fair value
measurements but may require companies to change current practice. This
statement is effective for fiscal years beginning after November 15, 2007.
GPG has adopted the provisions of SFAS No. 157 and its adoption has not had a
material effect on our results of operations and financial
position.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Smaller
reporting companies are not required to provide the information required by this
item.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The
Financial Statements that constitute Item 8 are included at the end of this
report beginning on Page F-1.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
34
CONTROLS
AND PROCEDURES
|
Restatement
of Previously Issued Financial Statements
On August
5, 2009 and reported on Form 8-K on August 7, 2009, the Company announced that
its previously issued financial statements for the years ended March 31, 2007
through 2009 included in the Company’s Forms 10-K, and for fiscal quarters from
September, 30, 2006 through December 31, 2008 included on the Company’s Forms
10-Q, should no longer be relied upon (collectively, the “Affected
Periods”).
Management
began a review of its reporting policies with respect to the accounting for
derivatives related to warrants issued by the Company for conversion to common
stock and the embedded derivatives included in the convertible notes payable for
the Affected Periods. As a result, the management determined that its accounting
for such derivatives was not applicable under the guidance of Emerging Issues
Task Force Staff Position EITF 00-27 “Application of Issue No. 98-5 to Certain
Convertible Instruments,” but was instead applicable to the guidance
of Statement of Financial Accounting Standards No 150, “Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equities,” Statement of Financial Accounting Standards No. 133
“Accounting for Derivative Instruments and Hedging Activities,” Emerging Issues
Task Force Staff Position EITF 00-19 “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”
together with interpretations and guidance by accounting standard setters, that,
in summary, required all of our derivatives to be reflected as liabilities and
not as equity instruments. This Form 10-K/A includes the changes to and
restatements of the Affected Periods prior to and including March 31,
2009.
Evaluation
of Disclosure Controls and Procedures
At the
time our Annual Report on Form 10-K for the fiscal year ended March 31, 2009 was
filed on July 17, 2009, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of March
31, 2009. Subsequent to that evaluation, our management, including
our Chief Executive Officer and Chief Financial Officer, have re-evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined under Rules 13a-15(e) and 15d-15(e) promulgated under the
Securities Exchange Act of 1943, as amended) as of the period covered by this
report. Based upon that evaluation, our Chief Executive Officer and
Chief Financial Officer have concluded that our disclosure controls and
procedures were not effective to provided reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
because of the identification of the material weakness in our internal control
over financial reporting of derivatives and embedded derivatives from the
misinterpretation of the accounting literature in accordance with generally
accepted accounting principles (“GAAP”).
Disclosure
Controls and Procedures
As
required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end
of the period covered by this annual report, being March 31, 2009, we carried
out an evaluation of the effectiveness of the design and operation of our
Company’s disclosure controls and procedures. This evaluation was carried out
under the supervision and with the participation of our company’s management,
including our company’s Chief Executive Officer and Chief Financial Officer.
Based upon that evaluation and the conclusions described above, our Company’s
Chief Executive Officer and Chief Financial Officer concluded that our Company’s
disclosure controls and procedures were not effective as of March 31,
2009.
35
Changes
in Internal Control over Financial Reporting
There has
been no change in our internal controls over financial reporting that occurred
during our last fiscal quarter ended March 31, 2009 that has materially
affected, or is reasonably likely to materially affect our internal controls
over financial reporting.
Management’s
Annual Report on Internal Control over Financial Reporting
Management
is responsible for establishing and maintaining adequate control over financial
reporting. In order to evaluate the effectiveness of internal control over
financial reporting as required by Section 404 of the Sarbanes-Oxley Act,
management conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission. The scope of management’s assessment of the effectiveness
of internal control over financial reporting includes all of our businesses
except for Lumea, Inc. and its subsidiaries which first acquired assets and
operations on March 1, 2009 and whose financial statements constitute 63% of
total assets and 63% and 13% of revenue and net loss for the year ended March
31, 2009, respectively. Further discussion of this business can be
found in Notes 1 and 16 of Notes to Consolidated Financial Statements in Item
8.
Based on
this evaluation, management concluded that our Company’s internal control over
financial reporting was not effective as of March 31, 2009 as a result of the
material weakness in the application of GAAP described above. Management
believes that this material weakness has no affect on our ability to present
GAAP-compliant financial statements in this Form 10-K/A. During our
re-evaluation we were able to recognize and adjust our financial records to
properly present our financial statements and we were therefore able to present
GAAP-compliant financial statements. Management does not believe that the
weakness with respect to its procedures and controls had a pervasive effect upon
the financial reporting and overall control environment due to our ability to
make the necessary adjustments to our financial statements.
This
annual report does not include an attestation report of our Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit our Company to provide only management’s report
in this annual report.
Management’s
Remediation Initiatives
In
addition to the re-evaluation discussed above, management has, subsequent to
March 31, 2009, implemented or is implementing the following procedures to
address the material weakness noted above, including the following:
·
|
Enhanced
the access to accounting literature, research materials and
documents.
|
·
|
Identified
third party professionals with whom to consult regarding complex
accounting applications.
|
·
|
Looking
to additional staff to supplement our current accounting professionals
with the requisite experience and
training.
|
36
The
elements of our remediation plan can only be accomplished over time and we can
offer no assurance that these initiatives will ultimately have the intended
effects.
ITEM 9B. |
OTHER
INFORMATION
|
None.
ITEM 10. |
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE
ACT
|
The
following persons are our executive officers and directors as of the date
hereof:
Name
|
Age
|
Position
|
||
Edmond
Lonergan
|
63
|
Chairman,
President
|
||
James
Marshall
|
64
|
Chief
Financial Officer, Secretary, Director
|
||
Kenneth
Bennett
|
50
|
Director
|
||
Edward
Miller
|
66
|
Director
|
||
Pat
Choate
|
68
|
Director
|
The
following is a brief account of the education and business experience during at
least the past five years of each director, executive officer and key employee,
indicating the principal occupation during that period, and the name and
principal business of the organization in which such occupation and employment
were carried out.
Edmond Lonergan has been our
Chief Executive Officer and a director since March 2006 and the President and
Chief Executive Officer of EMTA Corp. since October 2004. He is also the founder
of and, since 1996, has been active at Corporate Architects, Inc., a Scottsdale,
Arizona-based consulting firm that provides mergers and acquisitions advice to
public and private companies. Corporate Architects has extensive experience in
reverse mergers, investment banking, and business and management consulting.
Prior thereto he was involved in various capacities at a number of companies in
the financial services, electronics and data processing
industries.
37
James Marshall has been our
Chief Financial Officer since June 2006. Mr. Marshall has held certain
accounting licensure from the states of Arizona, Michigan, California, Illinois
and Florida. Mr. Marshall has been a director of REIT Americas, Inc. since
August 2005 and Chief Financial Officer since March of 2007. He has and
continues to be the chief financial officer for Safepay Solutions, Inc. since
March of 2006. Mr. Marshall was chief financial officer for Bronco Energy Fund,
Inc. from December 2004 through April 2006, and a director and chairman of the
audit committee of Fidelis Energy, Inc. from October 2003 through February 2005.
Mr. Marshall was the founder and chief executive officer of Residential
Resources Mortgage Investments Corporation, RRR AMEX, a mortgage based REIT with
assets in excess of $400 million and a staff of 42. Prior to March 1985, Mr.
Marshall was the National Finance Partner for Kenneth Leventhal & Company
and was Managing Partner of that firms Phoenix Office for five years. Career
experiences include responsibilities for major land acquisitions and
dispositions and their structuring. His audit and tax experience included
publicly-held companies for which Mr. Marshall was responsible for banks,
savings and loan associations, real estate developers, mortgage bankers,
insurance companies, builders and contractors. Mr. Marshall has more than 35
years accounting, audit and tax experience on a wide range of public and private
companies.
Kenneth Bennett has been a
director since 2007. In January 2009, Mr. Bennett was appointed Secretary of
State of Arizona to fill that vacancy until the results of the State election to
be held in November, 2010. From 1998 through 2006 Mr. Bennett was an Arizona
State Senator and President of the Senate during the last four years. He has
served on numerous State committees, the Arizona State Board of Education,
Governor’s Task Force on Education Reform and the Education Leaders Council in
Washington, D.C. Mr. Bennett has been President of Bennett Oil Co. in Prescott
Arizona since 1984, a regional fuel distribution company.
Edward A. Miller has been a
director since 2006. Since February 1996, Mr. Miller has been president and
director of DSI Consulting, a business consulting firm in Florida and New
Hampshire. For over forty years, Mr. Miller has served in senior management
roles leading and managing a series of for-profit and not-for-profit
organizations designed to develop, enhance and further the growth, capabilities
and competitiveness of US companies and government agencies involved in the
education, healthcare, environmental, energy, national security and
manufacturing sectors. Mr. Miller’s education was acquired at the Western New
England College where he received his Bachelor of Science degree in Mechanical
Engineering. He has also completed all graduate courseware towards MSEE at the
University of Massachusetts.
Pat Choate has been a director
since May 2006. Pat Choate is a political economist, think tank strategist,
policy analyst, and author who studies U.S. competitiveness and public policy.
Presently, he directs a Washington-based policy institute, the Manufacturing
Policy Project, and teaches Advanced Issues Management at George Washington
University’s Graduate School of Political Management. Mr. Choate also co-hosts
the nationally syndicated weekly radio program “The Week Ahead.” Since the
beginning in July 2006, Pat has been a nightly newsmaker on a Washington radio
show hour where he discusses the issues of the day with guests in the news and
the call in audience. Mr. Choate has a varied career in the private and public
sectors. His public positions include that of economic advisor to two Governors
of the State of Oklahoma, Commissioner of Economic Development for the State of
Tennessee, and senior positions in the Federal Government at the US Commerce
Department and the Office of Management and Budget. In the 1980’s, Pat Choate
was Vice President for Policy for TRW, a diversified multinational corporation.
Mr. Choate is the author of six books, dozens of monographs, and hundreds of
articles on competitiveness, management, and public policy. Today, he is
Director of the Manufacturing Policy Project, a Washington based public policy
institute.
38
Board
of Directors
Our
bylaws state that the Board of Directors shall consist of not less than one
person. The specific number of Board members within this range is established by
the Board of Directors and is currently set at three. The terms of all directors
will expire at the next annual meeting of our company’s stockholders, or when
their successors are elected and qualified. Directors are elected each year, and
all directors serve one-year terms. Officers serve at the pleasure of the Board
of Directors. There are no arrangements or understandings between our company
and any other person pursuant to which he was or is to be selected as a
director, executive officer or nominee. There are no other persons whose
activities are material or are expected to be material to our company’s
affairs.
The Board
of Directors met three times during fiscal 2009. During that time, each Board
member attended all of the meetings of the Board held during that
period.
Board
of Directors - Committees
We have
an Audit Committee and a Compensation Committee.
Audit Committee. The Audit
Committee, currently consisting of Mr. Miller and Mr. Choate, reviews the audit
and control functions of Green Planet Group, Inc., the Company’s accounting
principles, policies and practices and financial reporting, the scope of the
audit conducted by our company’s auditors, the fees and all non-audit services
of the independent auditors and the independent auditors’ opinion and letter of
comment to management and management’s response thereto. The Audit Committee was
designated on October 1, 2005 and held two meetings during the fiscal year ended
March 31, 2009.
Compensation Committee. The
Compensation Committee is currently comprised of two non-employee Board members,
Pat Choate and Edward Miller. The Compensation Committee reviews and recommends
to the Board the salaries, bonuses and prerequisites of our company’s executive
officers. The Compensation Committee also reviews and recommends to the Board
any new compensation or retirement plans and administers such plans. No
executive officer of our company serves as a member of the board of directors or
compensation committee of any other entity that has one or more executive
officers serving as a member of our company’s Board of Directors or Compensation
Committee. The Compensation Committee held one meeting during the fiscal year
ended March 31, 2009.
Audit
Committee Financial Expert
The
Company has a standing Audit Committee that includes two members. Mr. Miller has
been designated as the “Audit Committee Financial Expert,” as defined by
Regulation S-K, and is an “independent” director, as defined under the rules of
NASDAQ National Stock Market and the SEC rules and regulations.
EXECUTIVE
COMPENSATION
|
The
following table sets forth the compensation of the Company’s Chief Executive
Officer and director and each of the Company’s two other most highly compensated
executive officers during the last three fiscal years of the Company. The
remuneration described in the table does not include the cost to the Company of
benefits furnished to the named executive officers, including premiums for
health insurance and other benefits provided to such individual that are
extended in connection with the conduct of the Company’s business.
39
Summary
Compensation
Table
SUMMARY
COMPENSATION TABLE
|
||||||||||||||
Name
and Principal Position
|
Year
|
Salary
($)
|
Stock
Awards
($) (1)
|
Total
($)
|
||||||||||
Edmond
L. Lonergan, Chief Executive Officer,
|
2009
|
$
|
98,125
|
$
|
40,000 |
$
|
138,125 | |||||||
President
and Director, Principle Executive Officer
|
2008
|
$
|
116,725
|
$
|
144,000
|
$
|
260,725
|
|||||||
2007
|
$
|
104,000
|
$
|
160,000
|
$
|
264,000
|
||||||||
James
C. Marshall, Chief Financial Officer,
|
2009
|
$
|
89,773 |
$
|
20,000
|
$
|
109,773 | |||||||
Secretary,
Treasurer and Director, Principle
|
2008
|
$
|
78,000
|
$
|
48,000
|
$
|
126,000
|
|||||||
Accounting
Officer
|
2007
|
$
|
90,000
|
$
|
56,000
|
$
|
146,000
|
____________
(1)
|
Based
on fair market value of common stock on date of
award.
|
There
were no outstanding equity awards at the end of the year.
Compensation
of Directors
None.
40
ITEM 12. |
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
|
The
following tables present information, to the best of the Company’s knowledge,
about the beneficial ownership of its common stock on July 10, 2009 relating to
the beneficial ownership of the Company’s common stock by those persons known to
beneficially own more than 5% of the Company’s capital stock and by its
directors and executive officers. The percentage of beneficial ownership for the
following table is based on 123,300,764 shares of common stock
outstanding.
Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and does not necessarily indicate beneficial ownership for
any other purpose. Under these rules, beneficial ownership includes those shares
of common stock over which the stockholder has sole or shared voting or
investment power. It also includes shares of common stock that the stockholder
has a right to acquire within 60 days through the exercise of any option,
warrant or other right. The percentage ownership of the outstanding common
stock, however, is based on the assumption, expressly required by the rules of
the Securities and Exchange Commission, that only the person or entity whose
ownership is being reported has converted options or warrants into shares of our
common stock.
Security
Ownership of Certain Beneficial Owners
Amount
of
|
Percent
|
|||
Name
and Address of Beneficial Owner
|
Beneficial
Ownership
|
of
Class (1)
|
||
Michael
Brannon
|
6,122,269
|
5.0
%
|
||
7430
E. Butherus Dr.
|
||||
Scottsdale,
AZ 85260
|
||||
Edmond
Lonergan
|
8,879,834
|
7.2
%
|
||
Chairman,
CEO, President
|
||||
7430
E. Butherus Dr.
|
||||
Scottsdale,
AZ 85260
|
||||
T
Squared Investments LLC
|
6,786,400
|
5.5%
|
||
1325
Sixth Avenue, Floor 28
|
||||
New
York, NY 10019
|
||||
Cliff Blake |
9,955,500
|
8.1%
|
||
33747 N. Scottsdale Road, Suite 135 | ||||
Scottsdale, AZ 85266 | ||||
All
executive officers and directors as
|
11,954,834
(2)
|
9.7%
|
||
a
group (5 persons)
|
____________
(1)
|
Rounded
to the nearest tenth of a percent.
|
(2)
|
Includes
shares beneficially owned by officers and
directors.
|
41
Amount
of
|
Percent
|
|||
Name
and Address of Beneficial Owner
|
Beneficial
Ownership
|
of
Class (1 )
|
||
Edmond
Lonergan
|
8,879,834
|
7.2%
|
||
Chairman,
President
|
||||
7430
E. Butherus Dr.
|
||||
Scottsdale,
AZ 85260
|
||||
James
Marshall
|
1,800,000
|
1.5%
|
||
Chief
Financial Officer
|
||||
7430
E. Butherus Dr.
|
||||
Scottsdale,
AZ 85260
|
||||
Kenneth
Bennett
|
1,000,000
|
0.8%
|
||
Vice
President and Director
|
||||
7430
E. Butherus Dr.
|
||||
Scottsdale,
AZ 85260
|
||||
Edward
Miller
|
85,000
|
0.1%
|
||
Director
|
||||
7430
E. Butherus Dr.
|
||||
Scottsdale,
AZ 85260
|
||||
Pat
Choate
|
190,000
|
0.2%
|
||
Director
|
||||
7430
E. Butherus Dr.
|
||||
Scottsdale,
AZ 85260
|
||||
Total
|
11,954,834
|
9.7%
|
____________
(1)
|
Rounded
to the nearest tenth of a
percent.
|
42
ITEM 13. |
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
We have
not been a party to any transaction, proposed transaction, or series of
transactions in which the amount involved exceeds $60,000, and in which, to its
knowledge, any of its directors, officers, five percent beneficial security
holder, or any member of the immediate family of the foregoing persons has had
or will have a direct or indirect material interest except that (1) during 2009
a company owned by the Chief Executive Office received a placement fee in
conjunction with the acquisition of the Lumea assets resulting from a prior
contract with the seller of the assets and (2) Michael Brannon loaned the
Company $200,000 on a short term note which requires repayment plus
interest. In conjunction with the placement his company received
3,366,660 shares with a market value on the date of the closing of
$100,100.
ITEM 14. |
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
On May
29, 2009, the Board of Directors authorized engaging Semple, Marchal &
Cooper, LLP (“SMC”) as the Company’s new independent accountants to audit the
Company’s financial statements for the fiscal year ending March 31,
2009.
Audit
Fees. The aggregate fees paid for the annual audit of financial statements
included in our Registration Statements including the year ended March 31,
2008 amounted to approximately $97,000 and the
review of our quarterly reports for the year ended March 31, 2009.
Audit
Related Fees. For the year ended March 31, 2008, we paid $45,000 to SMC for
other audit related fees.
Tax Fees.
For the years ended March 31, 2008 and March 31, 2009, we paid no fees
to SMC for tax services.
All Other
Fees. For the year ended March 31, 2008 and March 31, 2009, we paid no
fees to SMC for any non-audit services.
The
above-mentioned fees are set forth as follows in tabular form:
2009
|
2008
|
|||||||
Audit
Fees
|
$
|
52,000
|
$
|
53,092
|
||||
Audit
Related Fees
|
45,000
|
45,000
|
||||||
Tax
Fees
|
-0-
|
-0-
|
||||||
All
Other Fees
|
-0-
|
-0-
|
43
The
members of the Company’s independent Directors of the Board of Directors serves
as the Audit Committee and has unanimously approved all audit and non-audit
services provided by the independent auditors. The independent accountants and
management are required to periodically report to the Audit Committee or Board
of Directors regarding the extent of services provided by the independent
accountants, and the fees for the services performed to date. There have been no
non-audit services provided by our independent accountant for the year ended
March 31, 2009.
ITEM 15. |
EXHIBITS
|
The
information required by this Item is set forth in the section of this Annual
Report entitled “EXHIBIT INDEX” and is incorporated herein by
reference.
44
In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”) the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GREEN PLANET GROUP, INC. | ||
|
|
|
Dated:
February 22, 2010
|
By: | /s/ Edmond L. Lonergan |
|
||
By:
Edmond L. Lonergan
Its:
Chief Executive Officer (Principal Executive Officer) and
Director
|
|
|
|
Dated:
February 22, 2010
|
By: | /s/ James C. Marshall |
|
||
By: James
C. Marshall
Its:
Chief Financial Officer (Principal Financial
Officer and
Principal
Accounting
Officer)
|
In
accordance with the Exchange Act, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
Dated:
February 22, 2010
|
/s/ Edmond L. Lonergan | |
|
||
Edmond
L. Lonergan – Chief
Executive Officer and
Director
|
|
|
|
Dated:
February 22, 2010
|
/s/ James C. Marshall | |
|
||
James
C. Marshall – Chief
Financial Officer and Director
|
|
|
|
Dated:
February 22, 2010
|
/s/ Kenneth Bennett | |
|
||
Kenneth
Bennett – Director
|
|
|
|
Dated:
February 22, 2010
|
/s/ Ed Miller | |
|
||
Ed
Miller – Director
|
|
|
|
Dated:
February 22, 2010
|
/s/ Pat Choate | |
|
||
Pat
Choate – Director
|
45
EXHIBIT
INDEX
Number
|
Exhibit
|
|
2.1
|
Purchase
and Sale Agreement dated as of January 5, 2007 between Dyson Properties,
Inc. and ATME Acquisitions, Inc., and wholly owned subsidiary of EMTA
Holdings, Inc. (2)
|
|
3.1
|
Certificate
of Incorporation (1)
|
|
3.2
|
By-Laws
(1)
|
|
4.1
|
Form
of Callable Secured Convertible Note (1)
|
|
4.2
|
Form
of Stock Purchase Warrant (1)
|
|
4.3
|
Amendment
to Warrant (1)
|
|
10.1
|
Agreement,
dated October 1, 2004, between EMTA Corp. and Corporate Architects, Inc.
(1)
|
|
10.2
|
Agreement,
dated June 15, 2006, between the Company and James Marshall
(1)
|
|
10.3
|
Securities
Purchase Agreement, dated April 28, 2006, by and among the Company, AJW
Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New
Millennium Capital Partners II, LLC. (1)
|
|
10.4
|
Registration
Rights Agreement, dated April 28, 2006, by and among the Company, AJW
Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New
Millennium Capital Partners II, LLC. (1)
|
|
10.5
|
Security
Agreement, dated as of April 28, 2006, by and among the Company, AJW
Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New
Millennium Capital Partners II, LLC. (1)
|
|
10.6
|
Intellectual
Property Security Agreement, dated April 28, 2006, by and among the
Company, AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners,
LLC and New Millennium Capital Partners II, LLC. (1)
|
|
10.7
|
Amendment
No. 1 dated August 9, 2006, to Registration Rights Agreement, dated April
28, 2006, by and among the Company, AJW Offshore, Ltd., AJW Qualified
Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II,
LLC. (1)
|
|
10.8
|
Securities
Purchase Agreement (5)
|
|
10.9
|
Registration
Rights Agreement (5)
|
|
10.10
|
Term
Note Security Agreement (5)
|
|
10.11
|
Stock
Pledge Agreement (5)
|
|
10.12
|
Secured
Term Note (5)
|
|
10.13
|
Form
of Term Note Security Agreement (5)
|
|
10.14
|
Form
of Production Holdings Warrant (5)
|
|
10.15
|
Form
of Exchange Warrant (5)
|
|
10.16
|
Form
of Put Option (5)
|
|
10.17
|
Dyson
Properties, Inc. Amended and Restated Sales/Purchase Agreement dated March
26, 2007 (6)
|
|
10.18
|
Amendment
No. 1 to Dyson Properties, Inc. Amended and Restated Sales/Purchase
Agreement, dated June 26, 2007 (6)
|
|
10.19
|
Amended
and Restated Secured Term Note between EMTA Production Holdings, Inc.
and Shelter Island Opportunity Fund, LLC, dated June 30, 2008
(6)
|
|
10.20
|
Amendment
to Securities Purchase Agreement by and among Shelter Island Opportunity
Fund, LLC, EMTA Holdings, Inc., and EMTA Production Holdings, Inc., dated
June 30, 2008 (6)
|
|
10.21
|
Amended
and Restated Secured Term Note between EMTA Production Holdings, Inc. and
Shelter Island Opportunity Fund, LLC, dated December 10, 2007
(6)
|
|
10.22
|
Amendment
to Securities Purchase Agreement by and among Shelter Island Opportunity
Fund, LLC, EMTA Holdings, Inc. and EMTA Production Holdings, Inc., dated
December 10, 2007 (6)
|
|
10.23
|
Asset
Purchase Agreement by and between EMTA Holdings, Inc. through its
wholly-owned subsidiary, Lumea, Inc., and Easy Staffing Services, Inc.,
ESSI, Inc. and Easy Staffing Solutions of IL, Inc. (7)
|
|
10.24
|
Promissory
Note from Lumea, Inc. to Easy Staffing Services, Inc., in the amount of
$5,750,000 and Promissory Note from Lumea, Inc. to Easy Staffing Services,
Inc. in the amount of $3,000,000 (7)
|
|
10.25
|
Security
Agreements by and between Lumea, Inc. and Easy Staffing Services, Inc.
(7)
|
|
10.26
|
Indemnification
and Stock Option Agreement by and between the Company, Lumea, Inc. and
Cliff Blake (7)
|
(Continued)
46
Number
|
Exhibit
|
|
10.27
|
Commercial
Financing Agreement by and between Lumea, Inc., Lumea Staffing of CA,
Inc., Lumea Staffing, Inc., Lumea Staffing of IL, Inc. and Porter Capital
Corporation (7)
|
|
10.28
|
Amended
and Restated Commercial Financing Agreement by and between Lumea, Inc.,
Lumea Staffing of CA, Inc., Lumea Staffing, Inc., Lumea
Staffing of IL, Inc. and Porter Capital Corporation (7)
|
|
10.29
|
Validity
Guarantee – Lonergan (7)
|
|
10.30
|
Validity
Guarantee – Marshall (7)
|
|
21.1
|
List
of Subsidiaries
|
|
31.1
|
Officer’s
Certificate Pursuant to Section 302
|
|
31.2
|
Officer’s
Certificate Pursuant to Section 302
|
|
32.1
|
Certification
Pursuant to Section 906
|
|
32.2
|
Certification
Pursuant to Section 906
|
____________
(1)
|
Filed
with registrations statement filed August 14, 2006
|
(2)
|
Filed
with Form 8-K filed January 10, 2007
|
(3)
|
Filed
with Form 8-K filed April 9, 2007
|
(4)
|
Filed
with Form 8-K filed June 8, 2007
|
(5)
|
Filed
with Form 8-K filed July 12, 2007
|
(6) | Filed with Form 10-K for Fiscal Year Ended March 31, 2008, filed July 15, 2008 |
(7) |
Filed
with Form 8-K filed March 16, 2009
|
47
Item
8. Financial Statements and Supplementary
Data
INDEX
|
Page
|
|
Years
Ended March 31, 2009 and 2008
|
||
Report
of Independent Registered Public Accounting Firm - Semple, Marchal &
Cooper, LLP
|
F-2
|
|
Consolidated
Balance Sheets As of March 31, 2009 and 2008 (Restated)
|
F-3
|
|
Consolidated
Statements of Operations For the Years Ended March 31, 2009 and 2008
(Restated)
|
F-4
|
|
Consolidated
Statements of Stockholders’ Equity/(Deficit) For the Years Ended March 31,
2009 and 2008
(Restated)
|
F-5
|
|
Consolidated
Statements of Cash Flows For the Years Ended March 31, 2009 and 2008
(Restated)
|
F-6
–
F-7
|
|
Notes
to Consolidated Financial Statements March 31, 2009 and
2008
|
F-8
– F-49
|
F-1
Report
of Independent Registered Public Accounting Firm
To the
Board of Directors and Stockholders of
Green
Planet Group, Inc.
We have
audited the accompanying consolidated balance sheets of Green Planet Group, Inc.
as of March 31, 2009 and 2008, and the related consolidated statements of
operations, changes in stockholders’ equity/(deficit), and cash flows for the
years then ended. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Green Planet Group, Inc. at
March 31, 2009 and 2008, and the results of its operations, changes in
stockholders’ equity/(deficit) and its cash flows for the years then ended
in conformity with accounting principles generally accepted in the United States
of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company’s significant operating losses
and negative working capital raise substantial doubt about its ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/
Semple, Marchal & Cooper, LLP
|
Semple, Marchal & Cooper, LLP |
Phoenix,
Arizona
|
July
14, 2009, except for
Notes 9, 11 and 17 for which
the date is February 8, 2010
|
INDEPENDENT MEMBER OF THE
BDO SIEDMAN ALLIANCE
F-2
Green
Planet Group, Inc. and Subsidiaries
Consolidated
Balance Sheets
March
31,
|
March
31,
|
|||||||
ASSETS
|
2009
|
2008
|
||||||
(Restated) | (Restated) | |||||||
Current
Assets:
|
||||||||
Cash
|
$
|
470,288
|
$
|
59,544
|
||||
Accounts
receivable, net of allowance for doubtful accounts
|
4,349,866
|
932,125
|
||||||
Notes
receivable
|
–
|
137,500
|
||||||
Inventory
|
369,403
|
416,793
|
||||||
Prepaid
expenses
|
1,654,432
|
330,289
|
||||||
Total
Current Assets
|
6,843,989
|
1,
876,251
|
||||||
Property,
plant and equipment, net of accumulated depreciation
|
1,900,834
|
1,786,967
|
||||||
Other
Assets:
|
||||||||
Other
assets
|
295,372
|
267,529
|
||||||
Intangible
assets
|
3,745,025
|
633,611
|
||||||
Goodwill
|
8,979,822
|
–
|
||||||
Total
Other Assets
|
13,020,219
|
901,140
|
||||||
Total
Assets
|
21,765,042
|
$
|
4,564,358
|
|||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY/(DEFICIT)
|
||||||||
Current
Liabilities:
|
||||||||
Accounts
payable
|
$
|
1,210,127
|
$
|
815,936
|
||||
Accounts
payable - affiliates
|
165,565
|
–
|
||||||
Accrued
liabilities
|
4,765,026
|
1,657,416
|
||||||
Cashless
warrant liability
|
57,876
|
257,379
|
||||||
Notes
payable and amounts due within one year
|
6,536,202
|
1,951,365
|
||||||
Derivative
liability
|
791,732
|
1,794,795
|
||||||
Convertible
notes payable
|
5,054,100
|
–
|
||||||
Total
Current Liabilities
|
18,580,628
|
6,476,891
|
||||||
Notes
payable due after one year
|
9,061,650
|
1,087,112
|
||||||
Convertible
notes payable
|
–
|
5,054,100
|
||||||
Total
Liabilities
|
27,642,278
|
12,618,103
|
||||||
Stockholders’
Equity:
|
||||||||
Preferred
Stock, $0.001 par value, 1,000,000 authorized;
|
||||||||
no
shares issued and outstanding
|
–
|
–
|
||||||
Common
Stock, $0.001 par value, 250,000,000
|
||||||||
authorized,
issued and outstanding 117,440,764
|
||||||||
and
54,885,103 at March 31, 2009 and
|
||||||||
2008,
respectively
|
117,441
|
54,885
|
||||||
Additional
paid-in capital
|
14,590,073
|
9,779,844
|
||||||
Accumulated
Deficit
|
(20,584,750
|
)
|
(17,888,474
|
)
|
||||
Total
Stockholders’ Equity/(Deficit)
|
(5,877,236
|
)
|
(8,053,745
|
)
|
||||
Total
Liabilities and Stockholders’ Equity/(Deficit)
|
$
|
21,765,042
|
$
|
4,564,358
|
See
accompanying notes to these consolidated financial statements.
F-3
Consolidated
Statements of Operations
For
the Year Ended
|
||||||||
March
31,
|
||||||||
2009
|
2008
|
|||||||
Revenue:
|
(Restated) | (Restated) | ||||||
Sales,
net of returns and allowances
|
$
|
9,170,794
|
$
|
2,769,949
|
||||
Cost
of sales
|
7,030,015
|
1,305,328
|
||||||
Gross
Profit
|
2,140,779
|
1,464,621
|
||||||
Operating
Expenses:
|
||||||||
Selling,
general and administrative
|
3,798,290
|
2,696,506
|
||||||
Depreciation
and amortization
|
308,833
|
247,768
|
||||||
Allowance
for bad debts
|
970,542
|
41
|
||||||
Research
and development
|
–
|
118,546
|
||||||
Total
Operating Expenses
|
5,077,665
|
3,062,861
|
||||||
Loss
From Operations
|
(2,936,886
|
)
|
(1,598,240
|
)
|
||||
Other
Income and (Expense):
|
||||||||
Other
income
|
416
|
–
|
||||||
Interest
(expense)/income
|
240,193
|
(2,124,289
|
)
|
|||||
Loss
before provision for income taxes
|
(2,696,277
|
)
|
(3,722,529
|
)
|
||||
Provision
for/(benefit of) income taxes
|
–
|
–
|
||||||
Net
Loss
|
$
|
(2,696,277
|
)
|
$
|
(3,722,529
|
)
|
||
Earnings
(Loss) per share:
|
||||||||
Basic
and diluted loss per share
|
$
|
(0.04
|
)
|
$
|
(0.08
|
)
|
||
Weighted
average shares outstanding
|
73,612,313
|
44,490,994
|
See
accompanying notes to these consolidated financial statements.
F-4
Consolidated
Statements of Stockholders’
Equity/(Deficit)
Additional
|
||||||||||||||||||||
Common
Stock
|
Paid-in
|
Accumulated
|
||||||||||||||||||
Shares
|
Par
Value
|
Capital
|
Deficit
|
Total
|
||||||||||||||||
(Restated) | (Restated) | (Restated) | ||||||||||||||||||
Balance
March 31, 2007 (Restated)
|
40,396,004
|
40,396
|
8,176,899
|
(14,165,945
|
)
|
(5,948,650
|
)
|
|||||||||||||
Shares
issued for cash
|
9,050,000
|
9,050
|
1,106,262
|
1,115,312
|
||||||||||||||||
Shares
issued for services of employees and others
|
4,239,099
|
4,239
|
297,483
|
301,722
|
||||||||||||||||
Shares
issued on conversion of debt (Restated)
|
1,200,000
|
1,200
|
199,200
|
200,400
|
||||||||||||||||
Net
loss for the year ended March 31, 2008 (Restated)
|
(3,722,529
|
)
|
(3,722,529
|
)
|
||||||||||||||||
Balance
March 31, 2008 (Restated)
|
54,885,103
|
$
|
54,885
|
$
|
9,779,844
|
$
|
(17,888,474
|
)
|
$
|
(8,053,745
|
)
|
|||||||||
Shares
issued for cash
|
13,531,000
|
13,531
|
1,263,409
|
1,276,940
|
||||||||||||||||
Shares
issued for acquisition
|
21,699,661
|
21,700
|
1,063,283
|
1,084,983
|
||||||||||||||||
Shares
issued for services of consultants and others
|
25,425,000
|
25,425
|
2,039,075
|
2,064,500
|
||||||||||||||||
Shares
issued for interest payments
|
700,000
|
700
|
62,300
|
63,000
|
||||||||||||||||
Shares
issued on conversion of debt
|
1,200,000
|
1,200
|
23,800
|
25,000
|
||||||||||||||||
Stock
option expense
|
358,362
|
358,362
|
||||||||||||||||||
Net
loss for the year ended March 31, 2009 (Restated)
|
(2,696,277
|
)
|
(2,696,277
|
)
|
||||||||||||||||
Balance
March 31, 2009 (Restated)
|
117,440,764
|
$
|
117,441
|
$
|
14,590,073
|
$
|
(20,584,750
|
)
|
$
|
(5,877,236
|
)
|
See
accompanying notes to these consolidated financial statements.
F-5
Consolidated
Statements of Cash Flows
For
the year ended
|
||||||||
March
31,
|
||||||||
2009
|
2008
|
|||||||
(Restated) | (Restated) | |||||||
Cash
Flows from Operating Activities:
|
||||||||
Net
Loss
|
$
|
(2,696,277
|
)
|
$
|
(3,722,529
|
)
|
||
Adjustments
to reconcile net loss to net cash
|
||||||||
provided
by operating activities:
|
||||||||
Depreciation
and amortization
|
308,833
|
247,768
|
||||||
Bad
debt provision
|
970,542
|
–
|
||||||
Inventory
valuation
|
84,176
|
–
|
||||||
Amortization
of debt discount
|
267,441
|
295,050
|
||||||
Change
in derivative valuation
|
(1,127,138
|
) |
1,272,446
|
|||||
Shares
issued for services and interest
|
2,127,500
|
289,722
|
||||||
Stock
grants to employees
|
358,362
|
12,000
|
||||||
Cashless
warrant conversion
|
(199,503
|
)
|
199,096
|
|||||
Changes
in assets and liabilities, excluding
|
||||||||
effects
of acquisitions:
|
||||||||
Receivables
|
(3,417,741
|
)
|
(864,554
|
)
|
||||
Inventories
|
(36,786
|
)
|
169,660
|
|||||
Prepaids
|
(1,432,612
|
)
|
(34,545
|
)
|
||||
Other
assets
|
(186,813
|
)
|
9,805
|
|||||
Intangibles
and goodwill
|
(12,148,767
|
)
|
–
|
|||||
Accounts
payable
|
394,193
|
175,080
|
||||||
Accounts
payable - affiliates
|
165,565
|
–
|
||||||
Accrued
liabilities
|
3,107,610
|
261,353
|
||||||
Cash
provided (used) by operating activities
|
(13,461,415
|
)
|
(1,689,649
|
)
|
||||
Investing
Activities:
|
||||||||
Capital
expenditures
|
(332,435
|
)
|
(12,090
|
)
|
||||
Acquisitions
of business
|
–
|
(119,760
|
)
|
|||||
Note
receivable
|
137,500
|
(137,500
|
)
|
|||||
Cash
used by investing activities
|
(194,935
|
)
|
(269,350
|
)
|
||||
Financing
Activities:
|
||||||||
Net
borrowings of debt
|
12,871,300
|
1,413,442
|
||||||
Repayment
of debt
|
(81,146
|
)
|
(611,327
|
)
|
||||
Net
proceeds from issuance of common shares
|
1,276,940
|
1,115,312
|
||||||
Net
cash used by financing activities
|
14,067,094
|
1,917,427
|
||||||
Net
increase (decrease) in cash
|
410,744
|
(41,572
|
)
|
|||||
Cash
at beginning of period
|
59,544
|
101,116
|
||||||
Cash
at end of period
|
$
|
470,288
|
$
|
59,544
|
(Continued)
See
accompanying notes to these consolidated financial statements.
F-6
Consolidated
Statements of Cash Flows
(Continued)
For
the year ended
|
||||||||
March
31,
|
||||||||
2009
|
2008
|
|||||||
(Restated) | (Restated) | |||||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid during the year for:
|
||||||||
Interest
|
$ | 126,689 | $ | 367,536 | ||||
Income
taxes
|
$ | – | $ | – | ||||
Non
Cash Activities:
|
||||||||
Notes
payable converted to common stock
|
$ | (25,000 | ) | $ | (100,200 | ) | ||
Common
stock issued for notes payable
|
1,200 | 1,200 | ||||||
Additional
paid-in capital from conversion of note payable
|
23,800 | 99,000 | ||||||
$ | – | $ | – |
See
accompanying notes to these consolidated financial statements.
F-7
Green
Planet Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For
the Years Ended March 31, 2009 and 2008
Note
1 - The Company
The Company -
Green Planet Group, Inc. (which is referred to herein together with
its subsidiaries as “Green Planet,” “GPG,” “the Company,” “we”, “us” or
“our”), formerly EMTA Holdings, Inc. and before that Omni Alliance Group, Inc.,
was organized and incorporated in the state of Nevada. On March 31, 2006, we
changed our name from Omni Alliance Group, Inc. to EMTA Holdings, Inc., and on
May 22, 2009 we changed the name through merger with a wholly owned
subsidiary to Green Planet Group, Inc. Our common stock now trades on
the OTC-Bulletin Board market under the trading symbol “GNPG:OB.”
Nature of the
Business - We are a specialty energy conservation chemical company
that produces and supplies technologies to the global transportation, industrial
and consumer markets. These technologies include gasoline, oil and diesel
additives for engines and other transportation-related fluids and industrial
lubricants.
Acquisitions
and Mergers
XenTx Lubricants,
Inc. - Effective January 1, 2007 the Company has acquired Dyson
Properties, Inc. Dyson manufactures and sells automotive racing and performance
oils and lubricants under the name Synergyn Racing and also produces products
under contract to third parties. The Synergyn line established in 1987
compliments the XenTx line and gives EMTA manufacturing and distribution
capabilities from the Synergyn plant in Durant, OK. In 2008, Dyson Properties,
Inc. changed its name to XenTx Lubricants, Inc.
This
acquisition gave the Company the ability to manufacture, bottle and distribute
its products through the Dyson location in Durant OK. We expect to expand
distribution of both product lines through the cross marketing of each other’s
products.
The
aggregate purchase price was $2,100,000, paid in cash and stock. The initial
payment of $100,000 was made on January 9, 2007. An additional $150,000 was paid
on the Closing Date, July 5, 2007. The balance of $254,240 will be paid in
December 31, 2009. In addition, on March 26, 2007 the Company issued 1,400,000
shares of common stock to the seller and the right to 1,400,000 warrants to
acquire a like number of shares on a cashless basis at an exercise price of
$0.75 per share for a period of three years from the Closing Date. In addition,
the seller will be entitled to a royalty for all sales of the Synergyn products
for five years at a rate of $0.20 per gallon or $0.20 per pound as the case may
be, paid quarterly on the first $600,000 of royalties earned during the royalty
term and $0.10 per gallon or per pound thereafter for the remainder of the
royalty term. During the year ended March 31, 2008, the purchase
price was adjusted by $119,760 pursuant to the Purchase Agreement
The
purchase price was allocated to the fair value of assets acquired and
liabilities assumed as follows:
Cash
and receivables
|
$
|
22,122
|
||
Inventory
|
129,855
|
|||
Property
and equipment
|
1,893,151
|
|||
Total
assets acquired
|
2,045,128
|
|||
Total
liabilities assumed
|
1,371,112
|
|||
Net
assets acquired
|
$
|
674,016
|
F-8
Lumea, Inc. - Effective
March 1, 2009, the Company through its wholly owned subsidiary Lumea, Inc,
formerly ATME Acquisitions, Inc., acquired certain assets and assumed certain
liabilities of Easy Staffing Solutions, Inc. and its
subsidiaries. With these acquisitions Lumea became a supplier of the
staffing needs for light industrial and other companies in 18
states.
The
aggregate purchase price is $12,464,752, to be paid in by the assumption of
debt, issuance of long term notes and the Company’s common stock to the
seller. The Company assumed $2,505,694 of the seller’s liabilities and
issued two notes to the seller in the amounts of $5,750,000 and $3,000,000, at
interest rates of 3.25% per annum each, the first loan requires monthly
principal and interest payments of $100,000 through March 2014 and the second
note requires the payment of principal and interest at maturity, March 1, 2014.
The Company also issued 21,699,661 shares of common stock with a fair value at
the time of purchase of $1,084,983, and 2,500,000 stock options valued at
$124,075. The options granted vest at a rate of 150,000 shares per quarter
as a guarantee fee until the notes due the seller are paid in full and become
exercisable at $0.046 per share. The scheduled maturity of those notes is
March 2014, by which time all of the options will have vested. If the
Company prepays the underlying notes, the vesting will cease and the unvested
options will become unexercisable.
The
purchase price was allocated to the fair value of assets acquired and
liabilities assumed as follows:
Property
and equipment
|
$ |
191,910
|
||
Customer relationships | 3,293,020 | |||
Goodwill
|
8,979,822
|
|||
Total
assets acquired
|
12,464,752
|
|||
Total
liabilities assumed
|
11,255,694
|
|||
Net
assets acquired
|
$
|
1,209,058
|
Continuance
of Operations
These
consolidated financial statements have been prepared in conformity with U.S.
generally accepted accounting principles applicable to a going concern which
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. The general business strategy of
the Company is to develop products and operate its sales force and to acquire
additional businesses. The Company has negative working capital, has
incurred operating losses and requires additional capital to fund development
activities, meet its obligations and maintain its operations. These conditions
raise doubt about the Company’s ability to continue as a going concern.
The Company completed a private offering of its restricted common stock in April
2008 with the sale of 10,206,000 shares, with net proceeds to the Company of
$1,211,962. Of this amount, $1,015,312 was received in the fourth quarter
of 2008 and is included in the year ended March 31, 2008 and the balance was
received in the first quarter of March 31, 2009. Additionally, the Company
also received $1,080,290 from the sale of restricted stock during the year ended
March 31, 2009. The Company is in negotiations to obtain additional necessary
capital to complete its regulatory approvals, expand production and sales and
generally meet its business objectives. The Company forecasts that the equity
obtained and additional borrowing capacity will provide sufficient funds to
complete its primary development activities and achieve profitable
operations. Accordingly, these financial statements do not include any
adjustments that might result from this uncertainty.
Note
2 - Significant Accounting Policies
Consolidation -
The consolidated financial statements include the accounts of Green Planet
Group, Inc. and its consolidated subsidiaries and wholly-owned limited liability
company. The financial statements for the year ended March 31, 2009 only include
the operations of Lumea, Inc. and its subsidiaries since March 1,
2009. All significant intercompany transactions and profits have been
eliminated.
F-9
Use of Estimates -
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities. The
more significant estimates relate to revenue recognition, contractual allowances
and uncollectible accounts, intangible assets, accrued liabilities, derivative
liabilities, income taxes, litigation and contingencies. Estimates are based on
historical experience and on various other assumptions that the Company believes
to be reasonable under the circumstances, the results of which form the basis
for judgments about results and the carrying values of assets and liabilities.
Actual results and values may differ significantly from these
estimates.
Cash Equivalents -
The Company invests its excess cash in short-term investments with various banks
and financial institutions. Short-term investments are cash equivalents, as they
are part of the cash management activities of the company and are comprised of
investments having maturities of three months or less when
purchased.
Allowance for Doubtful
Accounts - The Company provides an allowance for doubtful accounts
when management estimates collectibility to be uncertain. Accounts receivable
are continually reviewed to determine which, if any, accounts are doubtful of
collection. In making the determination of the appropriate allowance amount, the
Company considers current economic and industry conditions, relationships with
each significant customer, overall customer credit-worthiness and historical
experience. The allowance for doubtful accounts was $806,846 and $34,149 at
March 31, 2009 and 2008, respectively.
Inventories -
Inventories are stated at the lower of cost or market value. Cost of inventories
is determined by the first-in, first-out (FIFO) method. Obsolete or
abandoned inventories are charged to operations in the period that it is
determined that the items are not longer viable sales products.
Property, Plant, and
Equipment - Plant and equipment are carried at cost. Repair and
maintenance costs are charged against operations while renewals and betterments
are capitalized as additions to the related assets. The Company depreciates its
plant and equipment and computers on a straight line basis. Estimated useful
life of the plant is 39.5 years and the equipment ranges from 3 to
10 years.
Intangible Assets -
Intangible assets consist of patents, trademarks, government approvals and
customer relationships (including client contracts). For financial statement
purposes, identifiable intangible assets with a defined life are being amortized
using the straight-line method over the estimated useful
lives of seven years for the EPA license and 5 years for the customer
relationships. Costs incurred by the Company in connection with patent,
trademark applications and approvals from governmental agencies such as the
Environmental Protection Agency, including legal fees, patent and trademark fees
and specific testing costs, are expensed as incurred. Purchased intangible costs
of completed developments are capitalized and amortized over an estimated
economic life of the asset, generally seven years, commencing on the acquisition
date. Costs subsequent to the acquisition date are expensed as
incurred.
Goodwill - Goodwill
represents the excess of the purchase price over the fair value of the net
assets acquired. Goodwill and other intangible assets having an indefinite
useful life are not amortized for financial statement purposes. The
Company performs an annual impairment test each year and in the event that
facts and circumstances indicate that goodwill and other identifiable intangible
assets may be impaired, an interim impairment test would be required. The
Company’s testing approach will utilize a discounted cash flow analysis to
determine the fair value of its reporting units for comparison to their
corresponding book values. If the book value exceeds the estimated
fair value for a reporting unit, a potential impairment is indicated and
Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other
Intangible Assets prescribes the approach for determining the impairment amount,
if any.
F-10
Impairment of Long-Lived
Assets - In accordance with the Statement of Financial Accounting
Standards No. 144 (“FAS 144”), “Accounting for the Impairment or Disposal
of Long-Lived Assets,” the Company reviews long-lived assets, including, but not
limited to, property and equipment, patents and other assets, for impairment
annually or whenever events or changes in circumstances indicate the carrying
amounts of assets may not be recoverable. The carrying value of long-lived
assets is assessed for impairment by evaluating operating performance and future
undiscounted cash flows of the underlying assets. If the sum of the expected
future cash flows of an asset is less than its carrying value, an impairment
measurement is required. Impairment charges are recorded to the extent that an
asset’s carrying value exceeds fair value. Accordingly, actual results could
vary significantly from such estimates. There were no impairment charges during
the periods presented.
Fair Value
Disclosures - The carrying values of cash, accounts receivable, deposits,
prepaid expenses, accounts payable and accrued expenses generally approximate
the respective fair values of these instruments due to their current
nature.
Derivative Financial
Instruments - The Company accounts
for derivative instruments and debt instruments in accordance with the
interpretative guidance of SFAS No. 133, “Accounting for Derivative
Instruments and Hedging Activities” (“SFAS 133”), EITF 00-19,
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock,” APB No. 14, “Accounting for Convertible
Debt and Debt Issued with Stock Purchase Warrants,” EITF 98-5, “Accounting
for Convertible Securities with Beneficial Conversion Features or Contingently
Adjustable Conversion Ratios” (“EITF 98-5”), and EITF 00-27,
“Application of Issue No. 98-5 to Certain Convertible Instruments”
(“EITF 00-27”), and associated pronouncements related to the classification
and measurement of warrants and instruments with conversion features. It is
necessary for the Company to make certain assumptions and estimates to value
derivatives and debt instruments.
Provisions
for sales discounts and rebates to customers are recorded, based upon the terms
of sales contracts, in the same period the related sales are recorded, as a
deduction to the sale. Sales discounts and rebates are offered to certain
customers to promote customer loyalty and encourage greater product sales.
As a general rule, the Company does not charge interest on its accounts
receivables.
Components of Cost of
Sales - Cost of sales is comprised of raw material costs including
freight and duty, inbound handling costs associated with the receipt of raw
materials, contract manufacturing costs, third party bottling and packaging,
maintenance and storage costs, plant and engineering overhead allocation,
terminals and other warehousing costs, and handling costs.
Selling Expenses -
Included in selling and general administrative expenses are the commission
expenses for both employees and outside sales representatives ranging from 1.5%
to 11.5% per dollar of sales. Our staffing sales representatives are paid a
commission on new sales. The Company expends significant amounts to
advertise and distinguish its products from those of its competitors through the
use of in-store advertising, printed media, internet and broadcast
media.
Research, Testing and
Development - Research, testing and development costs are expensed as
incurred. Research and development expenses, including testing, were $0 and
$118,546 for the years ended March 31, 2009 and 2008, respectively. Costs to
acquire in-process research and development (IPR&D) projects that have no
alternative future use and that have not yet reached technological feasibility
at the date of acquisition are expensed upon acquisition.
F-11
Income Taxes - We
provide for income taxes in accordance with SFAS No. 109, “Accounting for
Income Taxes.” SFAS No. 109 requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the financial statement carrying amounts and the tax bases
of the assets and liabilities.
The
recording of a net deferred tax asset assumes the realization of such asset in
the future; otherwise a valuation allowance must be recorded to reduce this
asset to its net realizable value. The Company considers future pretax income
and, if necessary, ongoing prudent and feasible tax planning strategies in
assessing the need for such a valuation allowance. In the event that the Company
determines that it may not be able to realize all or part of the net deferred
tax asset in the future, a valuation allowance for the deferred tax asset is
charged against income in the period such determination is made. The Company has
recorded full valuation allowances as of March 31, 2009 and 2008.
Concentrations of Credit
Risks - Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. Although the amount of credit exposure to
any one institution may exceed federally insured amounts, the Company limits its
cash investments to high-quality financial institutions in order to minimize its
credit risk. With respect to accounts receivable, such receivables are primarily
from distributors and retailers located in the United States and foreign
distributors. The Company extends credit based on an evaluation of the
customer’s financial condition, generally without requiring collateral. Exposure
to losses on receivables is dependent on each customer’s financial
condition. At March 31, 2009 and 2008, the amounts due from foreign
distributors were $1,363,756 and $745,952, which represent 32.2% and 79.9% of
accounts receivable, respectively.
Segment
Information
We
operate in two industry segments, the development, manufacture and sale of
private and commercial vehicle energy efficient enhancement products and
employee staffing services. The enhancement products are designed to extend
engine life, promote fuel efficiency and reduce emissions. These products are
being marketed by the Company and sales were predominantly in the United States
of America, Canada, Mexico and Nigeria. The staffing segment was
added on March 1, 2009 and provides staffing services primarily to the light
industrial segment of the economy.
Litigation - The
Company is and may become a party in routine legal actions or proceedings in the
ordinary course of its business. Management does not believe that the outcome of
these routine matters will have a material adverse effect on the Company’s
consolidated financial position or results of operations.
Environmental - The
Company’s enhancement products and related operations are subject to extensive
federal, state and local laws, regulations and ordinances in the United States
relating to the generation, storage, handling, emission, transportation and
discharge of certain materials, substances and waste into the environment, and
various other health and safety matters. Governmental authorities have the power
to enforce compliance with their regulations, and violators may be subject to
fines, injunctions or both. The Company must devote substantial financial
resources to ensure compliance, and it believes that it is in substantial
compliance with all the applicable laws and regulations.
F-12
New accounting
pronouncements:
Fair
Value Measurement
In
September 2006, the FASB issued SFAS No. 157, Fair Value Measurements
(“SFAS 157”), as amended in February 2008 by FSP FAS 157-2, Effective Date of FASB Statement
No. 157. The provisions of SFAS 157 were effective for the Company
as of April 1, 2008. However, FSP FAS 157-2 deferred the effective date for
all nonfinancial assets and liabilities, except those recognized or disclosed at
fair value on an annual or more frequent basis, until April 1, 2009. SFAS
157 defines fair value, creates a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. The Company does not expect the adoption of SFAS 157 to have
a material effect on its results of operations and financial
position.
Fair
Value Option
In
February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities — Including an amendment of FASB
Statement No. 115 (“SFAS 159”), which permits all entities to choose
to measure eligible items at fair value on specified election dates. The
associated unrealized gains and losses on the items for which the fair value
option has been elected shall be reported in earnings. SFAS 159 became effective
for the Company as of April 1, 2008; however, the Company has not elected
to utilize the fair value option on any of its financial assets or liabilities
under the scope of SFAS 159.
Non-controlling
Interests
In
December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in
Consolidated Financial Statements — an amendment of ARB No. 51
(“SFAS 160”). SFAS 160 requires a company to clearly identify and present
ownership interests in subsidiaries held by parties other than the company in
the consolidated financial statements within the equity section but separate
from the company’s equity. It also requires the amount of consolidated net
income attributable to the parent and to the non-controlling interest be clearly
identified and presented on the face of the consolidated statement of
operations; changes in ownership interest be accounted for similarly, as equity
transactions; and when a subsidiary is deconsolidated, any retained
non-controlling equity investment in the former subsidiary and the gain or loss
on the deconsolidation of the subsidiary be measured at fair value. This
statement is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008, and earlier application is
prohibited. SFAS 160 is not applicable as the Company does not have any
non-controlling interests.
F-13
Business
Combinations
In
December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS
141(R)”). The objective of SFAS 141(R) is to improve the information provided in
financial reports about a business combination and its effects. SFAS 141(R)
states that all business combinations (whether full, partial or step
acquisitions) must apply the “acquisition method.” In applying the acquisition
method, the acquirer must determine the fair value of the acquired business as
of the acquisition date and recognize the fair value of the acquired assets and
liabilities assumed. As a result, it will require that certain forms of
contingent consideration and certain acquired contingencies be recorded at fair
value at the acquisition date. SFAS 141(R) also states acquisition costs will
generally be expensed as incurred and restructuring costs will be expensed in
periods after the acquisition date. This statement is effective for business
combination transactions for which the acquisition date is on or after
April 1, 2009, and earlier application is prohibited. The Company will
adopt this statement on April 1, 2009. The impact of the adoption of SFAS
141(R) on the Company’s financial statements will largely be dependent on the
size and nature of the business combinations completed after the adoption of
this statement. While SFAS 141(R) generally applies only to transactions that
close after its effective date, the amendments to SFAS 109 and FIN 48 are
applied prospectively as of the adoption date and will apply to business
combinations with acquisition dates before the effective date of SFAS 141(R).
The Company estimates that the affect on the recorded valuation allowance and
unrecognized tax benefits, which are associated with prior acquisitions will not
have a material effect on the results of operations or statement of position in
future periods, if recognized in future periods.
Disclosures
about Derivative Instruments and Hedging Activities
In March
2008, the FASB issued SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities-an amendment of FASB Statement
No. 133 (“SFAS 161”). This Statement changes the
disclosure requirements for derivative instruments and hedging activities.
Entities are required to provide enhanced disclosures about (a) how and why
an entity uses derivative instruments, (b) how derivative instruments and
related hedged items are accounted for under Statement 133 and its related
interpretations, and (c) how derivative instruments and related hedged
items affect an entity’s financial position, financial performance, and cash
flows. This statement is effective for financial statements issued for fiscal
years and interim periods beginning after November 15, 2008. The Company
adopted SFAS 161 on January 1, 2009, the beginning of the Company’s fiscal 2009
fourth quarter.
GAAP
Hierarchy
In
May 2008, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 162, “The Hierarchy of
Generally Accepted Accounting Principles.” SFAS No. 162 identifies the
sources of accounting principles and the framework for selecting the principles
used in the preparation of financial statements of nongovernmental entities that
are presented in conformity with generally accepted accounting principles (the
GAAP hierarchy). SFAS No. 162 will become effective 60 days following
the SEC’s approval of the Public Company Accounting Oversight Board amendments
to AU Section 411, “The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles.” EMTA does not expect the adoption of
SFAS No. 162 to have a material effect on its results of operations and
financial position.
Convertible
Debt
In
May 2008, the FASB issued Financial Statement Position (FSP) Accounting
Principles Board (APB) 14-1 “Accounting for Convertible Debt Instruments
That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement).”
FSP APB 14-1 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. FSP APB 14-1 is effective for fiscal years beginning after
December 15, 2008 on a retroactive basis and will be adopted by EMTA in the
first quarter of fiscal 2010. EMTA is currently evaluating the potential impact,
if any, of the adoption of FSP APB 14-1 on its results of operations and
financial position.
Note
3 - Inventories
Inventory
consists of finished goods, work in process and raw material as follows:
March
31,
2009
|
March
31,
2008
|
|||||||
Finished
goods
|
$
|
173,523
|
$
|
340,087
|
||||
Raw
material
|
195,880
|
76,706
|
||||||
$
|
369,403
|
$
|
416,793
|
At March
31, 2009 and 2008, equipment and computers consisted of the
following:
March
31,
2009
|
March
31,
2008
|
|||||||
Property
and plant
|
$
|
1,452,146
|
$
|
1,442,401
|
||||
Equipment
and computers
|
746,611
|
518,504
|
||||||
Less
accumulated depreciation
|
(297,923
|
)
|
(173,938
|
)
|
||||
Net
equipment and Computers
|
$
|
1,900,834
|
$
|
1,789,967
|
During
the years ended March 31, 2009 and 2008, depreciation and amortization expense
was $127,227 and $121,046, respectively.
During
the year ended March 31, 2008, the carrying values of assets acquired from XenTx
Lubricants, Inc. were reduced by $119,760 in accordance with the Purchase
Agreement.
Note
5 - Intangible Assets and Goodwill
Intangible
assets consist of technology of production and license rights under the
Environmental Protection Agency to market one of the products acquired in the
acquisition of White Sands, L.L.C. on March 31, 2006. The Company intends to
market the related products as soon as production and marketing strategies can
be completed. The Company is amortizing this investment over its estimated
useful life of seven years on a straight line basis. For the years ended March
31, 2009 and March 31, 2008, amortization was $126,722 in each year. The
customer relationships are the value of the purchased business
relationships acquired as part of the purchase by Lumea of the staffing business
on March 1, 2009. The amortization of this intangible is being
amortized over 5 years and for the period ended March 31, 2009 the amortization
was $54,884.
F-15
Intangible
assets subject to amortization:
Weighted
|
March
31, 2009
|
||||||||||||
Average
|
Gross
Carrying
|
Accumulated
|
Net
Carrying
|
||||||||||
Useful
Life
|
Amount
|
Amortization
|
Amount
|
||||||||||
Intangible
assets subject to amortization:
|
|||||||||||||
EPA
licenses
|
7
years
|
$ | 887,055 | $ | 380,166 | $ | 506,889 | ||||||
Customer
relationships
|
5
years
|
3,293,020 | 54,884 | 3,238,136 | |||||||||
$ | 4,180,075 | $ | 435,050 | $ | 3,745,025 | ||||||||
Goodwill not subject to amortization: | |||||||||||||
Goodwill:
|
|||||||||||||
Goodwill
|
$ | 8,979,822 | $ | – | $ | 8,979,822 | |||||||
$ | 8,979,822 | $ | – | $ | 8,979,822 | ||||||||
Intangible assets subject to amortization: | |||||||||||||
Weighted
|
March
31, 2008
|
||||||||||||
Average
|
Gross
Carrying
|
Accumulated
|
Net
Carrying
|
||||||||||
Useful
Life
|
Amount
|
Amortization
|
Amount
|
||||||||||
Intangible
assets subject to amortization:
|
|||||||||||||
EPA
licenses
|
7
years
|
$ | 887,055 | $ | 253,444 | $ | 633,611 | ||||||
$ | 887,055 | $ | 253,444 | $ | 633,611 |
The
scheduled amortization to be recognized over the next five years is as
follows:
2010 | $ | 785,326 | |
2011
|
$
|
785,326
|
|
2012
|
$
|
785,326
|
|
2013
|
$
|
785,326
|
|
2014
|
$
|
603,721
|
Accrued
liabilities consist of the following as of March 31, 2009 and 2008:
March
31,
2009
|
March
31,
2008
|
|||||||
Accrued
marketing and advertising
|
$
|
300,000
|
$
|
300,000
|
||||
Accrued
reimbursement to product testing partner
|
978,151
|
978,151
|
||||||
Accrued
interest
|
804,717
|
288,046
|
||||||
Accrued payroll, taxes and benefits | 2,446,929 | – | ||||||
Other
|
235,229
|
91,219
|
||||||
$
|
4,765,026
|
$
|
1,657,416
|
As part
of our testing of products and new applications the Company agreed to reimburse
one of our testing partners for the costs incurred in such testing.
F-16
Note
7 - Notes and Contracts Payable
March 31,
|
||||||||
2009
|
2008
|
|||||||
Revolving
line of credit against factored Lumea receivables (2)
|
$
|
2,055,015
|
$
|
–
|
||||
Bank
loans, payable in installments
|
359,803
|
287,943
|
||||||
Mortgage
loan payable, monthly payments of principal and interest
at 3 month LIBOR plus 4.7% (1)
|
806,853
|
807,062
|
||||||
Payments
due seller of XenTx Lubricants
|
254,240
|
254,240
|
||||||
Loan
from Dyson
|
60,000
|
35,000
|
||||||
Notes
payable
|
1,476,650
|
1,396,232
|
||||||
Loans
from individuals, due within one year
|
471,356
|
258,000
|
||||||
Purchase
note payable
|
1,575,139
|
–
|
||||||
Purchase
note 1
|
5,650,000
|
–
|
||||||
Purchase
note 2
|
2,888,796
|
–
|
||||||
Total
|
15,597,852
|
3,038,477
|
||||||
Less
current portion
|
6,536,202
|
1,951,365
|
||||||
Long-term
debt
|
$
|
9,061,650
|
$
|
1,087,112
|
____________
(1)
|
In
conjunction with the acquisition of Dyson, the mortgage became payable as
a result of the change of control of that company. The Company is in the
process of refinancing the
property.
|
(2)
|
The
Company maintains a $7 million line of credit relating to its factored
accounts receivable.
|
Bank
Loans consist of two loans that became due in the first quarter of 2009; these
loans are secured by receivables, inventory and equipment in Durant,
Oklahoma. The Company is working to replace these loans and has
arranged a payment schedule to retire these loans. The Mortgage Loan Payable has
matured as a result of the change in control of the operations in
Durant. The Company continues to make principal and interest payments
while the Company obtains a replacement loan on the
property. Interest is reset quarterly at Libor plus
4.7%.
The
amounts due sellers bear interest at a rate of 8.0% and is due in October 31,
2009.
Substantially all of the
staffing receivables are pledged as collateral for the revolving line of
credit. At March 31, 2009, the Company had pledged receivables of
$2,532,926.
Notes
payable include amounts due in one year consists of the loan from Shelter Island
Opportunity Fund with interest at 12.25% per annum and secured by the plant and
equipment in Durant, Oklahoma. Subsequent to the end of the year, the lender and
the Company have negotiated a modified payment schedule to bring this loan
current. In conjunction with this settlement, substantial portions of this note
will subsequently be reflected as long-term. Purchase Notes 1 and 2 are
secured by all of the business assets of Lumea. Maturities for the
remainder of the loans are as follows:
2011
|
$
|
1,366,644
|
|
2012
|
$
|
1,307,703
|
|
2013
|
$
|
1,356,881
|
|
2014
|
$
|
4,556,874
|
|
Thereafter | $ | 473,548 |
The
balance of the notes payable consist of commercial loans of a vehicles and
equipment in the normal course of business.
The Loans
from individuals includes four loans which are all due within one year and bear
interest from 9% to 12%.
F-17
Note 8
- Income Taxes
Through
March 31, 2009, we recorded a valuation allowance of $5,871,215 against deferred
income tax assets primarily associated with tax loss carry forwards. Our
significant operating losses experienced in prior years establishes a
presumption that realization of these income tax benefits does not meet a “more
likely than not” standard.
We have net operating loss
carry forwards of approximately $14,255,779. Our net operating loss carry
forwards will expire between 2025 and 2029.
Significant
components of our deferred tax assets and liabilities at the balance sheet dates
were as follows:
March
31,
|
||||||||
2009
|
2008
|
|||||||
Deferred
Tax Assets and Liabilities
|
||||||||
Deferred
tax assets:
|
||||||||
Net
operating loss carryforwards
|
$
|
5,480,393
|
$
|
4,594,546
|
||||
Allowance
for doubtful accounts
|
390,822
|
16,204
|
||||||
Total
|
5,871,215
|
4,610,750
|
||||||
Less:
Valuation allowance
|
(5,871,215
|
)
|
(4,610,750
|
)
|
||||
Total
deferred tax assets
|
–
|
–
|
||||||
Total
deferred tax liabilities
|
–
|
–
|
||||||
Net
deferred tax liabilities
|
$
|
–
|
$
|
–
|
Fiscal
Years Ended March 31,
|
||||||||
2009
|
2008
|
|||||||
Reconciliation
|
||||||||
Income
tax credit at statutory rate
|
$
|
(780,303
|
)
|
$
|
(765,364
|
)
|
||
Effect
of state income taxes
|
(105,545
|
)
|
(103,508
|
)
|
||||
Valuation
allowance
|
885,848
|
868,872
|
||||||
Income
taxes (credit)
|
$
|
–
|
$
|
–
|
Future
realization of the net operating losses is dependent on generating sufficient
taxable income prior to their expiration. Tax effects are based on a 34% Federal
income tax rate. The net operating losses expire as follows:
|
Amount
|
|||
2025
|
$
|
1,524,541
|
||
2026
|
5,132,298
|
|||
2027
|
3,052,902
|
|||
2028
|
2,251,030
|
|||
2029
|
2,295,008
|
|||
Total
net operating loss available
|
$
|
14,255,779
|
F-18
Note
9 - Fair Value Measurements
The
Company adopted SFAS No. 157 as of April 1, 2009. SFAS No. 157
applies to certain assets and liabilities that are being measured and reported
on a fair value basis. SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in accordance with generally accepted
accounting principles, and expands disclosure about fair value
measurements. SFAS No. 157 enables the reader of the financial
statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. SFAS No. 157 requires that assets and
liabilities carried at fair value will be classified and disclosed in one of the
following three categories:
Level
1: Quoted market prices in active markets for identical assets or
liabilities.
Level
2: Observable market based inputs or unobservable inputs that are
corroborated by market data.
Level
3: Unobservable inputs that are not corroborated by market
data.
The
Company records liabilities related to its derivative liability (See Note 11 –
Derivative Financial Instruments) and the cashless warrant liability, both
consisting of warrants and options outstanding, at their fair market values
as provided by SFAS No. 157.
The
following table provides fair market measurements of the derivative liaibility
and cashless warrant liaibility as of March 31, 2009:
Fair
Value Measurements at Reporting Date Using Significant Unobservable Inputs
(Level 3)
|
||||
Derivative
liability
|
$
|
791,732
|
||
Cashless
warrant liability
|
57,876
|
|||
$
|
849,608
|
The
change in fair market value of the derivative liability and cashless warrant
liability is included in interest expense in the Consolidated Statements of
Operations.
The
following table provides a reconciliation of the beginning and ending balances
of the derivative liability and cashless warrant liability as of March 31,
2009:
Derivative
liability
|
Cashless
warrant liability
|
Total
|
||||||||||
Beginning
balance April 1, 2008
|
$
|
1,794,796
|
$
|
257,379
|
$
|
2,052,174
|
||||||
Change
in fair market value of derivative liability and cashless warrant
liability
|
(1,003,064
|
) |
(199,503
|
) |
(1,202,567
|
) | ||||||
Ending
balance Marcch 31, 2009
|
$
|
791,732
|
$
|
57,876
|
$
|
849,608
|
F-19
Certain
financial instruments are carried at cost on the consolidated balance sheets,
which approximates fair value due to their short-term, highly liquid nature.
These instruments include cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses, other short-term liabilities, and capital
lease obligations.
Note
10 – Convertible Debt
The
Company entered into a Convertible Loan Agreement which also entitled the
lenders to warrants and to convert the loans, at their option, to common stock
of the Company. The debt is convertible at a rate of 50% of the then current
market price at the time of conversion. At March 31, 2009, the value of the 6%
Convertible Notes, with interest quarterly, was as follows:
Maturity
|
Face
Amount
|
Conversion
Derivative
|
Balance
|
|||||||||
April
28, 2009
|
$
|
327,050
|
$
|
327,050
|
$
|
657,100
|
||||||
August
17, 2009
|
700,000
|
700,000
|
1,400,000
|
|||||||||
October
28, 2009
|
300,000
|
300,000
|
600,000
|
|||||||||
November
10, 2009
|
1,200,000
|
1,200,000
|
2,400,000
|
|||||||||
Total
|
$
|
2,527,050
|
$
|
2,527,050
|
$
|
5,054,100
|
Interest
expense for the year ended March 31, 2009 and 2008 was $151,623 and $154,507,
respectively.
Note
11 – Derivative Financial Instruments
In
connection with various financings through November 10, 2006, the Company has
issued warrants to purchase shares of common stock in conjunction with the
convertible notes to purchase 12,000,000 shares of common stock at an exercise
price of $2.50 per share. The Company also issued warrants to a broker in the
transaction for the exercise of 70,000 shares of common stock at an exercise
price of $2.50. These warrants expire if not exercised at various dates in 2013
through November 10, 2013. At March 31, 2009, all of the 12,000,000 warrants
have been issued entitling the lender to one share for each warrant at an
exercise price of $2.50 per share.
The
agreements include registration rights and certain other terms and conditions
related to share settlement of the embedded conversion features and the
warrants. In this instance, EITF 00-19, “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”,
requires allocation of the proceeds between the various instruments and the
derivative elements carried at fair values.
F-20
In
additional, in conjunction with financings, purchases and consulting
transactions between April 1, 2007 and March 31, 2009 the Company issued
additional warrants, net of expirations, to purchase 8,725,000 shares of the
Company’s common stock at exercise prices between $0.04 and $2.50 per
share. At March 31, 2009, 2,500,000 options were not
exercisable. The options granted vest at a rate of 150,000 shares per
quarter as a guarantee fee until the notes due the seller are paid in full and
become exercisable at $0.046 per share. The scheduled maturity of those
notes is March 2014, by which time all of the options will have vested. If
the Company prepays the underlying notes, the vesting will cease and the
unvested options will become unexercisable. No warrants or
options have been exercised.
Number
of Shares
|
Weighted
Average
|
|||||
Subject
to Outstanding
|
Remaining
|
|||||
|
Warrants
and Options
|
Contractual
Life
|
||||
Exercise
Price
|
and
Exercisable
|
(years)
|
||||
|
$
0.75
|
5,775,000
|
3.25
|
|||
|
$
2.50
|
12,450,000
|
4.26
|
|||
18,225,000
|
||||||
Not
exercisable
|
2,500,000
|
|||||
20,725,000
|
In
addition to the spot price of the stock and remaining term of the warrant, other
factors used in the binomial model included in the analysis at March 31, 2009
were the volatility of 230.5%, risk free rate of between 0.56% and 3.19% and a
dividend rate of $0 per period.
Note 12
- Commitments and Contingencies
Concentration
of Credit Risk
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist of cash. The Company periodically evaluates the credit worthiness
of financial institutions, and maintains cash accounts only in large high
quality financial institutions, thereby minimizing exposure for deposits in
excess of federally insured amounts.
F-21
Lease
Commitments
The
Company has lease agreements for office space in Scottsdale, Arizona and for 26
offices throughout the United States. The remaining lease commitment for the two
Scottsdale office are 3 and 5 years and the other offices is year to year or
month-to-month. The following table sets forth the aggregate minimum future
annual lease commitments at March 31, 2009 under all non-cancelable leases for
fiscal years ending March 31:
2010
|
$
|
374,923
|
||
2011
|
292,276
|
|||
2012
|
225,921
|
|||
2013
|
110,350
|
|||
2014 | 63,064 | |||
Thereafter | 110,052 | |||
$
|
1,176,586
|
Lease expense for the
years ended March 31, 2009 and 2008 were $99,431 and $90,398,
respectively. The total of all scheduled lease payments, assuming all
locations are continued at the same rates, is $623,315 per year.
In
conjunction with the acquisition of the assets of Lumea, a company owned by the
President/CEO of the Company had a prior placement agreement with the Sellers of
the assets and as such was entitled to receive compensation for such placement
with any entity. As part of the closing that company was paid a fee
of $168,333 which was paid by the issuance of 3,366,667 shares of Green Planet’s
restricted common stock. The executives of the Company were issued a total of
1.5 million restricted shares of common stock during 2009 as part of their
compensation. The Company recognized expense of $60,000 in conjunction
with these issuances.
Note 14
- Company Stock
Preferred
Stock
At March
31, 2009 and 2008, the Company had 1,000,000 shares of $0.001 par value
authorized and no outstanding or issued shares. If and when issued, such shares
will have the rights, preferences, privileges and restrictions as determined by
the Board of Directors.
Common
Stock
At March
31, 2009 and 2008, the Company had 250,000,000 shares authorized of $0.001 par
value common stock, of which issued and outstanding shares were 117,440,764 and
54,885,103, respectively.
Warrants
In
conjunction with four fundings during the year ended March 31, 2007, the Company
issued 7,000,000 warrants at an exercise price of $2.50 per share and 5,000,000
warrants to cure a default caused by late filing of the registration statement
with the Securities and Exchange Commission and 700,000 cashless warrants to the
broker that brought the loan packages to the Company. All of these warrants
expire seven years from issue.
Also, the
Company issued 1,400,000 cashless warrants to the seller in conjunction with the
acquisition of Dyson Properties, Inc. that expire March 26, 2010.
F-22
During
the year ended March 31, 2008, the Company issued 5,775,000 warrants at an
exercise price of $0.75 per share and 519,750 cashless warrants at an exercise
price of $0.75 for a period of 5 years in conjunction with a loan funding in
June of 2007. The Company also issued warrants to purchase 500,000
shares at an exercise price of $0.75 for a term of two years in conjunction with
the investor’s purchase of common stock that expire on May 21,
2009.
At March
31, 2009, the status of outstanding warrants is as follows:
Issue
Date
|
Shares
Exercisable
|
Weighted
Average
Exercise
Price
|
Expiration
Date
|
||||
September
27, 2005
|
450,000
|
$
|
2.50
|
September
26, 2010
|
|||
April
29, 2006
|
1,866,667
|
$
|
2.50
|
April
28, 2013
|
|||
June
28, 2006
|
5,000,000
|
$
|
2.50
|
August
10, 2013
|
|||
August
17, 2006
|
1,633,333
|
$
|
2.50
|
August
17, 2013
|
|||
October
28, 2006
|
700,000
|
$
|
2.50
|
October
28, 2013
|
|||
November
10, 2006
|
2,800,000
|
$
|
2.50
|
November
10, 2013
|
|||
May
21, 2007
|
500,000
|
$
|
.75
|
May
20, 2009
|
|||
July
1, 2007
|
5,775,000
|
$
|
.75
|
June
30, 2012
|
|||
Cashless
April 20-November 10, 2006
|
700,000
|
$
|
2.50
|
April
9 - November 10, 2015
|
|||
Cashless
March 26, 2007
|
1,400,000
|
$
|
.75
|
March
26, 2010
|
|||
Cashless
July 1, 2007
|
519,750
|
$
|
.75
|
June
30, 2012
|
The
warrants have no intrinsic value at March 31, 2009.
Stock
Options
At
March 31, 2009, the Company had one stock option plan under which grants
were outstanding. The stock options outstanding are for grants issued under the
Company’s 2007 Stock Incentive Plan.
The
2007 Stock Incentive Plan
During
the fiscal year ended March 31, 2009, the Company adopted a stock option
plan, entitled the “2007 Incentive Plan” (the “2007 Plan”), under which the
Company may grant options to purchase up to 20,000,000 shares of common
stock.
The 2007
Plan is administered by the Board of Directors or a Committee of the Board of
Directors which has the authority to determine the persons to whom the options
may be granted, the number of shares of common stock to be covered by each
option grant, and the terms and provisions of each option grant. Options granted
under the 2007 Plan may be incentive stock options or non-qualified options, and
may be issued to employees, consultants, advisors and directors of the Company
and its subsidiaries. The exercise price of options granted under the 2007 Plan
may not be less than the fair market value of the shares of common stock on the
date of grant, and may not be granted more than ten years from the date of
adoption of the plan or exercised more than ten years from the date of
grant.
F-23
The
following table sets forth the Company’s stock option activity during the year
ended March 31, 2009:
Shares
Underlying
Options
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Contractual
Life
|
Aggregate
Intrinsic
Value
|
||||
Outstanding
at March 31, 2007
|
–
|
$
|
–
|
|
–
|
–
|
||
Granted
|
5,415,000
|
.20
|
3.0
|
–
|
||||
Exercised
|
–
|
–
|
–
|
–
|
||||
Canceled
|
–
|
–
|
|
–
|
–
|
|||
|
||||||||
Outstanding
at March 31, 2008
|
5,415,000
|
.20
|
|
3.0
|
–
|
|||
Granted
|
–
|
–
|
–
|
–
|
||||
Exercised
|
–
|
–
|
–
|
–
|
||||
Canceled
|
450,000
|
.20
|
–
|
–
|
||||
|
||||||||
Outstanding
at March 31, 2009
|
4,965,000
|
$
|
.20
|
|
2.0
|
–
|
Number of
Options
|
Weighted-Average
Grant-Date
Fair
Value
|
|||||||
Non-vested
as of March 31, 2007
|
–
|
$
|
–
|
|||||
Granted
|
5,415,000
|
.11
|
||||||
Forfeited
|
–
|
–
|
||||||
Vested
|
–
|
–
|
||||||
Non-vested
as of March 31, 2008
|
5,415,000
|
$
|
.11
|
|||||
Granted
|
–
|
.11
|
||||||
Forfeited
|
(450,000
|
)
|
–
|
|||||
Vested
|
(3,310,000
|
)
|
–
|
|||||
Non-vested
as of March 31, 2009
|
1,655,000
|
$
|
.11
|
F-24
During
the year ended March 31, 2008, the Company granted options to purchase an
aggregate of 5,415,000 shares of common stock to employees, directors and
consultants for services to be provided. These options are exercisable at $0.20
per share, and vest one third on October 1, 2008, April 1, 2009 and October 1,
2009 with an expiration of three years from the date of grant for all options.
The Company has valued these at their fair value on the date of grant using the
Hull-White enhanced option-pricing model. During the year ended March 31, 2009
the Company recognized expense of $358,362.
The
original unrecognized stock-based compensation expense related to the unvested
options was approximately $610,548 and will be recognized as expense over the
vesting periods of 18 months. This estimate is based on the number of unvested
options currently outstanding and could change based on the number of options
granted or forfeited in the future. These options have no intrinsic value
at March 31, 2009 or March 31, 2008.
The
assumptions used in calculating the fair value of stock-based payment awards
represent management’s best estimates.
The
Company based its expected volatility on the historical volatility of similar
companies with consideration given to the expected life of the award. The
Company continued to consistently use this method until March 31, 2009 when it
appeared that sufficient market acceptance of its stock and volume has reached a
stable level.
The
risk-free interest rate used for each grant is equal to the U.S. Treasury yield
in effect at the time of grant for instruments with a similar expected
life.
The
expected term of options granted was determined based on the historical exercise
behavior of similar peer groups.
The
Company has never declared or paid a cash dividend, and has no current plans to
pay a cash dividend in the future.
SFAS
123(R) also requires that the Company recognize compensation expense for only
the portions that are expected to vest. Therefore, the Company has estimated
expected forfeitures of stock options with the adoption of SFAS 123(R). In
developing a forfeiture rate estimate, the Company considered its historical
experience. If the actual number of forfeitures differs from those estimated by
management, additional adjustments to compensation expense may be required in
future periods.
The fair
value of options were estimated at the date of grant with the following
weighted-average assumptions for the fiscal year ended March 31,
2008:
2008
|
||||
Risk
Free Interest Rate
|
1.79
|
%
|
||
Expected
Life
|
3.0 years
|
|||
Expected
Volatility
|
116
|
%
|
||
Expected
Dividend Yield
|
0
|
%
|
The per
share weighted average fair value of stock options granted for the fiscal year
ended March 31, 2008 was $0.11.
F-25
Note 15
- Earnings (Loss) Per Share
Basic
income (loss) per common share is computed by dividing the results of operations
by the weighted average number of shares outstanding during the period. For
purposes of the determining the number of shares outstanding the shares received
by the acquirer in the reverse acquisition are treated as outstanding for all
periods prior to the transaction.
Diluted
income (loss) earnings per common share adjusts basic income (loss) per common
share for the effects of convertible securities, stock options, warrants and
other potentially dilutive financial instruments only in periods in which such
effect is dilutive. No instruments were dilutive at March 31, 2009 or
2008. The diluted income (loss) per common share excludes the
dilutive effect of approximately 22,999,750 and 21,344,750 warrants and
stock options at March 31, 2009 and 2008, respectively, since such warrants and
options have an exercise price in excess of the average market value of the
Company’s common stock during the respective periods.
Note
16 – Segment Reporting
Green
Planet Group, Inc. has two reportable segments: the engine, fuel additives and
green energy products and the industrial staffing segments. The first
segment is comprised of the XenTx Lubricants, EMTA Corp. and White Sands
entities and the staffing segment is comprised of Lumea, Inc. and its operating
subsidiaries. Prior to March 1, 2009, Green Planet Group, Inc. only had the
first reporting segment of business.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Interest expense related
to the individual entities is paid by or charged to those entities and the
related debt is included as that entity’s liability. Green Planet management
evaluates performance based on profit or loss before income taxes not including
nonrecurring gains and losses.
There
have been no significant intersegment sales or costs.
Green
Planet’s business is conducted through separate legal entities that are wholly
owned subsidiaries. Each entity has a specific set of business
objectives and line of business.
The
Company analyzes the result of the operations of the individual entities and the
segments. Green Planet does not allocate income taxes and unusual items to the
segments. The segment information for the year ended March 31, 2009 is presented
below.
Additives
&
|
Corporate
|
|||||||||||||||
Green
Energy
|
Staffing
|
&
Eliminations
|
Consolidated
|
|||||||||||||
Income
statement information:
|
||||||||||||||||
United
States sales
|
$ | 2,348,053 | $ | 5,784,408 | $ | – | $ | 8,132,461 | ||||||||
Foreign
sales
|
1,038,333 | – | – | 1,038,333 | ||||||||||||
Gross
sales
|
3,386,386 | 5,784,408 | – | 9,170,794 | ||||||||||||
Net
sales
|
3,386,386 | 5,784,408 | – | 9,170,794 | ||||||||||||
Depreciation
and amortization
|
244,259 | 64,574 | – | 308,833 | ||||||||||||
Interest
(expense)/income
|
(218,519 | ) | (67,317 | ) | 526,029 | 240,193 | ||||||||||
Loss
before income taxes
|
(1,263,515 | ) | (362,912 | ) | (1,069,850 | ) | (2,696,277 | ) | ||||||||
Net
loss
|
(1,263,515 | ) | (362,912 | ) | (1,069,850 | ) | (2,696,277 | ) | ||||||||
Balance
sheet information:
|
||||||||||||||||
Total
assets
|
4,146,987 | 13,729,688 | 3,888,367 | 21,765,042 |
F-26
Note
17 - Restatement of Prior Financial Statements
On July
31, 2009, the board of directors (the “Board”) of Green Planet Group, Inc. (the
“Company”) concluded that the Company’s previously filed consolidated financial
statements for the fiscal year ends March 31, 2007, 2008 and 2009 on Form 10-K
and the quarterly statements from September 30, 2006 (the first required filing
date) through December 31, 2008 on Form 10-Q should no longer be relied
upon. The Board with the recommendation of management came to this
conclusion based on comments received the Accounting Staff of the Division of
Corporate Finance of the Securities and Exchange Commission (the “SEC”) in its
review of the Company’s financial statements for the year ended March 31, 2008
and interim filings through December 31, 2008. After discussion,
review and analysis of our accounting and disclosures, the Company identified
the following issues:
1)
|
The
Company had previously treated the convertible debt and related warrants
under the guidance of EITF 00-27 under which such converted or exercised
instruments are recognized as equity but have restated the financial
statements to account for the warrants as liabilities under the caption
“derivative liability” under the guidance of EITF 00-19, and
owing to the unlimited nature of the potential issuances, the instruments
are to be treated as liabilities or assets and revalued each reporting
period.
|
2)
|
Under
Statement of Financial Accounting Standards No. 150 “Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity,” Statement of Financial Accounting Standards No. 133 “Accounting
for Derivative Instruments and Hedging Activities,” and Emerging Issues
Task Force Staff Position EITF 00-19 “Accounting for Derivative Financial
Instruments Indexed to, and Potentially Settled in, a Company’s Own
Stock,” which state in part that convertible instruments should be valued
at their fair value at date of issuance and derivatives, such as warrants,
should be valued at their fair value at issuance and each subsequent
reporting date.
|
3)
|
Accordingly,
the Company is restating the financial statements referred to above. In
summary, in conjunction with the aggregate face amount of the convertible
loans of $3,000,000 with net proceeds of $2,512,500, the Company estimates
that at the closing of the various convertible loans in the year ended
March 31, 2007 the Company will book an additional $3,000,000 of loan
balance representing the 50% conversion feature of the instruments to
common stock of the Company and a derivative liability of $39,207,874 for
the then fair value of the warrants issued and outstanding.
At March 31, 2007, the Company is reporting a credit
of $13,960,334 to adjust for the “default warrants” issued in 2007 and
originally accounted for under the guidance of EITF 00-27 in
error and is being restated under the guidance of EITF 00-19 with a change
in fair market of $38,685,527 to adjust to the year end fair
value resulting in a net decrease of $10,437,986 in the net
loss for March 31, 2007. At March 31, 2008, the year end fair
value adjustment resulted in additional interest expense of
$1,272,446 and a increase in the net loss for the period of a like amount
and at March 31, 2009 the Company has a reduction of interest expense by
$1,127,138 and a decrease in the net loss for the period of the same
amount as a result of the fair value adjustment. The $13,960,334 reduction
in additional paid in capital is being restated in each period presented
subsequent to June 30, 2006, and the adjustments to accumulated deficit
for each period is cumulative from the prior periods. The
Company also has restated its treatment of a stock option granted to a
seller of the Easy Staffing in accordance with EITF 00-19 and not as a
period cost as vested for the year ended March 31, 2009. The
effect of this restatement is to increase derivative liabilities by
$148,857, decrease additional paid-in capital by $124,075, increase
the loss for the period by $23,907 and increase the accumulated
deficit by the same amount.
|
4)
|
In
addition to the above changes, the Company also changed the presentation
of its prepaid loan expenses from being netted against the loan amount to
prepaid expenses and other assets depending on the scheduled maturity of
the underlying debts. This had the effect of increasing current
and long term assets and increasing the loan amounts for each period being
restated. The results of these changes are reflected in the following
balance sheets and statements of operations for the years ended March 31,
2009, 2008 and 2007 and the quarterly periods ended June 30, 2007 and
2008, September 30, 2006, 2007 and 2008 and December 31, 2006, 2007 and
2008.
|
F-27
Consolidated
Balance Sheets
|
|||||||||||||||
March
31, 2009
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
|||||||||||||||
Cash
|
$
|
470,288
|
$
|
–
|
$
|
470,288
|
|||||||||
Accounts
receivable
|
4,349,866
|
–
|
4,349,866
|
||||||||||||
Inventory
|
369,403
|
–
|
369,403
|
||||||||||||
Prepaid
expenses
|
1,495,461
|
158,971
|
A
|
1,654,432
|
|||||||||||
Total
Current Assets
|
6,685,018
|
158,971
|
6,843,989
|
||||||||||||
Plant
and equipment, net of accumulated depreciation
|
1,900,834
|
–
|
1,900,834
|
||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
189,164
|
106,208
|
A
|
295,372
|
|||||||||||
Intangible
assets
|
3,745,025
|
–
|
3,745,025
|
||||||||||||
Goodwill
|
8,979,822
|
–
|
8,979,822
|
||||||||||||
Total
Other Assets
|
12,914,011
|
106,208
|
13,020,219
|
||||||||||||
Total
Assets
|
$
|
21,499,863
|
$
|
265,179
|
$
|
21,765,042
|
|||||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY/(DEFICIT)
|
|||||||||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$
|
1,210,127
|
$
|
–
|
$
|
1,210,127
|
|||||||||
Accounts
payable - affiliates
|
165,565
|
–
|
165,565
|
||||||||||||
Accrued
liabilities
|
4,765,026
|
–
|
4,765,026
|
||||||||||||
Cashless
warrant liability
|
57,876
|
–
|
57,876
|
||||||||||||
Notes
payable and amounts due within one year
|
6,429,994
|
106,208
|
A
|
6,536,202
|
|||||||||||
Derivative
liability
|
– |
791,732
|
B+F
|
791,732
|
|||||||||||
Convertible
notes payable
|
2,474,287
|
2,579,813
|
C
|
5,054,100
|
|||||||||||
Total
Current Liabilities
|
15,102,875
|
3,477,753
|
18,580,628
|
||||||||||||
Notes
payable due after one year
|
8,955,442
|
106,208
|
A
|
9,061,650
|
|||||||||||
Total
Liabilities
|
24,058,317
|
3,583,961
|
27,642,278
|
||||||||||||
Stockholders’
Equity:
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and
outstanding
|
–
|
–
|
–
|
||||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding
117,440,103 at March 31, 2009
|
117,441
|
–
|
117,441
|
||||||||||||
Additional
paid-in capital
|
28,201,532
|
(13,611,459
|
)
|
D
|
14,590,073
|
||||||||||
Accumulated
deficit
|
(30,877,427
|
)
|
10,292,677
|
E+F
|
(20,584,750
|
)
|
|||||||||
Total
Stockholders' Equity/(Deficit)
|
(2,558,454
|
)
|
(3,318,782
|
)
|
(5,877,236
|
)
|
|||||||||
Total
Liabilities and Stockholders' Equity/(Deficit)
|
$
|
21,499,863
|
$
|
265,179
|
$
|
21,765,042
|
(Continued)
F-28
Consolidated
Statements of Operations
|
|||||||||||||||
For
the Year Ended March 31, 2009
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
Reported
|
Adjustments
|
Restatement
|
|||||||||||||
Revenue:
|
|||||||||||||||
Sales,
net of returns and allowances
|
$
|
9,170,794
|
$
|
–
|
$
|
9,170,794
|
|||||||||
Cost
of sales
|
7,030,015
|
–
|
7,030,015
|
||||||||||||
Gross
Profit
|
2,140,779
|
–
|
2,140,779
|
||||||||||||
Operating
Expenses:
|
|||||||||||||||
Selling,
general and administrative
|
3,798,290
|
–
|
3,798,290
|
||||||||||||
Depreciation
and amortization
|
308,833
|
–
|
308,833
|
||||||||||||
Allowance
for bad debts
|
970,542
|
–
|
970,542
|
||||||||||||
Total
Operating Expenses
|
5,077,665
|
–
|
5,077,665
|
||||||||||||
Loss
From Operations
|
(2,936,886
|
)
|
–
|
(2,936,886
|
)
|
||||||||||
Other
Income and (Expense):
|
|||||||||||||||
Other
income
|
416
|
–
|
416
|
||||||||||||
Interest
expense
|
(886,945
|
)
|
1,127,138
|
B+F
|
240,193
|
||||||||||
Loss
before provision for income taxes
|
(3,823,415
|
)
|
1,127,138
|
(2,696,277
|
)
|
||||||||||
Provision
for/(Benefit of) income taxes
|
–
|
–
|
–
|
||||||||||||
Net
Loss
|
$
|
(3,823,415
|
)
|
$
|
1,127,138
|
$
|
(2,696,277
|
)
|
|||||||
Earnings
(Loss) per share:
|
|||||||||||||||
Basic
and diluted earnings per share
|
$
|
(0.05
|
)
|
$
|
0.01
|
$
|
(0.04
|
)
|
|||||||
Weighted
average shares outstanding
|
73,612,313
|
73,612,313
|
73,612,313
|
(Continued)
F-29
Consolidated
Balance Sheets
|
March
31, 2008
|
||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
|||||||||||||||
Cash
|
$ | 59,544 | $ | – | $ | 59,544 | |||||||||
Accounts
receivable
|
932,125 | – | 932,125 | ||||||||||||
Notes
receivable
|
137,500 | – | 137,500 | ||||||||||||
Inventory
|
416,793 | – | 416,793 | ||||||||||||
Prepaid
expenses
|
62,849 | 267,440 | A | 330,289 | |||||||||||
Total
Current Assets
|
1,608,811 | 267,440 | 1,876,251 | ||||||||||||
Property,
plant and equipment, net of accumulated depreciation
|
1,786,967 | – | 1,786,967 | ||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
2,351 | 265,178 | A | 267,529 | |||||||||||
Intangible
assets
|
633,611 | – | 633,611 | ||||||||||||
Total
Other Assets
|
635,962 | 265,178 | 901,140 | ||||||||||||
Total
Assets
|
$ | 4,031,740 | $ | 532,618 | $ | 4,564,358 | |||||||||
LIABILITIES
AND STOCKHOLDERS’
EQUITY/(DEFICIT)
|
|||||||||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$ | 815,936 | $ | – | $ | 815,936 | |||||||||
Accrued
liabilities
|
1,657,416 | – | 1,657,416 | ||||||||||||
Cashless
warrant liability
|
257,379 | – | 257,379 | ||||||||||||
Notes
payable and amounts due within one year
|
1,795,398 | 155,967 | A | 1,951,365 | |||||||||||
Derivative
liability
|
– | 1,794,795 | B | 1,794,795 | |||||||||||
Total
Current Liabilities
|
4,526,129 | 1,950,762 | 6,476,891 | ||||||||||||
Notes
payable due after one year
|
874,698 | 212,414 | A | 1,087,112 | |||||||||||
Convertible
Notes Payable
|
2,362,815 | 2,691,285 | C | 5,054,100 | |||||||||||
Total
Liabilities
|
7,763,642 | 4,854,461 | 12,618,103 | ||||||||||||
Stockholders’
Equity:
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 authorized;
|
|||||||||||||||
no
shares issued and outstanding
|
– | – | – | ||||||||||||
Common
Stock, $0.001 par value, 250,000,000
|
|||||||||||||||
authorized,
issued and outstanding 54,885,103
|
|||||||||||||||
at
March 31, 2008
|
54,885 | – | 54,885 | ||||||||||||
Additional
paid-in capital
|
23,267,228 | (13,487,384 | ) | D | 9,779,844 | ||||||||||
Accumulated
deficit
|
(27,054,015 | ) | 9,165,541 | E | (17,888,474 | ) | |||||||||
Total
Stockholders’ Equity/(Deficit)
|
(3,731,902 | ) | (4,321,843 | ) | (8,053,745 | ) | |||||||||
Total
Liabilities and Stockholders’ Equity/(Deficit)
|
$ | 4,031,740 | $ | 532,618 | $ | 4,564,358 | |||||||||
(Continued)
F-30
Consolidated
Statements of Operations
|
Adjusted
|
||||||||||||||
March
31,
|
March
31,
|
||||||||||||||
2008
|
Adjustments
|
2008
|
|||||||||||||
Revenue:
|
|||||||||||||||
Sales,
net of returns and allowances
|
$ | 2,769,949 | $ | – | $ | 2,769,949 | |||||||||
Cost
of sales
|
1,305,328 | – | 1,305,328 | ||||||||||||
Gross
Profit
|
1,464,621 | – | 1,464,621 | ||||||||||||
Operating
Expenses:
|
|||||||||||||||
Selling,
general and administrative
|
2,696,506 | – | 2,696,506 | ||||||||||||
Depreciation
and amortization
|
247,768 | – | 247,768 | ||||||||||||
Allowance
for bad debts
|
41 | – | 41 | ||||||||||||
Research
and development
|
118,546 | – | 118,546 | ||||||||||||
Total
Operating Expenses
|
3,062,861 | – | 3,062,861 | ||||||||||||
Loss
From Operations
|
(1,598,240 | ) | – | (1,598,240 | ) | ||||||||||
Other
Income and (Expense):
|
|||||||||||||||
Interest
expense
|
(851,843 | ) | (1,272,446 | ) | B | (2,124,289 | ) | ||||||||
Loss
before provision for income taxes
|
(2,450,084 | ) | (1,272,446 | ) | (3,722,529 | ) | |||||||||
Provision
for/(Benefit of) income taxes
|
– |
–
|
– | ||||||||||||
Net
Loss
|
$ | (2,450,084 | ) | $ | (1,272,446 | ) | $ | (3,722,529 | ) | ||||||
Earnings
(Loss) per share:
|
|||||||||||||||
Basic
and diluted loss per share
|
$ | (0.06 | ) | (0.02 | ) | $ | (0.08 | ) | |||||||
Weighted
average shares outstanding
|
44,490,994 | 44,490,994 | 44,490,994 |
(Continued)
F-31
Consolidated
Balance Sheets
|
March
31, 2007
|
||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
|||||||||||||||
Cash
|
$ | 101,116 | $ | – | $ | 101,116 | |||||||||
Accounts
receivable
|
67,571 | – | 67,571 | ||||||||||||
Inventory
|
586,453 | – | 586,453 | ||||||||||||
Prepaid
expenses
|
28,304 | 142,437 | A | 170,741 | |||||||||||
Total
Current Assets
|
783,444 | 142,437 | 925,881 | ||||||||||||
Property,
plant and equipment, net of accumulated depreciation
|
2,035,908 | – | 2,035,908 | ||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
12,156 | 164,235 | A | 176,391 | |||||||||||
Intangible
assets
|
760,333 | – | 760,333 | ||||||||||||
Total
Other Assets
|
772,489 | 164,235 | 936,724 | ||||||||||||
Total
Assets
|
$ | 3,591,841 | $ | 306,672 | $ | 3,898,513 | |||||||||
LIABILITIES
AND STOCKHOLDERS’
EQUITY/(DEFICIT)
|
|||||||||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$ | 640,852 | $ | – | $ | 640,852 | |||||||||
Accrued
liabilities
|
1,396,063 | – | 1,396,063 | ||||||||||||
Cashless
warrant liability
|
58,283 | – | 58,283 | ||||||||||||
Notes
payable and amounts due within one year
|
1,989,693 | – | 1,989,693 | ||||||||||||
Derivative
liability
|
– | 522,351 | A | 522,351 | |||||||||||
Total
Current Liabilities
|
4,084,891 | 522,351 | 4,607,242 | ||||||||||||
Convertible
Notes Payable
|
2,305,999 | 2,933,922 | B | 5,239,921 | |||||||||||
Total
Liabilities
|
6,390,890 | 3,456,273 | 9,847,163 | ||||||||||||
Stockholders’
Equity
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and
outstanding
|
– | – | – | ||||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized,
issued and outstanding 40,396,004 at
March 31, 2007
|
40,396 | – | 40,396 | ||||||||||||
Additional
paid-in capital
|
21,764,483 | (13,587,584 | ) | D | 8,176,899 | ||||||||||
Accumulated
deficit
|
(24,603,928 | ) | 10,437,983 | E | (14,165,945 | ) | |||||||||
Total
Stockholders’ Equity/(Deficit)
|
(2,799,049 | ) | (3,149,601 | ) | (5,948,650 | ) | |||||||||
Total
Liabilities and Stockholders’ Equity/(Deficit)
|
$ | 3,591,841 | $ | 306,672 | $ | 3,898,513 |
(Continued)
F-32
Consolidated
Statements of Operations
|
Adjusted
|
||||||||||||||
March
31,
|
March
31,
|
||||||||||||||
2007
|
Adjustments
|
2007
|
|||||||||||||
Revenue:
|
|||||||||||||||
Sales,
net of returns and allowances
|
$ | 1,053,767 | $ | – | $ | 1,053,767 | |||||||||
Cost
of sales
|
424,929 | – | 424,929 | ||||||||||||
Gross
Profit
|
628,838 | – | 628,838 | ||||||||||||
Operating
Expenses:
|
– | – | – | ||||||||||||
Selling,
general and administrative
|
2,931,090 | – | 2,931,090 | ||||||||||||
Depreciation
and amortization
|
154,666 | – | 154,666 | ||||||||||||
Allowance
for bad debts
|
(15,476 | ) | – | (15,476 | ) | ||||||||||
Research
and development
|
304,793 | – | 304,793 | ||||||||||||
Total
Operating Expenses
|
3,375,073 | – | 3,375,073 | ||||||||||||
Loss
From Operations
|
(2,746,235 | ) | – | (2,746,235 | ) | ||||||||||
Other
Income and (Expense):
|
|||||||||||||||
Other
income
|
12,608 | – | 12,608 | ||||||||||||
Gain/(Loss)
on disposal of assets
|
2,850 | – | 2,850 | ||||||||||||
Interest
expense
|
(364,932 | ) | 10,437,987 | B | 10,073,055 | ||||||||||
Cost
of curing loan default
|
(13,960,334 | ) | – | (13,960,334 | ) | ||||||||||
Loss
before provision for income taxes
|
(17,056,043 | ) | 10,437,987 | (6,618,056 | ) | ||||||||||
Provision
for/(Benefit of) income taxes
|
– | – | – | ||||||||||||
Net
Loss
|
$ | (17,056,043 | ) | $ | 10,437,987 | $ | (6,618,056 | ) | |||||||
Earnings
(Loss) per share:
|
|||||||||||||||
Basic
and diluted loss per share
|
$ | (0.54 | ) | $ | 0.33 | $ | (0.21 | ) | |||||||
Weighted
average shares outstanding
|
31,410,799 | 31,410,799 | 31,410,799 |
___________________
A –
Adjustment to reclassify unamortized loan fees and costs to prepaid expenses and
other assets
B –
Adjustment to reflect change in derivative value for the period
C –
Cumulative effect to reflect loan conversion feature net of conversions in prior
periods
D –
Cumulative effect of error in reporting cure cost of default and effect of
conversions
E –
Cumulative effect of prior period adjustments and current period adjustment to
accumulated deficit
F – Fair
value adjustment related to restatement of options granted as part of
purchase price at year end in place of option treatment as vested
F-33
The
following quarterly balance sheets and statements of operations for the periods
ended September 30, 2006 through December 31, 2008 are unaudited.
Consolidated
Balance Sheets
|
|||||||||||||||
December
31, 2008
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
|||||||||||||||
Cash
|
$ | 69,560 | $ | – | $ | 69,560 | |||||||||
Accounts
receivable
|
1,787,143 | – | 1,787,143 | ||||||||||||
Notes
receivable
|
– | – | – | ||||||||||||
Inventory
|
406,163 | – | 406,163 | ||||||||||||
Prepaid
expenses
|
161,693 | 201,409 | A | 363,102 | |||||||||||
Total
Current Assets
|
2,424,559 | 201,409 | 2,625,968 | ||||||||||||
Property,
plant and equipment, net of accumulated depreciation
|
1,718,543 | – | 1,718,543 | ||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
59,696 | 125,518 | A | 185,214 | |||||||||||
Intangible
assets
|
536,569 | – | 536,569 | ||||||||||||
Total
Other Assets
|
596,265 | 125,518 | 721,783 | ||||||||||||
Total
Assets
|
$ | 4,739,367 | $ | 326,927 | $ | 5,066,294 | |||||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY/(DEFICIT)
|
|||||||||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$ | 891,213 | $ | – | $ | 891,213 | |||||||||
Accrued
liabilities
|
1,985,460 | – | 1,985,460 | ||||||||||||
Cashless
warrant liability
|
30,251 | – | 30,251 | ||||||||||||
Notes
payable and amounts due within one year
|
1,939,541 | 115,863 | A | 2,055,404 | |||||||||||
Derivative
liability
|
– | 554,612 | B | 554,612 | |||||||||||
Convertible
notes payable
|
2,453,243 | 2,600,857 | C | 5,054,100 | |||||||||||
Total
Current Liabilities
|
7,299,708 | 3,271,332 | 10,571,040 | ||||||||||||
Notes
payable due after one year
|
779,918 | 137,255 | A | 917,173 | |||||||||||
Total
Liabilities
|
8,079,626 | 3,408,587 | 11,488,213 | ||||||||||||
Stockholders’
Equity:
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and
outstanding
|
– | – | – | ||||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding
73,816,103 at December 31, 2008
|
73,816 | – | 73,816 | ||||||||||||
Additional
paid-in capital
|
25,219,058 | (13,487,384 | ) | D | 11,731,674 | ||||||||||
Accumulated
deficit
|
(28,633,133 | ) | 10,405,724 | E | (18,227,409 | ) | |||||||||
Total
Stockholders’ Equity/(Deficit)
|
(3,340,259 | ) | (3,081,660 | ) | (6,421,919 | ) | |||||||||
Total
Liabilities and Stockholders’ Equity/(Deficit)
|
$ | 4,739,367 | $ | 326,927 | $ | 5,066,294 |
(Continued)
F-34
Consolidated
Statements of Operations
|
||||||||||||||||||||||||
For
the Three Months Ended
December
31, 2008
|
For
the Nine Months Ended
December
31, 2008
|
|||||||||||||||||||||||
As
Originally
|
After
|
As
Originally
|
After
|
|||||||||||||||||||||
Reported
|
Adjustments
|
Restatement
|
Reported
|
Adjustments
|
Restatement
|
|||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||
Sales,
net of returns and allowances
|
$ | 674,657 | $ | – | $ | 674,657 | $ | 3,040,728 | $ | – | $ | 3,040,728 | ||||||||||||
Cost
of sales
|
368,255 | – | 368,255 | 1,419,514 | – | 1,419,514 | ||||||||||||||||||
Gross
Profit
|
306,402 | – | 306,402 | 1,621,214 | – | 1,621,214 | ||||||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||
Selling,
general and administrative
|
699,356 | – | 699,356 | 2,631,776 | – | 2,631,776 | ||||||||||||||||||
Depreciation
and amortization
|
62,695 | – | 62,695 | 186,628 | – | 186,628 | ||||||||||||||||||
Research
and development
|
(250 | ) | – | (250 | ) | – | – | – | ||||||||||||||||
Total
Operating Expenses
|
761,801 | – | 761,801 | 2,818,404 | – | 2,818,404 | ||||||||||||||||||
Loss
From Operations
|
(455,399 | ) | – | (455,399 | ) | (1,197,190 | ) | – | (1,197,190 | ) | ||||||||||||||
Other
Income and (Expense):
|
||||||||||||||||||||||||
Other
income
|
– | – | – | 416 | – | 416 | ||||||||||||||||||
Interest
expense
|
(156,482 | ) | 399,189 | B | 242,707 | (382,347 | ) | 1,240,182 | B | 857,835 | ||||||||||||||
Loss
before provision for income taxes
|
(611,881 | ) | 399,189 | (212,692 | ) | (1,579,121 | ) | 1,240,182 | (338,939 | ) | ||||||||||||||
Provision
for/(Benefit of) income taxes
|
– | – | – | – | – | – | ||||||||||||||||||
Net
Income/(Loss)
|
$ | (611,881 | ) | $ | 399,189 | $ | (212,692 | ) | $ | (1,579,121 | ) | $ | 1,240,182 | $ | (338,939 | ) | ||||||||
Earnings
(Loss) per share:
|
||||||||||||||||||||||||
Basic
and diluted loss per share
|
$ | (0.01 | ) | $ | 0.01 | $ | (0.00 | ) | $ | (0.02 | ) | $ | 0.02 | $ | (0.00 | ) | ||||||||
Weighted
average shares outstanding
|
70,897,625 | 70,897,625 | 70,897,625 | 68,345,747 | 68,345,747 | 68,345,747 |
(Continued)
F-35
Consolidated
Balance Sheets
|
||||||||||||||
September
30, 2008
|
||||||||||||||
As
Originally
|
After
|
|||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
|||||||||||
Current
Assets:
|
||||||||||||||
Cash
|
$ | 47,298 | $ | – | $ | 7,298 | ||||||||
Accounts
receivable
|
1,880,130 | – | 1,880,130 | |||||||||||
Notes
receivable
|
52,500 | – | 52,500 | |||||||||||
Inventory
|
476,750 | – | 476,750 | |||||||||||
Prepaid
expenses
|
835,117 | 225,897 | A | 1,061,014 | ||||||||||
Total
Current Assets
|
3,291,795 | 225,897 | 3,517,692 | |||||||||||
Property,
plant and equipment, net of accumulated depreciation
|
1,749,639 | – | 1,749,639 | |||||||||||
Other
Assets:
|
||||||||||||||
Other
assets
|
2,351 | 161,176 | A | 163,527 | ||||||||||
Intangible
assets
|
570,250 | – | 570,250 | |||||||||||
Total
Other Assets
|
572,601 | 161,176 | 733,777 | |||||||||||
Total
Assets
|
$ | 5,614,035 | $ | 387,073 | $ | 6,001,108 | ||||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY/(DEFICIT)
|
||||||||||||||
Current
Liabilities:
|
||||||||||||||
Accounts
payable
|
$ | 951,404 | $ | – | $ | 951,404 | ||||||||
Accrued
liabilities
|
1,812,959 | – | 1,812,959 | |||||||||||
Cashless
warrant liability
|
91,028 | – | 91,028 | |||||||||||
Notes
payable and amounts due within one year
|
1,985,530 | 115,863 | A | 2,101,393 | ||||||||||
Derivative
liability
|
– | 953,801 | B | 953,801 | ||||||||||
Convertible
notes payable
|
990,679 | 1,063,421 | C | 2,054,100 | ||||||||||
Total
Current Liabilities
|
5,831,600 | 2,133,085 | 7,964,685 | |||||||||||
Notes
payable due after one year
|
706,779 | 169,332 | A | 876,111 | ||||||||||
Convertible
notes payable
|
1,434,495 | 1,565,505 | C | 3,000,000 | ||||||||||
Total
Liabilities
|
7,972,874 | 3,867,922 | 11,840,796 | |||||||||||
Stockholders’
Equity:
|
||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 authorized; no shares issued and
outstanding
|
– | – | – | |||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding
66,616,103 at September 30, 2008
|
66,616 | – | 66,616 | |||||||||||
Additional
paid-in capital
|
25,595,797 | (13,487,384 | ) | D | 12,108,413 | |||||||||
Accumulated
deficit
|
(28,021,252 | ) | 10,006,535 | E | (18,014,717 | ) | ||||||||
Total
Stockholders’ Equity/(Deficit)
|
(2,358,839 | ) | (3,480,849 | ) | (5,839,688 | ) | ||||||||
Total
Liabilities and Stockholders’ Equity/(Deficit)
|
$ | 5,614,035 | $ | (387,073 | ) | $ | 6,001,108 |
(Continued)
F-36
Consolidated
Statements of Operations
|
||||||||||||||||||||||||||
For
the Three Months Ended
September
30, 2008
|
For
the Six Months Ended
September
30, 2008
|
|||||||||||||||||||||||||
As
Originally
|
After
|
As
Originally
|
After
|
|||||||||||||||||||||||
Reported
|
Adjustments
|
Restatement
|
Reported
|
Adjustments
|
Restatement
|
|||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||
Sales,
net of returns and allowances
|
$ | 529,650 | $ | – | $ | 529,650 | $ | 2,366,071 | $ | – | $ | 2,366,071 | ||||||||||||||
Cost
of sales
|
324,483 | – | 324,483 | 1,051,259 | – | 1,051,259 | ||||||||||||||||||||
Gross
Profit
|
205,167 | – | 205,167 | 1,314,812 | – | 1,314,812 | ||||||||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||||
Selling,
general and administrative
|
1,250,717 | – | 1,250,717 | 1,932,420 | – | 1,932,420 | ||||||||||||||||||||
Depreciation
and amortization
|
61,967 | – | 61,967 | 123,933 | – | 123,933 | ||||||||||||||||||||
Research
and development
|
250 | – | 250 | 250 | – | 250 | ||||||||||||||||||||
Total
Operating Expenses
|
1,312,934 | – | 1,312,934 | 2,056,603 | – | 2,056,603 | ||||||||||||||||||||
Loss
From Operations
|
(1,107,767 | ) | – | (1,107,767 | ) | (741,791 | ) | – | (741,791 | ) | ||||||||||||||||
Other
Income and (Expense):
|
||||||||||||||||||||||||||
Other
income
|
41 | – | 41 | 416 | – | 416 | ||||||||||||||||||||
Interest
expense
|
(27,031 | ) | 1,911,542 | B | 1,884,511 | (225,865 | ) | 840,993 | B | 615,128 | ||||||||||||||||
Loss
before provision for income taxes
|
(1,134,757 | ) | 1,911,542 | 776,785 | (967,240 | ) | 840,993 | (126,247 | ) | |||||||||||||||||
Provision
for/(Benefit of) income taxes
|
– | – | – | – | – | – | ||||||||||||||||||||
Net
Income/(Loss)
|
$ | (1,134,757 | ) | $ | 1,911,542 | $ | 776,785 | $ | (967,240 | ) | $ | 840,993 | $ | (126,247 | ) | |||||||||||
Earnings
(Loss) per share:
|
||||||||||||||||||||||||||
Basic
and diluted earnings/(loss) per share
|
$ | (0.02 | ) | $ | 0.03 | $ | 0.01 | $ | (0.02 | ) | $ | 0.02 | $ | (0.00 | ) | |||||||||||
Weighted
average shares outstanding
|
66,066,375 | 66,066,375 | 66,066,375 | 63,962,835 | 63,962,835 | 63,962,835 |
(Continued)
F-37
Consolidated
Balance Sheets
|
|||||||||||||||
June
30, 2008
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
|||||||||||||||
Cash
|
$ | 25,082 | $ | – | $ | 25,082 | |||||||||
Accounts
receivable
|
2,007,651 | – | 2,007,651 | ||||||||||||
Notes
receivable
|
112,500 | – | 112,500 | ||||||||||||
Inventory
|
592,732 | – | 592,732 | ||||||||||||
Prepaid
expenses
|
563,944 | 142,951 | A | 706,895 | |||||||||||
Total
Current Assets
|
3,301,909 | 142,951 | 3,444,860 | ||||||||||||
Property,
plant and equipment, net of accumulated depreciation
|
1,763,029 | – | 1,763,029 | ||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
324,768 | 304,267 | A | 629,035 | |||||||||||
Intangible
assets
|
601,931 | – | 601,931 | ||||||||||||
Total
Other Assets
|
926,699 | 304,267 | 1,230,966 | ||||||||||||
Total
Assets
|
$ | 5,991,637 | $ | 447,218 | $ | 6,438,855 | |||||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY/(DEFICIT)
|
|||||||||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$ | 670,094 | $ | – | $ | 670,094 | |||||||||
Accrued
liabilities
|
1,482,047 | – | 1,482,047 | ||||||||||||
Cashless
warrant liability
|
295,194 | – | 295,194 | ||||||||||||
Notes
payable and amounts due within one year
|
1,774,930 | 22,133 | A | 1,797,063 | |||||||||||
Derivative
liability
|
– | 2,865,343 | B | 2,865,343 | |||||||||||
Convertible
notes payable
|
315,514 | 338,586 | C | 654,100 | |||||||||||
Total
Current Liabilities
|
4,537,779 | 3,226,062 | 7,763,841 | ||||||||||||
Notes
payable due after one year
|
929,446 | 292,028 | A | 1,221,474 | |||||||||||
Convertible
notes payable
|
2,078,481 | 2,321,519 | C | 4,400,000 | |||||||||||
Total
Liabilities
|
7,545,706 | 5,839,609 | 13,385,315 | ||||||||||||
Stockholders’
Equity:
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and
outstanding
|
– | – | – | ||||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding
64,791,103 at June 30, 2008
|
64,791 | – | 64,791 | ||||||||||||
Additional
paid-in capital
|
25,267,635 | (13,487,384 | ) | D | 11,780,251 | ||||||||||
Accumulated
deficit
|
(26,886,495 | ) | 8,094,993 | E | (18,791,502 | ) | |||||||||
Total
Stockholders’ Equity/(Deficit)
|
(1,554,069 | ) | (5,392,391 | ) | (6,946,460 | ) | |||||||||
Total
Liabilities and Stockholders’ Equity/(Deficit)
|
$ | 5,991,637 | $ | 447,218 | $ | 6,438,855 |
(Continued)
F-38
Consolidated
Statements of Operations
|
|||||||||||||||
For
the Three Months Ended June 30, 2008
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
Reported
|
Adjustments
|
Restatement
|
|||||||||||||
Revenue:
|
|||||||||||||||
Sales,
net of returns and allowances
|
$ | 1,836,421 | $ | – | $ | 1,836,421 | |||||||||
Cost
of sales
|
726,776 | – | 726,776 | ||||||||||||
Gross
Profit
|
1,109,645 | – | 1,109,645 | ||||||||||||
Operating
Expenses:
|
|||||||||||||||
Selling,
general and administrative
|
681,703 | – | 681,703 | ||||||||||||
Depreciation
and amortization
|
61,966 | – | 61,966 | ||||||||||||
Total
Operating Expenses
|
743,669 | – | 743,669 | ||||||||||||
Loss
From Operations
|
365,976 | – | 365,976 | ||||||||||||
Other
Income and (Expense):
|
|||||||||||||||
Other
income
|
375 | – | 375 | ||||||||||||
Interest
expense
|
(198,834 | ) | (1,070,548 | ) | B | (1,269,382 | ) | ||||||||
Loss
before provision for income taxes
|
167,517 | (1,070,548 | ) | (903,031 | ) | ||||||||||
Provision
for/(Benefit of) income taxes
|
– | – | – | ||||||||||||
Net
Income/(Loss)
|
$ | 167,517 | $ | (1,070,548 | ) | $ | (903,031 | ) | |||||||
Earnings
(Loss) per share:
|
|||||||||||||||
Basic
and diluted earnings/(loss) per share
|
$ | 0.00 | $ | (0.01 | ) | $ | (0.01 | ) | |||||||
Weighted
average shares outstanding
|
61,913,414 | 61,913,414 | 61,913,414 |
(Continued)
F-39
Consolidated
Balance Sheets
|
|||||||||||||||
December
31, 2007
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
|||||||||||||||
Cash
|
$ | 9,457 | $ | – | $ | 9,457 | |||||||||
Accounts
receivable
|
61,897 | – | 61,897 | ||||||||||||
Inventory
|
535,811 | – | 535,811 | ||||||||||||
Prepaid
expenses
|
27,898 | 325,217 | A | 353,115 | |||||||||||
Total
Current Assets
|
635,063 | 325,217 | 960,280 | ||||||||||||
Property,
plant and equipment, net of accumulated depreciation
|
1,958,862 | – | 1,958,862 | ||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
12,456 | 322,504 | A | 334,960 | |||||||||||
Intangible
assets
|
665,291 | – | 665,291 | ||||||||||||
Total
Other Assets
|
677,747 | 322,504 | 1,000,251 | ||||||||||||
Total
Assets
|
$ | 3,271,672 | $ | 647,721 | $ | 3,919,393 | |||||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY/(DEFICIT)
|
|||||||||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$ | 740,134 | $ | – | $ | 740,134 | |||||||||
Accrued
liabilities
|
708,719 | – | 1,708,719 | ||||||||||||
Cashless
warrant liability
|
258,569 | – | 258,569 | ||||||||||||
Notes
payable and amounts due within one year
|
2,619,279 | 200,499 | A | 2,819,778 | |||||||||||
Derivative
liability
|
– | 1,840,204 | B | 1,840,204 | |||||||||||
Total
Current Liabilities
|
5,326,701 | 2,040,703 | 7,367,404 | ||||||||||||
Notes
payable due after one year
|
456,551 | 237,228 | A | 693,779 | |||||||||||
Convertible
notes payable
|
2,317,056 | 2,737,044 | C | 5,054,100 | |||||||||||
Total
Liabilities
|
8,100,308 | 5,014,975 | 13,115,283 | ||||||||||||
Stockholders’
Equity:
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and
outstanding
|
– | – | – | ||||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding
46,121,770 at December 31, 2007
|
46,122 | – | 46,122 | ||||||||||||
Additional
paid-in capital
|
22,285,799 | (13,487,384 | ) | D | 8,798,415 | ||||||||||
Accumulated
deficit
|
(27,160,557 | ) | 9,120,130 | E | (18,040,427 | ) | |||||||||
Total
Stockholders’ Equity/(Deficit)
|
(4,828,636 | ) | (4,367,254 | ) | (9,195,890 | ) | |||||||||
Total
Liabilities and Stockholders’ Equity/(Deficit)
|
$ | 3,271,672 | $ | 647,721 | $ | 3,919,393 |
(Continued)
F-40
Consolidated
Statements of Operations
|
||||||||||||||||||||||||||||
For
the Three Months Ended
December
31, 2007
|
For
the Nine Months Ended
December
31, 2007
|
|||||||||||||||||||||||||||
As
Originally
|
After
|
As
Originally
|
After
|
|||||||||||||||||||||||||
Reported
|
Adjustments
|
Restatement
|
Reported
|
Adjustments
|
Restatement
|
|||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||
Sales,
net of returns and allowances
|
$ | 310,102 | $ | – | $ | 310,102 | $ | 1,554,637 | $ | – | $ | 1,554,637 | ||||||||||||||||
Cost
of sales
|
25,074 | – | 25,074 | 687,486 | – | 687,486 | ||||||||||||||||||||||
Gross
Profit
|
285,028 | – | 285,028 | 867,151 | – | 867,151 | ||||||||||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||||||
Selling,
general and administrative
|
992,635 | – | 992,635 | 2,376,357 | – | 2,376,357 | ||||||||||||||||||||||
Depreciation
and amortization
|
58,368 | – | 58,368 | 174,433 | – | 174,433 | ||||||||||||||||||||||
Research
and development
|
5,637 | – | 5,637 | 110,764 | – | 110,764 | ||||||||||||||||||||||
Total
Operating Expenses
|
1,056,640 | – | 1,056,640 | 2,661,554 | – | 2,661,554 | ||||||||||||||||||||||
Loss
From Operations
|
(771,612 | ) | – | (771,612 | ) | (1,794,403 | ) | – | (1,794,403 | ) | ||||||||||||||||||
Other
Income and (Expense):
|
||||||||||||||||||||||||||||
Interest
expense
|
(536,382 | ) | (1,429,609 | ) | B | (1,965,991 | ) | (762,226 | ) | (1,317,857 | ) | B | (2,080,083 | ) | ||||||||||||||
Loss
before provision for income taxes
|
(1,307,994 | ) | (1,429,609 | ) | (2,737,603 | ) | (2,556,629 | ) | (1,317,857 | ) | (3,874,486 | ) | ||||||||||||||||
Provision
for/(Benefit of) income taxes
|
– | – | – | – | – | – | ||||||||||||||||||||||
Net
Loss
|
$ | (1,307,994 | ) | (1,429,609 | ) | $ | (2,737,603 | ) | $ | (2,556,629 | ) | $ | (1,317,857 | ) | $ | (3,874,486 | ) | |||||||||||
Earnings
(Loss) per share:
|
||||||||||||||||||||||||||||
Basic
and diluted loss per share
|
$ | (0.03 | ) | $ | (0.03 | ) | $ | (0.06 | ) | $ | (0.06 | ) | $ | (0.03 | ) | $ | (0.09 | ) | ||||||||||
Weighted
average shares outstanding
|
44,123,259 | 44,123,259 | 44,123,259 | 42,358,834 | 42,358,834 | 42,358,834 |
(Continued)
F-41
Consolidated
Balance Sheets
|
|||||||||||||||
September
30, 2007
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
|||||||||||||||
Cash
|
$ | 54,116 | $ | – | $ | 54,116 | |||||||||
Accounts
receivable
|
139,393 | – | 139,393 | ||||||||||||
Inventory
|
578,558 | – | 578,558 | ||||||||||||
Prepaid
expenses
|
29,154 | 319,203 | A | 348,357 | |||||||||||
Total
Current Assets
|
801,221 | 319,203 | 1,120,424 | ||||||||||||
Property,
plant and equipment, net of accumulated depreciation
|
1,965,179 | – | 1,965,179 | ||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
12,156 | 289,822 | A | 301,978 | |||||||||||
Intangible
assets
|
697,116 | – | 697,116 | ||||||||||||
Total
Other Assets
|
709,272 | 289,822 | 999,094 | ||||||||||||
Total
Assets
|
$ | 3,475,672 | $ | 609,025 | $ | 4,084,697 | |||||||||
LIABILITIES
AND STOCKHOLDERS’
EQUITY/(DEFICIT)
|
|||||||||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$ | 560,987 | $ | – | $ | 560,987 | |||||||||
Accrued
liabilities
|
1,532,741 | – | 1,532,741 | ||||||||||||
Cashless
warrant liability
|
27,157 | – | 27,157 | ||||||||||||
Notes
payable and amounts due within one year
|
2,244,071 | 200,499 | A | 2,444,570 | |||||||||||
Derivative
liability
|
– | 410,595 | B | 410,595 | |||||||||||
Total
Current Liabilities
|
4,364,956 | 611,094 | 4,976,050 | ||||||||||||
Notes
payable due after one year
|
746,782 | 167,352 | A | 914,134 | |||||||||||
Convertible
notes payable
|
2,285,876 | 2,768,224 | C | 5,054,100 | |||||||||||
Total
Liabilities
|
7,397,614 | 3,546,670 | 10,944,284 | ||||||||||||
Stockholders’
Equity:
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and
outstanding
|
– | – | – | ||||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding
42,017,770 at September 30, 2006
|
42,018 | – | 42,018 | ||||||||||||
Additional
paid-in capital
|
21,888,603 | (13,487,384 | ) | D | 8,401,219 | ||||||||||
Accumulated
deficit
|
(25,852,563 | ) | 10,549,739 | E | (15,302,824 | ) | |||||||||
Total
Stockholders’ Equity/(Deficit)
|
(3,921,942 | ) | (2,937,645 | ) | (6,859,587 | ) | |||||||||
Total
Liabilities and Stockholders’ Equity/(Deficit)
|
$ | 3,475,672 | $ | 609,025 | $ | 4,084,697 |
(Continued)
F-42
Consolidated
Statements of Operations
|
||||||||||||||||||||||||||
For
the Three Months Ended
September
30, 2007
|
For
the Six Months Ended
September
30, 2007
|
|||||||||||||||||||||||||
As
Originally
|
After
|
As
Originally
|
After
|
|||||||||||||||||||||||
Reported
|
Adjustments
|
Restatement
|
Reported
|
Adjustments
|
Restatement
|
|||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||
Sales,
net of returns and allowances
|
$ | 577,811 | $ | – | $ | 577,811 | $ | 1,244,535 | $ | – | $ | 1,244,535 | ||||||||||||||
Cost
of sales
|
369,235 | – | 369,235 | 662,412 | – | 662,412 | ||||||||||||||||||||
Gross
Profit
|
208,576 | – | 208,576 | 582,123 | – | 582,123 | ||||||||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||||
Selling,
general and administrative
|
654,852 | – | 654,852 | 1,383,722 | – | 1,383,722 | ||||||||||||||||||||
Depreciation
and amortization
|
57,883 | – | 57,883 | 116,065 | – | 116,065 | ||||||||||||||||||||
Research
and development
|
52,646 | – | 52,646 | 105,127 | – | 105,127 | ||||||||||||||||||||
Total
Operating Expenses
|
765, 381 | – | 765,381 | 1,604,914 | – | 1,604,914 | ||||||||||||||||||||
Loss
From Operations
|
(556,805 | ) | – | (556,805 | ) | (1,022,791 | ) | – | (1,022,791 | ) | ||||||||||||||||
Other
Income and (Expense):
|
||||||||||||||||||||||||||
Interest
expense
|
40,978 | 1,143,062 | B | 1,184,040 | (225,844 | ) | 111,752 | B | (114,092 | ) | ||||||||||||||||
Loss
before provision for income taxes
|
(515,827 | ) | 1,143,062 | 627,235 | (1,248,635 | ) | 111,752 | (1,136,883 | ) | |||||||||||||||||
Provision
for/(Benefit of) income taxes
|
– | – | – | – | – | – | ||||||||||||||||||||
Net
Income/(Loss)
|
$ | (515,827 | ) | $ | 1,143,062 | $ | 627,235 | $ | (1,248,635 | ) | $ | 111,752 | $ | (1,136,883 | ) | |||||||||||
Earnings
(Loss) per share:
|
||||||||||||||||||||||||||
Basic
and diluted earnings/(loss) per share
|
$ | (0.01 | ) | $ | 0.01 | $ | 0.02 | $ | (0.03 | ) | $ | 0.00 | $ | (0.03 | ) | |||||||||||
Weighted
average shares outstanding
|
41,573,386 | 41,573,386 | 41,573,386 | 41,116,883 | 41,116,883 | 41,116,883 |
(Continued)
F-43
Consolidated
Balance Sheets
|
|||||||||||||||
June
30, 2007
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
(Unaudited)
|
||||||||||||||
Cash
|
$ | 12,985 | $ | – | $ | 12,985 | |||||||||
Accounts
receivable
|
98,883 | – | 98,883 | ||||||||||||
Inventory
|
645,290 | – | 645,290 | ||||||||||||
Prepaid
expenses
|
35,404 | 133,300 | A | 168,704 | |||||||||||
Total
Current Assets
|
792,562 | 133,300 | 925,862 | ||||||||||||
Property,
plant and equipment, net of accumulated depreciation
|
2,011,679 | – | 2,011,679 | ||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
12,156 | 145,053 | A | 157,209 | |||||||||||
Intangible
assets
|
728,724 | – | 728,724 | ||||||||||||
Total
Other Assets
|
740,880 | 145,053 | 885,933 | ||||||||||||
Total
Assets
|
$ | 3,545,121 | $ | 278,353 | $ | 3,823,474 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | |||||||||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$ | 763,826 | $ | – | $ | 763,826 | |||||||||
Accrued
liabilities
|
1,463,272 | – | 1,463,272 | ||||||||||||
Cashless
warrant liability
|
203,353 | – | 203,353 | ||||||||||||
Notes
payable and amounts due within one year
|
2,297,630 | – | 2,297,630 | ||||||||||||
Derivative
liability
|
– | 1,553,657 | B | 1,553,657 | |||||||||||
Total
Current Liabilities
|
4,728,081 | 1,553,657 | 6,281,738 | ||||||||||||
Convertible
notes payable
|
2,282,297 | 2,839,003 | C | 5,121,300 | |||||||||||
Total
Liabilities
|
7,010,378 | 4,392,660 | 11,403,038 | ||||||||||||
Stockholders’
Equity:
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and
outstanding
|
– | – | – | ||||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding
41,146,004 at June 30, 2007 March 2007, respectively
|
41,146 | – | 41,146 | ||||||||||||
Additional
paid-in capital
|
21,830,333 | (13,520,984 | ) | D | 8,309,349 | ||||||||||
Accumulated
deficit
|
(25,336,736 | ) | 9,406,677 | E | (15,930,059 | ) | |||||||||
Total
Stockholders’ Equity/(Deficit)
|
(3,465,257 | ) | (4,114,307 | ) | (7,579,564 | ) | |||||||||
Total
Liabilities and Stockholders’ Equity/Deficit)
|
$ | 3,545,121 | $ | 278,353 | $ | 3,823,474 |
(Continued)
F-44
Consolidated
Statements of Operations
|
|||||||||||||||
For
the Three Months Ended June 30, 2007
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
Reported
|
Adjustments
|
Restatement
|
|||||||||||||
Revenue:
|
|||||||||||||||
Sales,
net of returns and allowances
|
$ | 666,724 | $ | – | $ | 666,724 | |||||||||
Cost
of sales
|
293,176 | – | 293,176 | ||||||||||||
Gross
Profit
|
373,548 | – | 373,548 | ||||||||||||
Operating
Expenses:
|
|||||||||||||||
Selling,
general and administrative
|
728,871 | – | 728,871 | ||||||||||||
Depreciation
and amortization
|
58,183 | – | 58,183 | ||||||||||||
Allowance
for bad debts
|
– | – | – | ||||||||||||
Research
and development
|
52,481 | – | 52,481 | ||||||||||||
Total
Operating Expenses
|
839,535 | – | 839,535 | ||||||||||||
Loss
From Operations
|
(465,986 | ) | – | (465,986 | ) | ||||||||||
Other
Income and (Expense):
|
|||||||||||||||
Interest
expense
|
(266,822 | ) | (1,031,310 | ) | B | (1,298,132 | ) | ||||||||
Loss
before provision for income taxes
|
(732,808 | ) | (1,031,310 | ) | (1,764,118 | ) | |||||||||
Provision
for/(Benefit of) income taxes
|
– | – | – | ||||||||||||
Net
Loss
|
$ | (732,808 | ) | $ | (1,031,310 | ) | $ | (1,764,118 | ) | ||||||
Earnings
(Loss) per share:
|
|||||||||||||||
Basic
and diluted loss per share
|
$ | (0.02 | ) | $ | (0.02 | ) | $ | (0.03 | ) | ||||||
Weighted
average shares outstanding
|
40,587,213 | 40,587,213 | 61,913,414 |
(Continued)
F-45
Consolidated
Balance Sheets
|
|||||||||||||||
December
31, 2006
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
|||||||||||||||
Cash
|
$ | 445,652 | $ | – | 445,652 | ||||||||||
Accounts
receivable
|
92,893 | – | 92,893 | ||||||||||||
Inventory
|
348,307 | – | 348,307 | ||||||||||||
Prepaid
expenses
|
155,963 | 136,650 | A | 292,613 | |||||||||||
Total
Current Assets
|
1,042,815 | 136,650 | 1,179,465 | ||||||||||||
Property,
plant and equipment, net of accumulated depreciation
|
40,601 | – | 40,601 | ||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
8,183 | 225,620 | A | 233,803 | |||||||||||
Intangible
assets
|
792,013 | – | 792,013 | ||||||||||||
Total
Other Assets
|
800,196 | 225,620 | 1,025,816 | ||||||||||||
Total
Assets
|
$ | 1,883,612 | $ | 362,270 | $ | 2,245,882 | |||||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY/(DEFICIT)
|
|||||||||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$ | 216,412 | $ | – | $ | 216,412 | |||||||||
Accrued
liabilities
|
501,559 | – | 501,559 | ||||||||||||
Cashless
warrant liability
|
390,160 | – | 390,160 | ||||||||||||
Derivative
liability
|
– | 9,857,878 | B | 9,857,878 | |||||||||||
Convertible
notes payable
|
– | – | – | ||||||||||||
Total
Current Liabilities
|
1,108,131 | 9,857,878 | 10,966,009 | ||||||||||||
Convertible
notes payable
|
2,307,730 | 3,032,270 | C | 5,340,000 | |||||||||||
Accrued
liabilities - long term
|
878,151 | – | 878,151 | ||||||||||||
Total
Liabilities
|
4,294,012 | 3,032,270 | 17,184,160 | ||||||||||||
Stockholders’
Equity:
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and
outstanding
|
– | – | – | ||||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding
31,367,004 at December 31, 2006
|
31,367 | – | 31,367 | ||||||||||||
Additional
paid-in capital
|
21,032,762 | (13,630,334 | ) | 7,402,428 | |||||||||||
Accumulated
deficit
|
(23,474,529 | ) | 1,102,456 | (22,372,073 | ) | ||||||||||
Total
Stockholders’ Equity/(Deficit)
|
(2,410,400 | ) | (12,527,878 | ) | (14,938,278 | ) | |||||||||
Total
Liabilities and Stockholders’ Equity/Deficit)
|
$ | 1,883,612 | $ | (9,495,608 | ) | $ | 2,245,882 |
(Continued)
F-46
Consolidated
Statements of Operation
|
||||||||||||||||||||||||||||||
For
the Three Months Ended
December
31, 2006
|
For
the Six Months Ended
December
31, 2006
|
|||||||||||||||||||||||||||||
As
Originally
|
After
|
As
Originally
|
After
|
|||||||||||||||||||||||||||
Reported
|
Adjustments
|
Restatement
|
Reported
|
Adjustments
|
Restatement
|
|||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||||
Sales,
net of returns and allowances
|
$ | 48,232 | $ | – | $ | 48,232 | $ | 670,577 | $ | – | $ | 670,577 | ||||||||||||||||||
Cost
of sales
|
49,301 | – | 49,301 | 238,409 | – | 238,409 | ||||||||||||||||||||||||
Gross
Profit
|
(1,069 | ) | – | (1,069 | ) | 432,168 | – | 432,168 | ||||||||||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||||||||
Selling,
general and administrative
|
509,469 | – | 509,469 | 1,550,303 | – | 1,550,303 | ||||||||||||||||||||||||
Depreciation
and amortization
|
33,489 | – | 33,489 | 99,970 | – | 99,970 | ||||||||||||||||||||||||
Allowance
for bad debts
|
– | – | – | – | – | – | ||||||||||||||||||||||||
Research
and development
|
32,046 | – | 32,046 | 178,190 | – | 178,190 | ||||||||||||||||||||||||
Total
Operating Expenses
|
575,004 | – | 575,004 | 1,828,463 | – | 1,828,463 | ||||||||||||||||||||||||
Loss
From Operations
|
(576,073 | ) | – | (576,073 | ) | (1,396,295 | ) | – | (1,396,295 | ) | ||||||||||||||||||||
Other
Income and (Expense):
|
||||||||||||||||||||||||||||||
Other
income
|
3,374 | – | 3,374 | 5,809 | 5,809 | |||||||||||||||||||||||||
Gain/(Loss)
on disposal of assets
|
– | – | – | 2,850 | 2,850 | |||||||||||||||||||||||||
Interest
expense
|
(312,488 | ) | 22,455,188 | B | 22,142,700 | (578,674 | ) | 1,105,456 | B | 523,782 | ||||||||||||||||||||
Cost
of curing loan default
|
– | – | – | (13,960,334 | ) | – | (13,960,334 | ) | ||||||||||||||||||||||
Loss
before provision for income taxes
|
(885,187 | ) | 22,455,188 | 21,570,001 | (15,926,644 | ) | 1,102,456 | (14,824,188 | ) | |||||||||||||||||||||
Provision
for/(Benefit of) income taxes
|
– | – | – | – | – | – | ||||||||||||||||||||||||
Net
Income/(Loss)
|
$ | (885,187 | ) | $ | 22,455,188 | $ | – | $ | (15,926,644 | ) | $ | 1,102,456 | $ | (14,824,188 | ) | |||||||||||||||
Earnings
(Loss) per share:
|
||||||||||||||||||||||||||||||
Basic
and diluted earnings/(loss) per share
|
$ | (0.03 | ) | $ | – | $ | – | $ | (0.51 | ) | $ | 0.04 | $ | (0.47 | ) | |||||||||||||||
Weighted
average shares outstanding
|
31,245,368 | 31,245,368 | 31,245,368 | 31,245,368 | 31,245,368 | 31,245,368 |
(Continued)
F-47
Consolidated
Balance Sheets
|
|||||||||||||||
September
30, 2006
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
|||||||||||||||
Cash
|
$ | 5,545 | $ | – | $ | 5,545 | |||||||||
Accounts
receivable
|
200,407 | – | 200,407 | ||||||||||||
Notes
receivable
|
– | – | – | ||||||||||||
Inventory
|
345,803 | 345,803 | |||||||||||||
Prepaid
expenses
|
119,633 | 100,000 | A | 219,633 | |||||||||||
Total
Current Assets
|
671,388 | 100,000 | 771,388 | ||||||||||||
Property,
plant and equipment, net of accumulated depreciation
|
42,409 | – | 42,409 | ||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
34,055 | 168,804 | A | 202,859 | |||||||||||
Intangible
assets
|
823,694 | – | 823,694 | ||||||||||||
Total
Other Assets
|
857,749 | 168,804 | 1,026,554 | ||||||||||||
Total
Assets
|
$ | 1,571,546 | $ | 268,804 | $ | 1,840,350 | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | |||||||||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$ | 649,082 | $ | – | $ | 649,082 | |||||||||
Accrued
liabilities
|
461,007 | – | 461,007 | ||||||||||||
Cashless
warrant liability
|
207,322 | – | 207,322 | ||||||||||||
Derivative
liability
|
– | 32,313,066 | B | 32,313,066 | |||||||||||
Total
Current Liabilities
|
1,317,411 | 32,313,066 | 33,630,477 | ||||||||||||
Convertible
notes payable
|
1,231,196 | 1,768,804 | C | 3,000,000 | |||||||||||
Accrued
liabilities - long term
|
878,151 | – | 878,151 | ||||||||||||
Total
Liabilities
|
3,426,758 | 34,081,870 | 37,508,628 | ||||||||||||
Stockholders’
Equity:
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and
outstanding
|
– | – | – | ||||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding
54,885,103 and 40,396,004 at March 31, 2008 and 2007,
respectively
|
31,217 | – | 31,217 | ||||||||||||
Additional
paid-in capital
|
20,702,912 | (13,960,334 | ) | 6,742,578 | |||||||||||
Accumulated
deficit
|
(22,589,341 | ) | (19,852,732 | ) | (42,442,073 | ) | |||||||||
Total
Stockholders’ Equity/(Deficit)
|
(1,855,212 | ) | (33,813,066 | ) | (35,668,278 | ) | |||||||||
Total
Liabilities and Stockholders’ Equity/(Deficit)
|
$ | 1,571,546 | $ | 268,804 | $ | 1,840,350 |
(Continued)
F-48
Consolidated
Statements of Operations
|
||||||||||||||||||||||||||||||
For
the Three Months Ended
September
30, 2006
|
For
the Six Months Ended
September
30, 2006
|
|||||||||||||||||||||||||||||
As
Originally
|
After
|
As
Originally
|
After
|
|||||||||||||||||||||||||||
Reported
|
Adjustments
|
Restatement
|
Reported
|
Adjustments
|
Restatement
|
|||||||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||||||
Sales,
net of returns and allowances
|
$ | 105,093 | $ | – | $ | 105,093 | $ | 622,346 | $ | – | $ | 622,346 | ||||||||||||||||||
Cost
of sales
|
69,489 | – | 69,489 | 189,108 | – | 189,108 | ||||||||||||||||||||||||
Gross
Profit
|
35,604 | – | 35,604 | 433,238 | – | 433,238 | ||||||||||||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||||||||
Selling,
general and administrative
|
697,130 | – | 697,130 | 1,040,834 | – | 1,040,834 | ||||||||||||||||||||||||
Depreciation
and amortization
|
33,566 | – | 33,566 | 66,481 | – | 66,481 | ||||||||||||||||||||||||
Allowance
for bad debts
|
– | – | – | – | – | – | ||||||||||||||||||||||||
Research
and development
|
64,369 | – | 64,369 | 146,144 | – | 146,144 | ||||||||||||||||||||||||
Total
Operating Expenses
|
795,065 | – | 795,065 | 1,253,459 | – | 1,253,459 | ||||||||||||||||||||||||
Loss
From Operations
|
(759,461 | ) | – | (759,461 | ) | (820,221 | ) | – | (820,221 | ) | ||||||||||||||||||||
Other
Income and (Expense):
|
||||||||||||||||||||||||||||||
Other
income
|
391 | – | 391 | 2,434 | – | 2,434 | ||||||||||||||||||||||||
Gain/(Loss)
on disposal of assets
|
– | – | – | 2,850 | – | 2,850 | ||||||||||||||||||||||||
Interest
expense
|
1,095 | (763,590 | ) | B | (762,495 | ) | (266,185 | ) | (19,852,732 | ) | B | (20,118,917 | ) | |||||||||||||||||
Cost
of curing loan default
|
– | – | – | (13,960,334 | ) | – | (13,960,334 | ) | ||||||||||||||||||||||
Loss
before provision for income taxes
|
(757,975 | ) | (763,590 | ) | (1,521,565 | ) | (15,041,456 | ) | (19,852,732 | ) | (34,894,188 | ) | ||||||||||||||||||
Provision
for/(Benefit of) income taxes
|
– | – | – | – | – | – | ||||||||||||||||||||||||
Net
Loss
|
$ | (757,975 | ) | $ | (763,590 | ) | $ | (1,521,565 | ) | $ | (15,041,456 | ) | $ | (19,852,732 | ) | $ | (34,894,188 | ) | ||||||||||||
Earnings
(Loss) per share:
|
||||||||||||||||||||||||||||||
Basic
and diluted earnings/(loss) per share
|
$ | (0.02 | ) | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.48 | ) | $ | (0.64 | ) | $ | (1.12 | ) | ||||||||||||
Weighted
average shares outstanding
|
31,217,004 | 31,217,004 | 31,217,004 | 31,217,004 | 31,217,004 | 31,217,004 |
A –
Adjustment to reclassify unamortized loan fees and costs to prepaids and other
assets
B –
Adjustment to reflect change in derivative value for the period
C –
Cumulative effect to reflect loan conversion feature net of conversions in prior
periods
D –
Cumulative effect of error in reporting cure cost of default and effect of
conversions
E –
Cumulative effect of prior period adjustments and current period adjustment to
accumulated deficit
F-49