Attached files
| file | filename |
|---|---|
| EXCEL - IDEA: XBRL DOCUMENT - GREEN EARTH TECHNOLOGIES, INC | Financial_Report.xls |
| EX-32.1 - CERTIFICATION - GREEN EARTH TECHNOLOGIES, INC | getg_ex321.htm |
| EX-31.2 - CERTIFICATION - GREEN EARTH TECHNOLOGIES, INC | getg_ex312.htm |
| EX-31.1 - CERTIFICATION - GREEN EARTH TECHNOLOGIES, INC | getg_ex311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|
þ
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2013
|
|
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 Number: 000-53797
GREEN EARTH TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
|
Delaware
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26-0755102
|
|
|
(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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1136 Celebration Boulevard, Celebration, Florida 34747
(Address of principal executive offices)
(877) 438-4761
(Registrant’s telephone number, including area code)
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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer |
¨
|
Accelerated filer
|
o |
| Non-accelerated filer |
¨ (Do not check if a smaller reporting company)
|
Smaller reporting company
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þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of May 15, 2013, the issuer had a total of 157,707,071 shares of common stock, $0.001 par value, outstanding.
i
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 627 | $ | 346 | ||||
|
Trade receivables, less allowance of $18 and $10
|
599 | 640 | ||||||
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Inventories, net
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1,062 | 693 | ||||||
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Deferred cost, related party
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6,227 | - | ||||||
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Prepaid expenses and other current assets
|
333 | 411 | ||||||
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Total current assets
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8,848 | 2,090 | ||||||
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Property and equipment, net
|
35 | 51 | ||||||
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Intangibles, net
|
979 | 1,119 | ||||||
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Prepaid advertising
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296 | 337 | ||||||
|
Total assets
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$ | 10,158 | $ | 3,597 | ||||
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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||||||||
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Current liabilities:
|
||||||||
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Accounts payable
|
1,559 | 2,179 | ||||||
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Accounts payable, related parties
|
1,696 | 1,338 | ||||||
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Accrued expenses
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1,019 | 1,024 | ||||||
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Accrued expenses, related parties
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448 | 460 | ||||||
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Deferred revenue, related parties
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6,310 | 1,558 | ||||||
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Notes payable, related party
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3,460 | 1,600 | ||||||
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Derivative liabilities
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8,125 | 3,507 | ||||||
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Total current liabilities
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22,617 | 11,666 | ||||||
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Secured convertible debentures, net of debt discount
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1,875 | 438 | ||||||
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Total liabilities
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24,492 | 12,104 | ||||||
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Commitments and contingencies
|
||||||||
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Stockholders’ deficit
|
||||||||
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Common stock, $0.001 par value, 300,000,000 shares authorized, 157,140,355 and 154,138,423 shares issued and outstanding, as of March 31, 2013 and June 30, 2012
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157 | 154 | ||||||
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Additional paid-in capital
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61,369 | 60,048 | ||||||
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Accumulated deficit
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(75,860 | ) | (68,709 | ) | ||||
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Total stockholders' deficit
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(14,334 | ) | (8,507 | ) | ||||
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Total liabilities and stockholders' deficit
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$ | 10,158 | $ | 3,597 | ||||
See notes to condensed consolidated financial statements.
1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share data)
|
Three Months Ended March 31,
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Nine Months Ended March 31,
|
|||||||||||||||
|
2013
|
2012
|
2013
|
2012
|
|||||||||||||
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Net sales
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$
|
2,035
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$
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1,520
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$
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5,390
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$
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4,940
|
||||||||
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Operating expense:
|
||||||||||||||||
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Cost of sales (exclusive of depreciation and amortization)
|
1,927
|
1,380
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4,875
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4,258
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||||||||||||
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Selling, general and administrative expenses
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1,683
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1,540
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5,607
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4,755
|
||||||||||||
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Stock-based compensation
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235
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976
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730
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2,945
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||||||||||||
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Depreciation and amortization
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52
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52
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156
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157
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||||||||||||
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3,897
|
3,948
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11,368
|
12,115
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|||||||||||||
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Loss from operations
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(1,862
|
)
|
(2,428
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)
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(5,978
|
)
|
(7,175
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)
|
||||||||
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Other income (expense):
|
||||||||||||||||
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Legal and settlement income
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-
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-
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-
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254
|
||||||||||||
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Change in revaluation of derivatives
|
735
|
2,051
|
1,478
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934
|
||||||||||||
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Loss on issuance of convertible debt
|
(257
|
)
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-
|
(846
|
)
|
(1,265
|
)
|
|||||||||
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Interest expense, net
|
(793
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)
|
(234
|
)
|
(1,805
|
)
|
(311
|
)
|
||||||||
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Loss from operations before income taxes
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(2,177
|
)
|
(611
|
)
|
(7,151
|
)
|
(7,563
|
)
|
||||||||
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Income tax
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-
|
-
|
-
|
-
|
||||||||||||
|
Net loss
|
$
|
(2,177
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)
|
$
|
(611
|
)
|
$
|
(7,151
|
)
|
$
|
(7,563
|
)
|
||||
|
Basic and diluted net loss per common share
|
$
|
(0.01
|
)
|
$
|
(0.00
|
)
|
$
|
(0.05
|
)
|
$
|
(0.05
|
)
|
||||
|
Basic and diluted weighted average common shares outstanding
|
156,483,000
|
152,001,000
|
155,307,000
|
151,649,000
|
||||||||||||
See notes to condensed consolidated financial statements.
2
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(Unaudited)
(in thousands, except share data)
|
Additional
|
||||||||||||||||||||
| Common Stock |
Paid
|
Accumulated
|
||||||||||||||||||
|
Shares
|
Amount
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In Capital
|
Deficit
|
Total
|
||||||||||||||||
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Balance at June 30, 2012
|
154,138,423 | $ | 154 | $ | 60,048 | $ | (68,709 | ) | $ | (8,507 | ) | |||||||||
|
Private placement of common stock
|
2,079,245 | 2 | 426 | 428 | ||||||||||||||||
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Shares issued for interest
|
907,687 | 1 | 165 | - | 166 | |||||||||||||||
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Stock-based compensation
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15,000 | - | 730 | - | 730 | |||||||||||||||
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Net loss
|
- | - | - | (7,151 | ) | (7,151 | ) | |||||||||||||
|
Balance at March 31, 2013
|
157,140,355 | $ | 157 | $ | 61,369 | $ | (75,860 | ) | $ | (14,334 | ) | |||||||||
See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
|
Nine Months Ended March 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Cash flows from operating activities
|
||||||||
|
Net loss
|
$ | (7,151 | ) | $ | (7,563 | ) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities
|
||||||||
|
Depreciation and amortization
|
156 | 157 | ||||||
|
Amortization of debt discount
|
1,437 | 250 | ||||||
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Loss on issuance of convertible debt
|
846 | 1,265 | ||||||
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Increase in allowance for inventory
|
199 | - | ||||||
|
Change in fair value of derivative liability
|
(1,478 | ) | (934 | ) | ||||
|
Bad debt expense
|
8 | (21 | ) | |||||
|
Stock-based compensation expense
|
730 | 2,945 | ||||||
|
Changes in assets and liabilities:
|
||||||||
|
Accounts receivable
|
33 | 1,825 | ||||||
|
Inventories
|
(568 | ) | (239 | ) | ||||
|
Deferred cost, related party
|
(6,227 | ) | - | |||||
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Prepaid expenses and other current assets
|
78 | 46 | ||||||
|
Prepaid Advertising
|
41 | - | ||||||
|
Accounts payable
|
(620 | ) | (886 | ) | ||||
|
Accounts payable, related parties
|
358 | (1,276 | ) | |||||
|
Accrued expenses
|
161 | (200 | ) | |||||
|
Accrued expenses, related parties
|
(12 | ) | 738 | |||||
|
Deferred revenue
|
4,752 | 426 | ||||||
|
Net cash used in operating activities
|
(7,257 | ) | (3,467 | ) | ||||
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Cash flows from investing activities
|
||||||||
|
Acquisition of equipment
|
- | (16 | ) | |||||
|
Net cash used in investing activities
|
- | (16 | ) | |||||
|
Cash flows from financing activities
|
||||||||
|
Proceeds from issuance of common stock, net of issuance costs
|
428 | 715 | ||||||
|
Proceeds from issuance of secured convertible debentures
|
5,250 | 2,250 | ||||||
|
Proceeds from notes payable, related party
|
2,900 | 1,500 | ||||||
|
Repayment of notes payable, related party
|
(1,040 | ) | (1,040 | ) | ||||
|
Net cash provided by financing activities
|
7,538 | 3,425 | ||||||
|
Net Increase (decrease) in cash
|
281 | (58 | ) | |||||
|
Cash and cash equivalent
|
||||||||
|
Beginning of period
|
346 | 772 | ||||||
|
End of period
|
$ | 627 | $ | 714 | ||||
|
Supplemental information
|
||||||||
|
Interest payments
|
$ | - | $ | - | ||||
|
Income taxes paid
|
$ | 6 | $ | 9 | ||||
|
Non-cash investing and financing activities
|
||||||||
|
Interest paid in common stock
|
$ | 166 | $ | - | ||||
See notes to condensed consolidated financial statements.
4
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
|
1.
|
SUMMARY OF BUSINESS AND BASIS FOR PRESENTATION
|
Organization and Business
Green Earth Technologies, Inc. and its wholly-owned subsidiary, GET Well! Inc., formally GET Manufacturing, Inc. (collectively, the “Company”), were each formed on August 7, 2007 under the laws of the state of Delaware. The Company markets, sells and distributes environmentally safe lubricants, cleaning products and oil well service products. The Company’s product line crosses multiple channels including the automotive aftermarket, oil well services, marine and outdoor power small engine and cleaning markets. The Company sells to home centers, mass retail outlets, automotive stores, equipment manufacturers and over the Internet.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. All significant intercompany balances and transactions have been eliminated in consolidation.
The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented.
Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America and have been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The Company believes the disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the fiscal year ended June 30, 2012 included in the Company’s Annual Report on Form 10K filed in September 2012 (the “2012 Annual Report”).
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2012 Annual Report.
Liquidity and Going Concern
Due to the Company’s limited capital, recurring losses, negative cash flows from operations and the Company’s limited ability to pay outstanding liabilities, there is substantial doubt about its ability to continue as a going concern. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, assuming that the Company will continue as a going concern.
As reflected in the Company’s historical consolidated financial statements, the Company has recurring net losses and negative cash flow from operating activities. The Company also has a working capital deficit. The Company relies upon cash from financing activities to fund its ongoing operations as it has not been able to generate sufficient cash from operating activities and there is no assurance that it will be able to do so in the future.
5
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
The Company cannot predict how long it will continue to incur further losses or whether it will ever become profitable. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
The Company plans to increase revenues in order to reduce, or eliminate, its operating losses. Additionally, the Company will attempt to raise capital from external sources or by selling shares of its common stock, par value $0.001 per share (the “Common Stock”), under its agreement with Lincoln Park Capital Fund, LLC (“LPC”) in order to enable it to continue to meet its financial obligations until it achieves profitability or generates positive cash flow.
There can be no assurance that the Company will be able to achieve profitability or generate positive cash flow or raise additional capital, whether from the sale of equity, debt or convertible securities or otherwise, on favorable terms, or at all. Failure to obtain sufficient financing would have a substantial adverse effect on the Company’s business, operations and financial condition.
|
2.
|
INVENTORIES, NET
|
Inventories consist of the following:
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
Raw materials
|
$ | 209 | $ | 446 | ||||
|
Finished goods
|
853 | 247 | ||||||
| $ | 1,062 | $ | 693 | |||||
Inventories are presented net of an obsolescence reserve of $1,096 and $925 at March 31, 2013 and June 30, 2012, respectively. During the nine month period ended March 31, 2013 the Company recorded a direct write-off of $28 against the obsolescence reserve for reserved inventory disposed of and increased the obsolescence reserve by $199.
|
3.
|
DEFERRED COST, RELATED PARTY
|
In December 2012, the Company received $6,000 for the purchase of well service products in anticipation of future sales by its E&B Green Solutions L.P., a company controlled by Francesco Galesi (“Galesi”) who is deemed a related party with respect to the Company. The Company did not report the receipt of these funds as revenue during the three and nine months ended March 31, 2013 because the transaction did not meet the revenue recognition criteria in accordance with generally accepted accounting principles. Therefore, at the balance sheet date a deferred cost and corresponding deferred revenue account totaling approximately $6,227 and $6,000, respectively was recorded.
|
4.
|
INTANGIBLE ASSETS
|
Intangible assets consist of the following:
|
March 31, 2013
|
June 30, 2012
|
Estimated Useful Lives
|
||||||||||
|
Purchased technology and exclusivity rights
|
$ | 2,550 | $ | 2,550 | 7 | |||||||
|
Less: accumulated amortization
|
1,571 | 1,431 | ||||||||||
|
|
$ | 979 | $ | 1,119 | ||||||||
6
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Expected amortization of intangible assets is as follows:
|
2013
|
$ | 47 | ||
|
2014
|
186 | |||
|
2015
|
186 | |||
|
2016
|
186 | |||
|
2017
|
186 | |||
|
Thereafter
|
188 | |||
| $ | 979 |
Amortization expense included in depreciation and amortization totaled $47 for the three months ended March 31, 2013 and 2012, respectively. Amortization expense totaled $140 for the nine months ended March 31, 2013 and 2012, respectively.
|
5.
|
ACCRUED EXPENSES
|
Accrued expenses consist of the following:
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
Accrued payroll and taxes
|
$ | 394 | $ | 537 | ||||
| Accrued interest | 272 | 245 | ||||||
| Accrued board of director fees | 178 | 150 | ||||||
| Accrued sponsorship fees | 112 | - | ||||||
|
Other
|
63 | 92 | ||||||
| $ | 1,019 | $ | 1,024 | |||||
Accrued expenses, related parties consist of the following:
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
Accrued interest
|
$ | 305 | $ | 151 | ||||
|
Accrued other
|
143 | 309 | ||||||
| $ | 448 | $ | 460 | |||||
7
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
|
6.
|
NOTES PAYABLE, RELATED PARTY
|
Notes payable, related party consists of the following:
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
3.25 % Secured note – due June 30, 2013
|
$ | 60 | $ | 100 | ||||
|
6% Secured note, related party – due June 30, 2013
|
3,400 | 1,500 | ||||||
| $ | 3,460 | $ | 1,600 | |||||
3.25% Secured note
As of March 31, 2013 and June 30, 2012, accrued interest was $233 and $232, respectively.
6.0% Secured note, related party
The note is held by a related party and is secured by eligible accounts receivable and purchase orders. In September 2012, the interest rate was changed to 6% from 12% retro-active to January 1, 2012. As a result the Company recorded an adjustment of $75 to interest expense. As of March 31, 2013 and June 30, 2012 accrued interest of $232 and $128, respectively, was due on the note.
|
7.
|
DERIVATIVE LIABILITY
|
Secured Convertible Debentures Conversion Option
The Debentures (as defined in note 8) are convertible into shares of Common Stock at a conversion price of $0.17 per share (the “Conversion Price”). The Conversion feature provides for weighted average anti-dilution protection in the event that any shares of Common Stock, or securities convertible into shares of Common Stock, are issued at less than the Conversion Price. The conversion feature was bifurcated from the Debenture and accounted for as a derivative liability in the accompanying condensed consolidated balance sheet.
The Company recognizes their derivative financial instruments as assets or liabilities in the financial statements and measures them at fair value with changes in fair value reflected as current period income or loss. The Company records the conversion feature as a liability based upon its fair value on each reporting date.
The table below summarizes the fair values of the Company’s financial liabilities:
| Fair Value at | ||||||||||||||||
|
|
March 31,
|
Fair Value Measurement Using
|
||||||||||||||
|
2013
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
Derivative liability - Debentures
|
$ | 5,000 | $ | - | $ | - | $ | 5,000 | ||||||||
|
|
$ | 5,000 | $ | - | $ | - | $ | 5,000 | ||||||||
8
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (Derivative liability - Debentures) for the periods ended March 31, 2013 and June 30, 2012:
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
Balance at beginning of period
|
$ | 2,118 | $ | - | ||||
|
Additions to derivative instruments
|
3,780 | 2,207 | ||||||
|
Change in fair market value of the derivative liability
|
(898 | ) | (89 | ) | ||||
|
Balance at end of period
|
$ | 5,000 | $ | 2,118 | ||||
These instruments were valued using pricing models that incorporate the price of a share of Common Stock (as quoted on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life. The Company computed the fair value of the conversion feature using the Black-Scholes model.
The following are the key assumptions used in connection with this computation:
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
Number of shares
|
44,118,000 | 13,235,000 | ||||||
|
Conversion Price
|
$ | 0.17 | $ | 0.17 | ||||
|
Volatility
|
124% -125 | % | 119 | % | ||||
|
Risk-free interest rate
|
0.24%-0.36 | % | 0.30 | % | ||||
|
Expected dividend yield
|
0 | % | 0 | % | ||||
|
Life of Debentures (years)
|
1.7-3.0 | 2.4 | ||||||
Warrant Liability
In connection with the issuance of Debentures, the Company issued warrants to purchase up to 22,059,000 shares of Common Stock (the “Warrants”). The Warrants have an exercise price of $0.21 per share (the “Exercise Price”). Warrants covering up to 18,382,000 shares of Common Stock are exercisable at any time on or before December 31, 2016 and Warrants covering up to 3,677,000 shares of Common Stock are exercisable at any time on or before March 31, 2018. The Warrants provide for weighted average anti-dilution protection in the event that any shares of Common Stock, or securities convertible into Common Stock, are issued at less than the Exercise Price.
The Company accounts for the Warrants as derivative liabilities in the accompanying condensed consolidated balance sheet.
The Company recognizes its derivative financial instruments as assets or liabilities in the financial statements and measures them at fair value with changes in fair value reflected as current period income or loss.
The table below summarizes the fair values of the Company’s financial liabilities:
|
|
Fair Value at
|
|||||||||||||||
|
|
March 31,
|
Fair Value Measurement Using
|
||||||||||||||
|
2013
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
Derivative liability - Warrants
|
$ | 3,125 | $ | - | $ | - | $ | 3,125 | ||||||||
| $ | 3,125 | $ | - | $ | - | $ | 3,125 | |||||||||
9
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (warrant derivative liability) for the periods ended March 31, 2013 and June 30, 2012:
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
Balance at beginning of period
|
$ | 1,389 | $ | - | ||||
|
Additions to derivative instruments
|
2,316 | 1,308 | ||||||
|
Change in fair market value
|
(580 | ) | 81 | |||||
|
Balance at end of period
|
$ | 3,125 | $ | 1,389 | ||||
These instruments were valued using pricing models that incorporate the price of a share of Common Stock (as quoted on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life.
The Company computed the value of the warrants using the Black-Scholes model.
The following are the key assumptions used in connection with this computation:
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
Number of shares underlying the Warrants
|
22,059,000 | 6,617,000 | ||||||
|
Exercise Price
|
$ | 0.21 | $ | 0.21 | ||||
|
Volatility
|
132%-134 | % | 151 | % | ||||
|
Risk-free interest rate
|
0.36%-.76 | % | 0.67 | % | ||||
|
Expected dividend yield
|
0 | % | 0 | % | ||||
|
Warrant life (years)
|
3.7-5.0 | 4.5 | ||||||
|
8.
|
SECURED CONVERTIBLE DEBENTURE, NET OF DEBT DISCOUNT
|
The Company realized gross proceeds of $6,250 ($2,250 in December 2011 and $4,000 in October 2012 ) from the sale of its 6.0% Secured Convertible Debentures due December 31, 2014 in the aggregate original principal amount of $6,250 and Warrants to purchase 18,382,000 shares of Common Stock to eight accredited investors. In March 2013 the Company realized $1,250 of gross proceeds from the sale of its 6.0% Secured Convertible Debentures, due March 31, 2016 in the aggregate original principal amount of $1,250 and Warrants to purchase 3,677,000 shares of Common Stock to two accredited investors. (The $7,500 aggregate principal amount of 6.0% Secured Convertible Debentures due December 31, 2014 and March 31, 2016 are herein referred to collectively as the “Debentures”; the Warrants issued together with the Debentures to purchase an aggregate of 22,059,000 shares of Common Stock are referred to herein as the “Warrants”; and the eight accredited investors who purchased the Debentures and the Warrants are herein referred to as the “Investors”). Interest on the outstanding principal balance of the Debentures is payable quarterly in arrears in cash or shares of Common Stock at the discretion of the Company. The Debentures and the accrued but unpaid interest thereon are due upon the earlier of (i) the occurrence of an “event of default” (as defined in the Debentures) and (ii) their respective maturity dates. The outstanding principal balance of the Debentures and all accrued but unpaid interest thereon may be converted at any time at the option of each Investor into shares of Common Stock at the Conversion Price. The Company may prepay the Debentures at any time without penalty upon ten business days prior written notice to the Investors provided there is, at that time, an effective registration statement covering the resale of the shares issuable upon conversion of the Debentures and exercise of the Warrants.
The conversion feature provides for weighted average anti-dilution protection in the event that any shares of Common Stock, or securities convertible into Common Stock, are issued at less than the Conversion Price.
10
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Secured convertible debentures, net of debt discount, consist of the following:
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
Debentures
|
$ | 7,500 | $ | 2,250 | ||||
|
Debt discount ($7,500)
|
(5,625 | ) | (1,812 | ) | ||||
| $ | 1,875 | $ | 438 | |||||
The Company recorded an immediate loss on the issuance of the Debentures for the fair value of the conversion option and warrants exceeding the carrying value of the Debentures of approximately $257 for the three months ended March 31, 2013 and $846 and $1,265 for the nine months ended March 31, 2013 and 2012, respectively, in the accompanying condensed consolidated statement of operations. Total debt discount of $7,500 is being amortized over the life of the Debentures and is included in interest expense in the accompanying condensed consolidated statement of operations.
In connection with the issuance of the Debentures and the Warrants, the Company recognized deferred financing costs of $92. These costs are being amortized over the life of the Debentures. These costs are recognized under prepaid expenses and other current assets in the accompanying condensed consolidated balance sheet.
The March 2013 Debentures are subject to a registration rights agreement and the Company has until March 31, 2014 to file. If the Company does not file by this date, it will be subject to penalties.
|
9.
|
STOCKHOLDERS DEFICIT
|
Private Placements
During the nine month period ended March 31, 2013, the Company sold 2,053,000 shares of Common Stock to LPC under the Purchase Agreement for aggregate gross proceeds of $450, offset by placement fees of $22. In connection with these purchases, the Company issued an additional 26,000 shares of Common Stock as commitment fees to LPC.
Other uses
For the nine months ended March 31, 2013, the Company issued 908,000 shares of Common Stock to pay accrued interest from April 1, 2012 to December 31, 2012 on the outstanding Debentures. The fair value of the shares in connection with this transaction totaled $166.
|
10.
|
RELATED PARTY TRANSACTIONS
|
Inventek Colloidal Cleaners, LLC (“Inventek”)
The Company purchased inventory from Inventek totaling $148 and $103 for the three months ended March 31, 2013 and 2012, respectively, and $7,252 and $552 for the nine months ended March 31, 2013 and 2012, respectively. As of March 31, 2013 and June 30, 2012, amounts due to Inventek were $756 and $572, respectively. As of March 31, 2013, Inventek beneficially owned approximately 7.1% of the Company’s issued and outstanding shares of Common Stock.
11
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Marketiquette, Inc (“Marketiquette”)
The Company paid Marketiquette for marketing services a total of $146 and $111 for the three months ended March 31, 2013 and 2012, respectively, and $444 and $520 for the nine months ended March 31, 2013 and 2012, respectively, which are included in selling, general and administrative expenses. As of March 31, 2013 and June 30, 2012, amounts due to Marketiquette were $71 and $284, respectively. The wife of the Company’s President is the president and a director of Marketiquette. As of March 31, 2013, Marketiquette beneficially owned approximately 5.1% of the Company’s issued and outstanding shares of Common Stock.
Techtronics Industries North America Inc. (“TTI”)
For the three months ended March 31, 2013 and 2012, approximately 52% and 46% of the Company’s revenues, respectively, were earned from TTI and for the nine months ending March 31, 2013 and 2012, approximately 34% and 33% of the Company’s revenues, respectively, from TTI. As of March 31, 2013 and June 30, 2012, amounts due to TTI, included in accounts payable and accrued expenses, were $1,013 and $670, respectively. As of March 31, 2013 and June 30, 2012 advances received from TTI for future sales of cleaning and performance products was $310 and $1,558, respectively. In addition, as of March 31, 2013 and June 30, 2012, the Company was indebted to TTI in the amount of $3,400 and $1,500, exclusive of accrued interest. These amounts are evidenced by a 6.0% secured note. (See note 6.) As of March 31, 2013, TTI beneficially owned approximately 19.5% of the Company’s issued and outstanding shares of Common Stock.
Galesi
For the three months ended March 31, 2013 and 2012, there were no sales to companies owned or controlled by Galesi. For the nine months ended March 31, 2013 and 2012, approximately 19% and 17% of the Company’s revenues, respectively, were earned from companies owned and/or controlled by Galesi. As of March 31, 2013 and June 30, 2012, amounts due from these entities totaled $0 and $345, respectively. As of March 31, 2013 and June 30, 2012, the amounts due to these entities included $3,618 and $2,338 of derivative liability, respectively, and $1,036 and $314 for the Debentures, net of debt discount plus accrued interest, respectively. As of March 31, 2013, Galesi beneficially owned approximately 22.4% of the Company’s issued and outstanding shares of Common Stock. In December, 2012, the Company received $6,000 from Galesi for future sales of well service products, which is included in deferred revenue, related parties on the accompanying condensed consolidated statement of operations. (See Note 3.)
WRG1, LLC (“Raquet”)
Walter Raquet is a Director and a member of the audit committee. As of March 31, 2013 and June 30, 2012, the amounts due to Raquet included $2,168 and $0 of derivative liability, respectively, and $305 and $3 for the Debentures, net of debt discount plus accrued interest, respectively. As of March 31, 2013, Raquet beneficially owned approximately 8.6% of the Company’s issued and outstanding shares of Common Stock.
|
11.
|
CONCENTRATIONS OF RISK
|
Cash
The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation subject to certain limitations.
12
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Accounts Receivable
The following customers represent the majority of the Company’s sales for the nine months ended March 31, 2013 and 2012, respectively, and accounts receivable for the nine months ended March 31, 2013 and year ended June 30, 2012, respectively:
|
March 31, 2013
|
March 31, 2012
|
|||||||
|
Sales
|
||||||||
|
TTI
|
34 | % | 33 | % | ||||
|
Menards
|
22 | % | 23 | % | ||||
|
Galesi entities
|
18 | % | 17 | % | ||||
|
Walmart
|
11 | % | 19 | % | ||||
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
Accounts Receivable
|
||||||||
|
Galesi entities
|
- | 54 | % | |||||
|
Walmart
|
36 | % | 33 | % | ||||
|
Menards
|
25 | % | - | |||||
|
Sustainable Earth Products
|
14 | % | - | |||||
|
LBTC Holdings, LLC
|
12 | % | 9 | % | ||||
Inventory and Accounts Payable
The Company purchases its performance products from Delta Petroleum Company, its cleaning products from Inventek and its power washer equipment products from TTI. The following is the Company’s inventory purchased from these vendors for the nine months ended March 31, 2013 and March 31, 2012, respectively, and accounts payable to these vendors for the nine months ended March 31, 2013 and year ended June 30, 2012, respectively:
|
March 31, 2013
|
March 31, 2012
|
|||||||
|
Inventory Purchased
|
||||||||
|
Inventek
|
$ | 7,252 | $ | 552 | ||||
|
Delta
|
3,400 | 3,265 | ||||||
|
TTI
|
1,305 | 973 | ||||||
|
March 31, 2013
|
June 30, 2012
|
|||||||
|
Accounts Payable
|
||||||||
|
Inventek
|
$ | 756 | $ | 572 | ||||
|
Delta
|
1,216 | 1,593 | ||||||
|
TTI
|
869 | 670 | ||||||
13
Special Note About Forward-Looking Statements
Certain statements in Management’s Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, 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”.) Since our common stock is considered a “penny stock” we cannot rely on the safe harbor for forward-looking statements within Section 27A of the Securities Act and Section 21E of the Exchange Act. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview of our Business
(All dollar amounts referred to herein are in thousands, except as otherwise indicated.)
We create, develop, market, sell and distribute an array of G-branded, environmentally-friendly, bio-based performance and cleaning products to the automotive aftermarket, outdoor power equipment, well service and marine markets. Our technology platform for manufacturing proprietary and innovative high performing “green” products whose primary brands, G-OIL® and G-CLEAN®, are the end result of company created or sourced intellectual property. Our ultimate biodegradable “green-base” replaces traditional petroleum and chemical derived bases typically associated with motor oils and other lubricants and cleaning solutions without compromising performance or value. We believe our products deliver comparable or superior performance at competitive prices, thus giving consumers the ability to “do their part” in protecting the environment without paying more to do so.
We sell the majority of our products directly to retailers and installers as well as through master distribution agreements with wholesalers and contractual arrangements with independent sales and marketing professionals. Our products are available at a number of national retail outlets and chain stores including Walmart, The Home Depot, Menards, ACE Hardware and Canadian Tire Corporation. We are actively pursuing relationships with other wholesalers, retailers and distributors to include additional major national consumer purchase locations in the household goods, automotive aftermarket, outdoor power equipment market, oil and gas market and marine market. Manufactured domestically under supply and requirement contracts, our proprietary environmentally preferred base oils are comprised of fatty acids procured from either plant and vegetable oils or animal fats.
During December 2012, we received $6,000 for the purchase of well service products in anticipation of future sales by E&B Green Solutions L.P., a company owned and/or controlled by Francesco Galesi (“Galesi”), who beneficially owns 22.4% of the outstanding shares of our common stock. We did not record this amount as revenue during the three and nine months ended March 31, 2013 because the transaction did not meet the revenue recognition criteria in accordance with generally accepted accounting principles. Therefore, at the balance sheet date a deferred cost and corresponding deferred revenue account totaling approximately $6,227 and $6,000, respectively was recorded.
14
Results of Operations
Three Months Ended March 31, 2013 and 2012
Our activities for the three months March 31, 2013 and 2012 included capital origination, product development, manufacturing, marketing and sales of our bio-degradable performance and cleaning products, development of mass market product distribution networks for the intended distribution of our products and development of an infrastructure to support the planned business and increasing of revenues.
Our results of operations are as follows:
|
Three Months Ended
March 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Net sales
|
$ | 2,035 | $ | 1,520 | ||||
|
Loss from operations
|
(1,862 | ) | (2,428 | ) | ||||
|
Change in revaluation of derivatives
|
735 | 2,051 | ||||||
|
Loss on issuance of convertible debt
|
(257 | ) | - | |||||
|
Interest expense, net
|
(793 | ) | (234 | ) | ||||
|
Net loss
|
$ | (2,177 | ) | $ | (611 | ) | ||
Net Sales
Net sales for the three months ended March 31, 2013 were $2,035, primarily attributed to sales of G-OIL®, outdoor power equipment 4-cycle engine oils and G-CLEAN® pressure washing products. Net sales for the three months ended March 31, 2012 were $1,520, primarily attributed to sales of 4-cycle engine oils, 5W-30 motor oil and 2-cycle oil. The increase in net sales from 2012 to 2013 is a result of higher sales of the G-CLEAN® pressure washing products, and 4-cycle engine oils.
For the three months ended March 31, 2013, approximately 85% of our sales were attributable to three customers, Techtronics Industries North America Inc. (“TTI”), Menards, Inc., and Walmart. For the three months ended March 31, 2012, approximately 86% of our sales were attributable to TTI and Walmart. TTI is a related party.
Net sales are comprised as follows:
|
Three Months Ended
March 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Performance products (oils)
|
$ | 1,510 | $ | 1,379 | ||||
|
Cleaning products
|
$ | 525 | $ | 141 | ||||
|
Total
|
$ | 2,035 | $ | 1,520 | ||||
Cost of Sales (exclusive of depreciation and amortization)
Cost of sales primarily consists of the cost of bio-based raw materials, additives and packaging components for performance and cleaning products; and fees paid to our affiliates and manufacturers. Cost of sales for the three months ended March 31, 2013 and 2012 were approximately $1,927, and $1,380, respectively. The increase in cost of sales from 2012 to 2013 is primarily due to the increase in net sales.
15
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and benefits, product development and testing fees, advertising and marketing expenses, public relations, insurance and fees for professional services. Selling, general and administrative expenses include the following:
|
Three Months Ended
March 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Salaries
|
$ | 237 | $ | 272 | ||||
|
Selling, marketing, public relations and related
|
879 | 821 | ||||||
|
Development, product release and testing
|
87 | 163 | ||||||
|
Management and operating fees
|
61 | 71 | ||||||
|
Legal and professional
|
104 | 97 | ||||||
|
Occupancy, communications and all other, net
|
315 | 116 | ||||||
|
Total selling, general and administrative expenses
|
$ | 1,683 | $ | 1,540 | ||||
The increase in selling, marketing and public relations expenses reflects our decision to redirect dollars to support retailers who sell the “G” family of products. The decrease in development, product release and testing is due to a reduction of third party testing. Increase in occupancy, communications and all other is due to reserves primarily against aged raw materials.
Stock-based compensation
Stock-based compensation expense for the three months ended March 31, 2013 and 2012 was approximately $235 and $976, respectively. The decrease is due to April 2009 stock option grants becoming fully expensed in prior periods.
Depreciation and amortization
Depreciation and amortization expense totaled $52 for the three months ended March 31, 2013 and 2012, respectively. Depreciation charges totaled $5 for the three months ended March 31, 2013 and 2012, respectively, and amortization expense for intangible assets totaled $47 for the three months ended March 31, 2013 and 2012, respectively. Depreciation and amortization expense is excluded from cost of sales.
Change in revaluation of derivatives
The change in fair value of our derivative liabilities resulted in a favorable adjustment of $735 and $2,051 for the three months ended March 31, 2013 and 2012, respectively. The value of the derivative liabilities was determined using the Black-Scholes method. See note 7 to the condensed consolidated financial statements for inputs used to calculate the fair value of our derivatives liabilities.
Loss on issuance of convertible debt
We recorded a charge of $257 and $0 for the three months ended March 31, 2013 and 2012, respectively. The charge was in connection with the issuance of our 6.0% Secured Convertible Debentures due March 31, 2016, in the aggregate principal amount of and associated warrants.
Interest expense, net
Net interest expense for the three months ended March 31, 2013 and 2012 was approximately $793 and $234, respectively. Interest expense consists of $625 in connection with the amortization of the debt discount on our outstanding 6.0% Secured Convertible Debentures, $110 in connection with the accrued interest on those Debentures, $50 for accrued interest on notes payable to related parties and $8 in connection with the deferred financing costs relating to the outstanding Debentures. Interest income, which was not significant, consists of interest earned on bank deposits and an institutional money market fund.
16
Nine months ended March 31, 2013 and 2012
Our activities for the nine months March 31, 2013 and 2012 included capital origination, product development, manufacturing, marketing and sales of our bio-degradable performance and cleaning products, development of mass market product distribution networks for the intended distribution of our products and development of an infrastructure to support the planned business and increasing of revenues.
Our results of operations are as follows:
|
Nine Months Ended
March 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Net sales
|
$ | 5,390 | $ | 4,940 | ||||
|
Loss from operations
|
(5,978 | ) | (7,175 | ) | ||||
|
Settlement income
|
- | 254 | ||||||
|
Change in revaluation of derivatives
|
1,478 | 934 | ||||||
|
Loss on issuance of convertible debt
|
(846 | ) | (1,265 | ) | ||||
|
Interest expense, net
|
(1,805 | ) | (311 | ) | ||||
|
Net loss
|
$ | (7,151 | ) | $ | (7,563 | ) | ||
Net Sales
Net sales for the nine months ended March 31, 2013 were $5,390, primarily attributed to sales of G-OIL®, outdoor power equipment 4-cycle engine oils and G-OIL® 5W-30 motor oil, G-CLEAN® pressure washing products, and G-CLEAN® oil well service products. Net sales for the nine months ended March 31, 2012 were $4,940, primarily attributed to sales of 4-cycle engine oils, 5W-30 motor oil, G-CLEAN oil and gas well service cleaners, and G-CLEAN® pressure washing equipment. The increase in net sales from 2012 to 2013 is a result of higher sales of the G-CLEAN® oil well service products, and G-OIL® outdoor power equipment 4-cycle engine oils.
For the nine months ended March 31, 2013 and 2012, approximately 84% and 90%, respectively, of our sales were attributable to companies owned and/or controlled by Galesi, TTI, Menards, Inc. and Walmart.
Net sales are comprised as follows:
|
Nine Months Ended
March 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Performance products (oils)
|
$ | 2,942 | $ | 2,566 | ||||
|
Cleaning products
|
$ | 2,448 | $ | 2,374 | ||||
|
Total
|
$ | 5,390 | $ | 4,940 | ||||
Cost of Sales (exclusive of depreciation and amortization)
Cost of sales primarily consists of the cost of obtaining bio-based raw materials, additives and packaging components for performance and cleaning products; and fees paid to our affiliates and manufacturers. Cost of sales for the nine months ended March 31, 2013 and 2012 were approximately $4,875 and $4,258, respectively.
17
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and benefits, product development and testing fees, advertising and marketing expenses, public relations, insurance and fees for professional services. Selling, general and administrative expenses include the following:
|
Nine Months Ended
March 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Salaries
|
$ | 725 | $ | 582 | ||||
|
Selling, marketing, public relations and related
|
2,973 | 2,797 | ||||||
|
Development, product release and testing
|
356 | 369 | ||||||
|
Management and operating fees
|
216 | 282 | ||||||
|
Storage fee
|
323 | - | ||||||
|
Legal and professional
|
407 | 332 | ||||||
|
Occupancy, communications and all other, net
|
607 | 393 | ||||||
|
Total selling, general and administrative expenses
|
$ | 5,607 | $ | 4,755 | ||||
The increase in salaries is due to an increase in headcount due to hiring former consultants which was previously recorded in management and operating fees. The increase in selling, marketing and public relations expenses reflects our decision to redirect dollars to support retailers who sell the “G” family of products. The storage fees are due to a significant charge for raw materials stored on behalf of our manufacturer. The increase in legal and professional fees is primarily due to higher legal patent costs. We are requesting reimbursement of these storage fees from our manufacturer. Increase in occupancy, communications and all other is due to reserves primarily against aged raw materials.
Stock-based compensation
Stock-based compensation expense for the nine months ended March 31, 2013 and 2012 was approximately $730 and $2,945, respectively. The decrease is due to April 2009 stock option grants becoming fully expensed in prior periods.
Depreciation and amortization
Depreciation and amortization expense totaled $156 and $157 for the nine months ended March 31, 2013 and 2012, respectively. Depreciation charges totaled $16 and $17 for the nine months ended March 31, 2013 and 2012, respectively, and amortization expense for intangible assets totaled $140 for the nine months ended March 31, 2013 and 2012, respectively. Depreciation and amortization expense is excluded from cost of sales.
Settlement and legal charges
We recorded a gain on settlement of $254 for the nine months ended March 31, 2012. The gain on settlement was due to a settlement agreement regarding a payment reduction of legal fees previously accrued related to litigation that was settled in the nine months ended March 31, 2012.
Change in revaluation of derivatives
The change in fair value of our derivative liabilities resulted in a favorable adjustment of $1,478 and $934 for the nine months ended March 31, 2013, and 2012, respectively. The value of the derivative liabilities was determined using the Black-Scholes method. See note 7 to the condensed consolidated financial statements for inputs used to calculate the fair value of our derivatives liabilities.
18
Loss on issuance of convertible debt
We recorded a charge of $846 and $1,265 for the nine months ended March 31, 2013 and 2012, respectively. The charge was in connection with the issuance of our 6.0% secured convertible debentures and associated warrants.
Interest expense, net
Net interest expense for the nine months ended March 31, 2013 and 2012 was approximately $1,805 and $311, respectively. Interest expense consists of $1,437 in connection with the amortization of the debt discount on our outstanding Debentures, $240 in connection with the accrued interest on the outstanding Debentures, $106 for accrued interest on notes payable to related parties and $23 in connection with the deferred financing costs relating to the outstanding Debentures. Interest income, which was not significant, consists of interest earned on bank deposits and an institutional money market fund.
Seasonality
Although our various product lines are sold on a year-round basis, the appearance chemicals and outdoor power equipment markets are inherently seasonal. Seasonality impacts liquidity in that we generally record the majority of our annual retail sales in the quarters ending March and June.
Liquidity and Capital Resources
At March 31, 2013 and June 30, 2012, we had $627 and $346 in cash and an accumulated deficit of $75,860 and $68,709, respectively. At March 31, 2013 and June 30, 2012, we had a working capital deficit of $13,769 and 9,576, respectively.
Net cash used in operating activities was $7,257 and $3,467 for the nine months ended March 31, 2013 and 2012, respectively. The increase from 2013 to 2012 was primarily due to an increase in accounts payable, partially offset by payments made to vendors in the nine months ended March 31, 2013.
Net cash provided by financing activities was $7,538 and $3,425 for the nine months ended March 31, 2013 and 2012, respectively. The increase in financing activities is primarily due to proceeds from the sale of the Debentures of $5,250 and the issuance of a note payable in the amount of $2,900, partially offset by a repayment of the note payable of $1,040. The net proceeds from our financing activities were used to support our expansion, including purchases from suppliers, advertising and increased infrastructure costs.
We currently have no material commitments for capital expenditures. Our capital requirements are not significant as the majority of our performance and cleaning products are outsourced to third party suppliers. In the foreseeable future, we will require capital for the growth of our business, including increases in personnel, sales and marketing, and purchasing finished goods to fulfill orders.
Losses from operations are continuing subsequent to March 31, 2013 and we anticipate that we will continue to generate losses from operations in the near future. Since inception, we have financed our operations by issuing securities (common stock and debt instruments) in various private placement transactions and from revenue generated by sales of our products.
On March 7, 2011, we signed a $15,000 Purchase Agreement with Lincoln Park Capital Fund, LLC (“LPC”), an accredited investor. At our sole discretion, over a 30-month period beginning on the effective date of the registration statement covering the sale of those shares, which was May 12, 2011, we can sell shares of common stock to LPC in amounts up to $50 per sale, subject to the satisfaction of certain conditions as set forth in the Purchase Agreement, up to the aggregate commitment of $15,000.
19
Under the Purchase Agreement, on any business day selected by us and as often as every two business days, we may direct LPC to purchase up to $50 worth of our common stock. The purchase price per share is equal to the lesser of:
|
●
|
the lowest sale price of our common stock on the purchase date; or
|
|
●
|
the average of the three lowest closing sale prices of our common stock during the 12 consecutive business days prior to the date of a purchase by LPC.
|
The purchase price will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the business days used to compute the purchase price.
The amount that we may sell to LPC as often as every two business days will increase as follows: (i) $75 if, on the purchase date, our share price is not below $0.40 per share; (ii) $150 if, on the purchase date, our share price is not below $0.60 per share; (iii) $150 if, on the purchase date, our share price is not below $0.90 per share; (iv) $250 if, on the purchase date, our share price is not below $1.50 per share. The price at which LPC would purchase these accelerated amounts of our stock will be the lesser of (1) the lowest sale price of our common stock on the purchase date and (2) the lowest purchase price (as described above) during the 10 consecutive business days prior to the purchase date.
During the nine months ending March 31, 2013, we sold 2,053,000 shares of our common stock to LPC. Total aggregate gross proceeds from these sales were $450, offset by placement fees of $22. In addition, we issued an additional 26,000 shares of our common stock to LPC in connection with these sales as commitment fees. Total shares remaining to be purchased under the agreement are 15,072,000 shares.
During the nine months ending March 31, 2013, we issued 908,000 shares of our restricted common stock to pay the accrued interest on the outstanding Debentures. The fair value of the shares in connection with this transaction totaled $166.
Debentures and Warrants
We realized gross proceeds of $6,250 ($2,250 in December 2011 and $4,000 in October 2012 ) from the sale of our 6.0% Secured Convertible Debentures due December 31, 2014 in the aggregate original principal amount of $6,250 and warrants to purchase 18,382,000 shares of common stock at any time on or before December 31, 2016 to eight accredited investors. In addition, in March 2013 we realized an additional $1,250 of gross proceeds from the sale of our 6.0% Secured Convertible Debentures, due March 31, 2016 in the aggregate original principal amount of $1,250 and warrants to purchase 3,677,000 shares of common stock on or before March 31, 2018 to two accredited investors. (The $7,500 aggregate principal amount of 6.0% Secured Convertible Debentures due December 31, 2014 and March 31, 2016 are herein referred to collectively as the “Debentures”; and the warrants issued together with the Debentures to purchase an aggregate of 22,059,000 shares of common stock are referred to herein as the “Warrants” and the eight accredited investors who purchased the Debentures and the Warrants are herein referred to as the “Investors”). Interest on the outstanding principal balance of the Debentures is payable quarterly in arrears in cash or shares of our common stock at our discretion. The Debentures and the accrued but unpaid interest thereon are due upon the earlier of (i) the occurrence of an “event of default” (as defined in the Debentures) and (ii) their respective maturity dates. The outstanding principal balance of the Debentures and all accrued but unpaid interest thereon may be converted at any time at the option of each Investor into shares of Common Stock at a price of $0.17 per share (the “Conversion Price”). We may prepay the Debentures at any time without penalty upon ten business days prior written notice to the Investors provided there is, at that time, an effective registration statement covering the resale of the shares issuable upon conversion of the Debentures and exercise of the Warrants.
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The Warrants have an exercise price is $0.21. The number of shares issuable upon exercise of the Warrants equals 50% of the number of shares issuable upon conversion of the $Debentures.
The Debentures and Warrants also provide for weighted average anti-dilution protection in the event that any shares of our common stock, or securities convertible into shares of our common stock, are issued at less than the conversion or exercise price of the Debentures and Warrants, respectively, except in connection with the following issuances of our common stock, or securities convertible into shares of our common stock: (i) shares issuable under currently outstanding securities, including those authorized under stock plans, (ii) securities issuable upon the exchange or exercise of the Debenture or Warrants, or (iii) securities issued pursuant to acquisitions or strategic transactions.
Going Concern Consideration
Due to our limited amount of additional committed capital, recurring losses, negative cash flows from operations and our ability to pay outstanding liabilities, in their report for the fiscal year ended June 30, 2012 our independent auditors stated that there is substantial doubt about our ability to continue as a going concern. The consolidated financial statements included elsewhere in this report have been prepared in accordance with U.S. generally accepted accounting principles, assuming that we will continue as a going concern.
Since inception, we have incurred operating losses and negative cash flows from operations. As of March 31, 2013, we had an accumulated deficit of $75,860, with total stockholders’ deficit of $14,334. We had a working capital deficit of $13,769 at March 31, 2013.
We continue to have discussions regarding an investment in our Company with existing and potential new investors. Although we do not have any firm commitments, we intend to continue these discussions. Additionally, we believe revenues will increase as consumers learn of and experience the efficacy of our products. Increased revenues will reduce, or eliminate our operating losses and enable us to meet our financial obligations. However, there can be no assurances that we can attract new investment, increase revenues or attract new investment on terms acceptable to us. Failure to obtain sufficient financing would have substantial negative ramifications to our Company.
Contractual Arrangements
Significant contractual obligations as of March 31, 2013 are as follows:
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Amount Due in
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Type of Obligation
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Total Obligation
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Less than 1 year
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Facility Lease
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$ | 86 | $ | 64 | ||||
Off Balance Sheet Arrangements
We have no material off balance sheet arrangements that are likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.
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Summary of Critical Accounting Policies and estimates and new Accounting Pronouncements
For the nine months ended March 31, 2013, there have been no new significant accounting policies or accounting pronouncements from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2012.
As a smaller reporting company, we are not required to provide the information required by this item.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation under the supervision and with the participation of our management, including our President and our Chief Financial Officer, of effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report (the “Evaluation Date”.) Based on this evaluation, our President and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the Evaluation Date, to ensure that all material information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to them as appropriate, to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported as specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and can therefore only provide reasonable, not absolute, assurance that the design will succeed in achieving its stated goals.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2013 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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From time to time, we may become involved in routine litigation incidental to our business. Further, product liability claims may be asserted in the future relative to events not known to management at the present time. Management believes that our risk management practices, including our insurance coverage, are reasonably adequate to protect against potential material product liability losses. We are not a party to any material legal proceeding not in the ordinary course of business at this time.
In January 2013, we issued 502,000 shares of our common stock to pay the accrued interest on the outstanding Debentures with an aggregate fair market value of $97. The shares were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(2) thereof. An appropriate restrictive legend was imprinted on the back of each issued stock certificate.
In March 2013, we realized gross proceeds of $1,250 from the sale of the Debentures in the aggregate original principal amount of $1,250,000 and Warrants to purchase up to 3,677,000 shares of our common stock to two accredited investors in a private placement transaction. Interest on the Debentures is payable quarterly in arrears, either in cash or shares of common stock at our discretion. The outstanding principal balance of these Debentures, and all accrued but unpaid interest thereon, may be converted, in whole or in part, at any time at the option of each Investor into shares of our common stock, based on an initial conversion price of $0.17 per share. For a more complete description of the private placement transaction, please refer to “Liquidity and Capital Resources -Secured Convertible Debentures and Warrants” above and Notes 7 and 8 to our condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10Q.
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Exhibit Numbers
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Description
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Certification of President and Chief Marketing Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *
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Certification of Chief Operating Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *
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Certification of President and Chief Marketing Officer and Chief Operating Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
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101.INS (1)
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XBRL Instance Document
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101.CAL (1)
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XBRL Taxonomy Extension Schema Document
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101.SCH (1)
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.LAB (1)
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE (1)
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XBRL Taxonomy Extension Presentation Linkbase Document
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101.DEF (1)
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XBRL Taxonomy Extension Definition Linkbase Document
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_______________
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*
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Filed herewith.
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(1)
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Furnished with this report. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
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Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
| GREEN EARTH TECHNOLOGIES, INC. | |||
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Date: May 15, 2013
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By:
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/s/ Jeffrey Loch | |
| Name: | Jeffrey Loch | ||
| Title: | President and Chief Marketing Officer | ||
| (Principal Executive Officer) | |||
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By:
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/s/ Greg D. Adams | ||
| Name: | Greg D. Adams | ||
| Title: | Chief Operating Officer and Chief Financial Officer (Principal Financial Officer) | ||
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