Attached files
| file | filename |
|---|---|
| EX-31.1 - CERTIFICATION - GREEN EARTH TECHNOLOGIES, INC | getg_ex311.htm |
| EX-31.2 - CERTIFICATION - GREEN EARTH TECHNOLOGIES, INC | getg_ex312.htm |
| EX-32.1 - CERTIFICATION - GREEN EARTH TECHNOLOGIES, INC | getg_ex321.htm |
| EXCEL - IDEA: XBRL DOCUMENT - GREEN EARTH TECHNOLOGIES, INC | Financial_Report.xls |
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: DECEMBER 31, 2013
|
o
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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
|
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.
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Large accelerated filer o
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Accelerated filer o
|
|
Non-accelerated filer o (Do not check if a smaller reporting company)
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Smaller reporting company þ
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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 February 13, 2014, the issuer had a total of 160,517,604 shares of common stock, $0.001 par value, outstanding.
TABLE OF CONTENTS
|
PAGE
|
||
| PART I. FINANCIAL INFORMATION | ||
|
Item 1.
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Condensed Consolidated Financial Statements (Unaudited)
|
3 |
| 3 | ||
|
Condensed Consolidated Statements of Operations for the Three and Six Months Ended December 31, 2013 and 2012
|
4 | |
| Condensed Consolidated Statement of Stockholders’ Deficit for the Six Months Ended December 31, 2013 | 5 | |
|
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2013 and 2012
|
6 | |
|
Notes to Condensed Consolidated Financial Statements
|
7 | |
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
16 |
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
23 |
|
Item 4.
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Controls and Procedures
|
23 |
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PART II. OTHER INFORMATION
|
||
|
Item 1.
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Legal Proceedings
|
24 |
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
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24 |
|
Item 6.
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Exhibits
|
25 |
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SIGNATURES
|
26 |
2
PART I. FINANCIAL INFORMATION
GREEN EARTH TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
ASSETS
|
||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 92 | $ | 189 | ||||
|
Accounts receivable, less allowance of $26 and $26
|
230 | 726 | ||||||
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Deferred cost, related party
|
6,227 | 6,227 | ||||||
|
Inventories, net
|
456 | 804 | ||||||
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Prepaid expenses and other current assets
|
286 | 251 | ||||||
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Total current assets
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7,291 | 8,197 | ||||||
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Property and equipment, net
|
21 | 29 | ||||||
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Prepaid advertising
|
296 | 296 | ||||||
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Intangibles, net
|
839 | 932 | ||||||
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Total assets
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$ | 8,447 | $ | 9,454 | ||||
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LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
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Current liabilities:
|
||||||||
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Accounts payable
|
890 | 1,718 | ||||||
|
Accounts payable, related parties
|
1,756 | 2,275 | ||||||
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Accrued expenses
|
1,230 | 1,108 | ||||||
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Accrued expenses, related parties
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634 | 519 | ||||||
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Deferred revenue, related party
|
6,430 | 6,375 | ||||||
|
Notes payable, related parties
|
3,450 | 3,400 | ||||||
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Notes payable
|
1,232 | 60 | ||||||
|
Secured convertible debentures, net of debt discount
|
3,750 | - | ||||||
|
Derivative liability
|
1,646 | 4,852 | ||||||
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Total current liabilities
|
21,018 | 20,307 | ||||||
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Secured convertible debentures, net of debt discount
|
387 | 2,604 | ||||||
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Total liabilities
|
21,405 | 22,911 | ||||||
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Commitments
|
||||||||
|
Stockholders’ deficit
|
||||||||
|
Common stock, $0.001 par value, 500,000,000 shares authorized, 160,517,604 and 157,697,103 shares issued and outstanding, as of December 31, 2013 and June 30, 2013
|
161 | 158 | ||||||
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Additional paid-in capital
|
62,283 | 61,688 | ||||||
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Accumulated deficit
|
(75,402 | ) | (75,303 | ) | ||||
|
Total stockholders' deficit
|
(12,958 | ) | (13,457 | ) | ||||
|
Total liabilities and stockholders' deficit
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$ | 8,447 | $ | 9,454 | ||||
See notes to condensed consolidated financial statements.
3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share data)
|
Three Months Ended December 31,
|
Six Months Ended December 31,
|
|||||||||||||||
|
2013
|
2012
|
2013
|
2012
|
|||||||||||||
|
Net sales
|
$
|
616
|
$
|
1,274
|
$
|
1,755
|
$
|
3,355
|
||||||||
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Operating expense:
|
||||||||||||||||
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Cost of sales (exclusive of depreciation and amortization)
|
604
|
1,185
|
1,734
|
2,948
|
||||||||||||
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Selling, general and administrative expenses
|
879
|
2,060
|
1,878
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3,924
|
||||||||||||
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Stock-based compensation
|
63
|
248
|
344
|
495
|
||||||||||||
|
Depreciation and amortization
|
50
|
52
|
101
|
104
|
||||||||||||
|
1,596
|
3,545
|
4,057
|
7,471
|
|||||||||||||
|
Loss from operations
|
(980
|
)
|
(2,271
|
)
|
(2,302
|
)
|
(4,116
|
)
|
||||||||
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Other income (expense):
|
||||||||||||||||
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Change in revaluation of derivatives
|
4,068
|
(712
|
) |
4,655
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743
|
|||||||||||
|
Loss on issuance of convertible debt
|
(369
|
)
|
(589
|
) |
(369
|
)
|
(589
|
)
|
||||||||
|
Interest expense, net
|
(993
|
)
|
(775
|
)
|
(2,083
|
)
|
(1,012
|
)
|
||||||||
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Income (loss) before income taxes
|
1,726
|
|
(4,347
|
)
|
(99
|
)
|
(4,974
|
)
|
||||||||
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Income tax
|
-
|
-
|
-
|
-
|
||||||||||||
|
Net Income (loss)
|
$
|
1,726
|
|
$
|
(4,347
|
)
|
$
|
(99
|
)
|
$
|
(4,974
|
)
|
||||
| Basic and diluted net income (loss) per common share |
$
|
0.01
|
|
$
|
(0.03
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)
|
$
|
(0.00
|
)
|
$
|
(0.03
|
)
|
||||
|
Basic and diluted weighted average common shares outstanding
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160,503,000
|
155,125,000
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159,892,000
|
154,731,000
|
||||||||||||
See notes to condensed consolidated financial statements.
4
GREEN EARTH TECHNOLOGIES, INC
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(Unaudited)
(in thousands, except share data)
|
Common Stock
|
Additional
|
|||||||||||||||||||
|
Paid
|
Accumulated
|
|||||||||||||||||||
|
Shares
|
Amount
|
In Capital
|
Deficit
|
Total
|
||||||||||||||||
|
Balance at June 30, 2013
|
157,697,103
|
$
|
158
|
$
|
61,688
|
$
|
(75,303
|
)
|
$
|
(13,457
|
)
|
|||||||||
|
Shares issued for interest
|
1,610,501
|
2
|
227
|
-
|
229
|
|||||||||||||||
|
Restricted shares for employee compensation
|
935,000
|
1
|
111
|
-
|
112
|
|||||||||||||||
|
Issuance of common stock to settle trade payable
|
250,000
|
-
|
25
|
-
|
25
|
|||||||||||||||
|
Shares issued for services
|
25,000
|
-
|
4
|
4
|
||||||||||||||||
|
Stock-based compensation
|
-
|
228
|
-
|
228
|
||||||||||||||||
|
Net loss
|
-
|
-
|
-
|
(99
|
)
|
(99
|
)
|
|||||||||||||
|
Balance at September 30, 2013
|
160,517,604
|
$
|
161
|
$
|
62,283
|
$
|
(75,402
|
)
|
$
|
(12,958
|
)
|
|||||||||
See notes to condensed consolidated financial statements.
5
GREEN EARTH TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
| Six Months Ended December 31 | ||||||||
|
2013
|
2012
|
|||||||
|
Cash flows from operating activities
|
||||||||
|
Net loss
|
$ | (99 | ) | $ | (4,974 | ) | ||
|
Adjustments to reconcile net loss to net cash used in
operating activities
|
||||||||
|
Depreciation and amortization
|
101 | 104 | ||||||
|
Amortization of debt discount and deferred financing costs
|
1,533 | 812 | ||||||
|
Loss on issuance of convertible debt
|
369 | 589 | ||||||
|
Increase in allowance for inventory
|
110 | 8 | ||||||
|
Change in fair value of derivative liability
|
(4,655 | ) | (743 | ) | ||||
|
Stock-based compensation expense
|
344 | 496 | ||||||
|
Changes in assets and liabilities:
|
||||||||
|
Accounts receivable
|
496 | 335 | ||||||
|
Inventories
|
239 | (382 | ) | |||||
|
Deferred cost, related party
|
- | (6,227 | ) | |||||
|
Prepaid expenses and other current assets
|
(37 | ) | 125 | |||||
|
Accounts payable
|
408 | (956 | ) | |||||
|
Accounts payable, related parties
|
(518 | ) | 647 | |||||
|
Accrued expenses
|
351 | 168 | ||||||
|
Accrued expenses, related parties
|
115 | (94 | ) | |||||
|
Deferred revenue
|
55 | 5,178 | ||||||
|
Net cash used in operating activities
|
(1,188 | ) | (4,914 | ) | ||||
|
Cash flows from financing activities
|
||||||||
|
Proceeds from issuance of common stock, net of issuance costs
|
- | 190 | ||||||
|
Proceeds from issuance of secured convertible debentures
|
1,080 | 4,000 | ||||||
|
Proceeds from note payable, related parties
|
50 | 1,900 | ||||||
|
Repayment of notes payable
|
(39 | ) | (1,020 | ) | ||||
|
Net cash provided by financing activities
|
1,091 | 5,070 | ||||||
|
Net(decrease) increase in cash
|
(97 | ) | 156 | |||||
|
Cash and cash equivalent
|
||||||||
|
Beginning of period
|
189 | 346 | ||||||
|
End of period
|
$ | 92 | $ | 502 | ||||
|
Supplemental information
|
||||||||
|
Interest payments
|
$ | - | $ | - | ||||
|
Income taxes paid
|
$ | 4 | $ | - | ||||
|
Non-cash investing and financing activities
|
||||||||
|
Interest paid in common stock
|
$ | 229 | $ | 69 | ||||
|
Issuance of common stock to settle trade payable
|
$ | 25 | $ | - | ||||
|
Trade payable converted into note payable
|
$ | 1,211 | $ | - | ||||
|
|
||||||||
See notes to condensed consolidated financial statements.
6
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
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., (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 oil and gas exploration and production companies, 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 prior year amounts have been reclassified to conform to current year presentation.
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, 2013 included in the Company’s Annual Report on Form 10K filed in September 2013 (the “2013 Annual Report”).
Earnings (Loss) per Common Share
Basic earnings (loss) per share is calculated by dividing net profit attributable to common stockholders by the weighted average number of outstanding common shares during the year. Basic earnings (loss) per share excludes any dilutive effects of options, warrants and other stock-based compensation, which are included in diluted earnings per share.
Significant Accounting Policies
There have been no material changes in the Company’s significant accounting policies to those previously disclosed in the 2013 Annual Report.
Liquidity and Going Concern
Due to the Company’s limited capital, recurring losses and 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 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.
7
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Since inception, the Company has incurred operating losses and negative cash flows from operations. As of December 31, 2013, the Company had an accumulated deficit of $75,402, with total stockholders’ deficit of $12,958. The Company has a working capital deficit of $13,727 at December 31, 2013 and is currently in default of the 3.25% Secured Note, the 6% Secured Notes issued to related party and a Promissory Note issued to our third party manufacturer, disclosed in note 6 and 7. These notes matured on September 30, 2013, June 30, 2013 and April 30, 2014, respectively, and have not been extended and are payable upon demand.
The Company has undertaken, and will continue to implement, various measures to address its financial condition, including:
|
●
|
Continue discussions with existing and potential new investors regarding an investment in the Company.
|
|
●
|
Seek debt, equity and other forms of financing, including funding through strategic partnerships.
|
|
●
|
Attempt to increase revenues in order to reduce or eliminate the Company’s operating losses and enable it to meet its financial obligations.
|
|
●
|
Reduce expenses to conserve cash.
|
|
●
|
Defer certain marketing activities.
|
|
●
|
Investigate and pursue transactions with third parties, including strategic transactions and relationships.
|
There can be no assurance that the Company will be able to secure the additional funding the Company needs. If the Company’s efforts to do so are unsuccessful, the Company will be required to further reduce or eliminate the Company’s operations. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements do not include any adjustments to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties.
2. INVENTORIES, NET
Inventories consist of the following:
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
Raw materials
|
$ | 60 | $ | 128 | ||||
|
Finished goods
|
396 | 676 | ||||||
| $ | 456 | $ | 804 | |||||
Inventories are presented net of an obsolescence reserve of $1,253 and $1,181 at December 31, 2013 and June 30, 2013, respectively. During the period ended December 31, 2013 the Company recorded a direct write-off of $38 against the allowance for inventory disposed of previously reserved and increased the reserve by $110 for inventory remaining.
|
3.
|
DEFERRED COST, RELATED PARTY
|
In December 2012, the Company received an advance of $6,000 from E&B Green Solutions L.P., a Company owned by Francesco Galesi (“Galesi”), a related party, for the purchase of well service products from Inventek Collodial Cleaners, LLC (“Inventek”), also a related party. The Company advanced the $6,000 received from E&B Green Solutions L.P. and additional funds totaling $6,227 to Inventek for the production of the well service products in anticipation of future sales to E&B Green Solutions L.P., The Company did not report the receipt of the funds from E&B Green Solutions L.P. as revenue as of December 31, 2013 because the transaction did not meet the Company’s revenue recognition criteria in accordance with generally accepted accounting principles. As of December 31, 2013, $6,227 of Deferred Cost and $6,000 of Deferred Revenue was included on the accompanying condensed consolidated balance sheet as a result of this transaction. The anticipated proceeds from the sale are expected to be greater than the current value of the Deferred Cost.
8
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
|
4.
|
INTANGIBLE ASSETS
|
Intangible assets consist of the following:
|
December 31,
2013
|
June 30,
2013
|
Estimated Useful
Lives
|
||||||||||
|
Purchased technology and exclusivity rights
|
$ | 2,550 | $ | 2,550 | 7 | |||||||
|
Less: accumulated amortization
|
1,711 | 1,618 | ||||||||||
|
|
$ | 839 | $ | 932 | ||||||||
Expected amortization of intangible assets is as follows:
|
2014
|
$ | 93 | ||
|
2015
|
186 | |||
|
2016
|
186 | |||
|
2017
|
186 | |||
|
2018
|
188 | |||
| $ | 839 |
Amortization expense included in depreciation and amortization totaled $93 for the six months ended December 31, 2013 and 2012, respectively.
|
5.
|
ACCRUED EXPENSES
|
Accrued expenses consist of the following:
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
Accrued payroll and taxes
|
$ | 394 | $ | 383 | ||||
|
Accrued interest
|
278 | 274 | ||||||
|
Accrued sponsorship fees
|
304 | 218 | ||||||
|
Accrued board of director fees
|
209 | 189 | ||||||
|
Other
|
45 | 44 | ||||||
| $ | 1,230 | $ | 1,108 | |||||
Accrued expenses, related party consist of the following:
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
Accrued interest
|
$ | 472 | $ | 357 | ||||
|
Accrued other
|
162 | 162 | ||||||
| $ | 634 | $ | 519 | |||||
9
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 PARTIES |
Notes payable, related parties consist of the following:
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
6% Secured note, related party
|
$ | 3,400 | $ | 3,400 | ||||
|
Bridge loan, related party
|
50 | - | ||||||
| $ | 3,450 | $ | 3,400 | |||||
6.0% Secured note, related party
The note is held by a related party and is secured by eligible accounts receivable and purchase orders. As of December 31, 2013 and June 30, 2013 accrued interest of $386 and $283, respectively, was due on the note. The note matured on June 30, 2013. It has not been extended and currently is in default and payable upon demand.
Bridge loan, related party
In December 2013, Galesi, who is a related party, loaned the Company $50. As of December 31, 2013 the terms of the loan have not yet been finalized.
|
7.
|
NOTES PAYABLE
|
Notes payable, consist of the following:
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
Promissory Note
|
$ | 1,172 | $ | - | ||||
|
3.25 % Secured note
|
$ | 60 | $ | 60 | ||||
| $ | 1,232 | $ | 60 | |||||
Promissory note
In October 2013 our third party manufacturer, Olympic Oil Ltd which is a company owned by Delta Petroleum Company (“Delta”)., entered into a $1,211 promissory note agreement with the Company for past due invoices. At December 31, 2013 the balance of the promissory note is $1,172. The note is payable in fifteen installments ending on April 30, 2014. Interest is 0% with a late fee of 1.5% if installments are not paid. The Company is in default of the payments terms and being charged the late fee. The note has not been extended and payable on demand.
3.25% Secured note
As of December 31, 2013 and June 30, 2013, accrued interest was $235 and $234, respectively. The note matured on September 30, 2013. It has not been extended and currently is in default and payable upon demand. Since the note is in default, the outstanding principal amount per the agreement bears default interest at a rate three percent (3.0%) greater than the stated rate per annum. Until the default is cured the note will accrue interest at a rate of 6.25%.
10
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
|
8.
|
DERIVATIVE LIABILITY
|
Secured Convertible Debentures Conversion Option
The Debentures (as defined in note 9) are convertible into shares of the Company’s Common Stock, $0.001 par value per share (“Common Stock”), at a conversion price of $0.06 to $0.16 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 because of price protection features and is accounted for as a derivative liability.
The table below summarizes the fair values of the Company’s financial liabilities:
|
|
Fair Value at
|
|||||||||||||||
|
|
December 31,
|
Fair Value Measurement Using
|
||||||||||||||
|
2013
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
Derivative liability - Debentures
|
$ | 1,087 | $ | - | $ | - | $ | 1,087 | ||||||||
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 December 31, 2013 and June 30, 2013:
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
Balance at beginning of period
|
$ | 2,794 | $ | 2,118 | ||||
|
Additions to derivative instruments
|
1,260 | 3,780 | ||||||
|
Change in fair market value of the derivative liability
|
(2,967 | ) | (3,104 | ) | ||||
|
Balance at end of period
|
$ | 1,087 | $ | 2,794 | ||||
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:
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
Number of shares
|
64,875,000 | 44,118,000 | ||||||
|
Fair market value of stock
|
$ | 0.05 | $ | 0.13 | ||||
|
Conversion Price
|
$ | 0.06-$0.16 | $ | 0.17 | ||||
|
Volatility
|
130% -135 | % | 116% -119 | % | ||||
|
Risk-free interest rate
|
0.13%-.50 | % | 0.14%-0.71 | % | ||||
|
Expected dividend yield
|
0 | % | 0 | % | ||||
|
Life of Debentures (years)
|
1.0-2.2 | 1.5-2.7 | ||||||
11
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Warrant Liability
In connection with the issuance of Debentures, the Company issued warrants to purchase up to 24,759,000 shares of Common Stock (the “Warrants”). The Warrants have an exercise price of $0.20-$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 6,377,000 shares of Common Stock are exercisable at any time on or before March 31, 2018. The Warrants are accounted for as derivative liabilities because the agreement 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 Exercise Price.
The table below summarizes the fair values of the Company’s financial liabilities:
|
|
Fair Value at
|
|||||||||||||||
|
|
December 31,
|
Fair Value Measurement Using
|
||||||||||||||
|
2013
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
|
Derivative liability - Warrants
|
$ | 559 | $ | - | $ | - | $ | 559 | ||||||||
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 December 31, 2013 and June 30, 2013:
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
Balance at beginning of period
|
$ | 2,058 | $ | 1,389 | ||||
|
Additions to derivative instruments
|
189 | 2,316 | ||||||
|
Change in fair market value
|
(1,688 | ) | (1,647 | ) | ||||
|
Balance at end of period
|
$ | 559 | $ | 2,058 | ||||
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:
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
Number of shares underlying the Warrants
|
24,758,000 | 22,059,000 | ||||||
|
Fair market value of stock
|
$ | 0.05 | $ | 0.13 | ||||
|
Exercise Price
|
$ | 0.20-$0.21 | $ | 0.21 | ||||
|
Volatility
|
124%-127 | % | 118%-134 | % | ||||
|
Risk-free interest rate
|
0.80%-.1.42 | % | 0.71%-.1.50 | % | ||||
|
Expected dividend yield
|
0 | % | 0 | % | ||||
|
Warrant life (years)
|
3.0-4.2 | 3.5-4.7 | ||||||
12
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
|
9.
|
SECURED CONVERTIBLE DEBENTURE, NET OF DISCOUNT
|
In fiscal 2012 and 2013, the Company realized gross proceeds of $7,500 ($2,250 in December 2011, $4,000 in October 2012 and $1,250 in March 2013) from the sale of its 6.0% Secured Convertible Debentures. In November 2013, the Company realized gross proceeds of $1,080 from the sale of additional 6.0% Secured Convertible Debentures, due March 31, 2016, and warrants to purchase 2,700,000 shares of Common Stock on or before March 31, 2018 to six accredited investors. The November 2013 debentures have a conversion price of $0.06 per share.
In conjunction with the dilutive issuance of the November 2013 debentures the conversion price of fiscal 2012 and 2013 debentures is reduced from $0.17 to $0.16 per share. Additionally the associated warrants exercise price is reduced from $0.21 to $0.20 per share.
Secured convertible debentures, net of debt discount, consist of the following:
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
Convertible Debentures
|
$ | 8,580 | $ | 7,500 | ||||
|
Debt discount
|
(4,443 | ) | (4,896 | ) | ||||
| $ | 4,137 | $ | 2,604 | |||||
As of December 31, 2013, the current and non-current portions of the secured convertible debentures, net of debt discount were $3,750 and $387, respectively. Debt discount of $8,580 is being amortized over the life of the Debentures and is included in interest expense in the accompanying condensed consolidated statement of operations.
The March 2013 and November 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 may be subject to default penalties.
Aggregate annual principal payments for the secured convertible debentures are as follows:
|
Year Ending December 31,
|
||||
|
2014
|
$ | 6,250 | ||
| 2015 | - | |||
|
2016
|
2,330 | |||
| $ | 8,580 | |||
|
10.
|
STOCKHOLDERS DEFICIT
|
Shares issued for interest
For the six months ended December 31, 2013, the Company issued 1,611,000 shares of our common stock to pay accrued interest from April 1, 2013 to September 30, 2013 on the outstanding Debentures. The fair value of the shares in connection with this transaction totaled $229.
Restricted Stock Awards
For the six months ended December 31, 2013, the Company issued 575,000 and 360,000 restricted stock awards to employees and Marketiquette, Inc (“Marketiquette”), respectively, for their agreement to a temporary reduction in their cash based salary and marketing fees, respectively. The fair value of the shares in connection with this transaction totaled $69 and $43, respectively.
Other uses
For the six months ended December 31, 2013, the Company issued 250,000 and 25,000 shares of Common Stock to pay for outstanding trade payables and marketing fees, respectively. The fair value of the shares in connection with these transactions totaled $25 and $4, respectively.
13
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Warrants
Warrant activity for the six months ended December 31, 2013 is as follows:
|
Number of
Warrants
|
Weighted
Average
Exercise Price
|
Weighted
Average
Remaining
Contractual
Term
|
Aggregate
Intrinsic
Value
|
|||||||||||
|
Outstanding at June 30, 2013
|
22,059,000 | $ | 0.21 | |||||||||||
|
Granted
|
2,700,000 | 0.21 | ||||||||||||
|
Exercised
|
-0- | |||||||||||||
|
Outstanding and exercisable at June 30, 2013
|
24,759,000 | $ | 0.20 |
3.3 years
|
$ | - | ||||||||
The aggregate intrinsic value represents the difference between the exercise price of the underlying awards and the market price of the Company’s common stock for those awards that have an exercise price below the market price at December 31, 2013.
11. COMMITMENTS
Significant contractual obligations as of December 31, 2013 are as follows:
|
Amount Due in
|
||||||||
|
Type of Obligation
|
Total Obligation
|
Less than 1 year
|
||||||
|
Sponsorship Agreements
|
$ | 2,050 | $ | 675 | ||||
|
Facility Lease
|
$ | 33 | $ | 33 | ||||
12. RELATED PARTY TRANSACTIONS
Inventek
The Company purchased inventory from Inventek totaling $9 and $6,358 for the three months December 31, 2013 and 2012, respectively, and $62 and $7,104 for the six months ended December 31, 2013 and 2012, respectively. As of December 31, 2013, a credit of $173 was due from Inventek, which is recorded in prepaid expenses and other current assets. As of June 30, 2013, amounts due to Inventek were $502. As of December 31, 2013, Inventek beneficially owned approximately 7.0% of the Company’s issued and outstanding shares of Common Stock.
Marketiquette
The Company paid Marketiquette for marketing services a total of $116 and $137 for the three months ended December 31, 2013 and 2012, respectively, and $248 and $298 for the six months ended December 31, 2013 and 2012, respectively, which are included in selling, general and administrative expenses. The Company issued 360,000 restricted shares to Marketiquette for marketing services during the six months ended December 31, 2013, which are included in stock-base compensation expense. The fair value of the shares in connection with this transaction totaled $43. As of December 31, 2013 and June 30, 2013, amounts due to Marketiquette were $167 and $140, respectively. The wife of the Company’s President is the president and a director of Marketiquette. As of December 31, 2013, Marketiquette beneficially owned approximately 5.5% of the Company’s issued and outstanding shares of Common Stock.
Techtronics Industries North America Inc. (“TTI”)
For the three months ended December 31, 2013 and 2012, approximately 54% and 23% of the Company’s revenues, respectively, were earned from TTI and for the six months ending December 31, 2013 and 2012, approximately 56% and 23% of the Company’s revenues, respectively, from TTI. As of December 31, 2013 and June 30, 2013, amounts due to TTI, included in accounts payable and accrued expenses, were $2,137 and $2,079, respectively. As of December 31, 2013 and June 30, 2013 advances received from TTI for future sales of cleaning and performance products was $430 and $375, respectively. As of December 31, 2013 and June 30, 2013, amounts due to TTI, for the 6.0% secured note was $3,400. The note matured on June 30, 2013 and has not been extended. The 6.0% secured note is in default and payable upon demand (See note 6). As of December 31, 2013, TTI beneficially owned approximately 17.2% of the Company’s issued and outstanding shares of Common Stock.
14
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Galesi
For the three months ended December 31, 2013 and 2012, approximately 5% and 0% of the Company’s revenues, respectively, were generated from companies owned or controlled by Galesi. For the six months ended December 31, 2013 and 2012, approximately 3% and 33% of the Company’s revenues, respectively, were earned from Galesi. As of December 31, 2013 and June 30, 2013, the amounts due from these entities totaled $29 and $345, respectively. As of December 31, 2013 and June 30, 2013, amounts due to Galesi included $1,898 and $1,413 for the 6% Debentures, net of debt discount plus accrued interest, respectively. Principal of $3,000 on the Debentures are due December 31, 2014. As of December 31, 2013, Galesi beneficially owned approximately 22.5% 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).
Walter Raquet (“Raquet”)
Walter Raquet is a Director of the Company and a member of the audit committee. As of December 31, 2013 and June 30, 2013, the amounts due to Mr. Raquet included $946 and $497 for the 6% Secured Convertible Debentures, net of debt discount plus accrued interest, respectively. Principal of $1,250 and $1,425 on the Debentures are due December 31, 2014 and March 31, 2016, respectively. As of December 31, 2013, Mr. Raquet beneficially owned approximately 18.3% of the Company’s issued and outstanding shares of Common Stock.
|
13.
|
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.
Sales and Accounts Receivable
The following customers represent the majority of the Company’s sales for the six months ended:
|
December 31,
2013
|
December 31,
2012
|
|||||||
|
Sales
|
||||||||
|
TTI
|
56 | % | 23 | % | ||||
|
Menards
|
10 | % | 23 | % | ||||
|
Galesi entities
|
3 | % | 33 | % | ||||
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
Accounts Receivable
|
||||||||
|
Walmart
|
48 | % | 33 | % | ||||
|
Galesi
|
13 | % | 54 | % | ||||
Inventory and Accounts Payable
The Company purchases its performance products from Delta, its cleaning and well service products from Inventek and its power washer equipment products from TTI. The Company’s inventory purchased from these vendors and accounts payable to these vendors is as follows:
|
December 31,
2013
|
December 31,
2012
|
|||||||
|
Inventory Purchased
|
||||||||
|
Inventek
|
$ | 62 | $ | 7,104 | ||||
|
Delta
|
1,157 | 1,927 | ||||||
|
TTI
|
273 | 885 | ||||||
|
December 31,
2013
|
June 30,
2013
|
|||||||
|
Accounts Payable
|
||||||||
|
Inventek
|
$ | - | $ | 502 | ||||
|
Delta
|
1,355 | 1,191 | ||||||
|
TTI
|
1,589 | 1,634 | ||||||
Included in Delta accounts payable is a promissory note of $1,172 (see note 7).
|
14.
|
SUBSEQUENT EVENTS
|
In February 2014, the Company realized gross proceeds of $420 from the sales of 6% Convertible Debenture, due March 31, 2016, in the aggregate original principal amount of $420 and Warrants to five accredited investors.
15
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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”.) 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
We create, develop, distribute and market an array of ultimate biodegradable G-Branded, environmentally-friendly, bio-based lubricants, cleaning and well service products. These products, branded as either G-OIL® or G-CLEAN®, compete in a variety of trade class channels, including the automotive aftermarket (auto care), lawn & garden “do-it-yourself” category (outdoor power equipment, lubricants and cleaning detergents) and the oil & gas industry (cleaning, bio-remediation and well stimulation).
Our technology platform for manufacturing innovative proprietary and patented pending high performing “green” products is the end result of company created or licensed intellectual property. These technologies replace traditional petroleum/hydrocarbon and chemical/solvents derived bases typically associated with conventional non-green products without compromising performance or value while delivering a more environmentally safer choice. We believe our products deliver comparable or superior performance at competitive prices, thus giving consumers and industries alike the ability to ‘do their part’ in protecting the environment without paying more.
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 and retailers to include additional major national consumer purchase locations in the household goods, automotive aftermarket, lawn & garden and the oil and gas industry domestically and worldwide. 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 and are on the USDA BioPreferred® list. We have a patent pending BODA™ technology that accelerates the biodegradability of petroleum based lubricants which even further broadens the array of environment goals that our company is able to help end users procure.
We also offer a full range of products specifically engineered to help overcome the oil and gas industry’s challenges of working in the world’s oil fields. Increased energy demands have expanded the obstacles faced by this industry as they try to preserve and do ‘no harm’ to the delicate eco-system when drilling wells. Patent pending and tested by Petróleos de Venezuela, S.A (PDVSA) and E&B Green Solutions, L.P in Bakersfield, CA, our oil field products are a natural fit as they will clean, optimize and restore safety to this industry and our environment.
We believe that available “green choices” are limited, and of those available choices that claim to be green, found that they are not green, too expensive, not effective or any combination of the three. Our goal since 2007 has been to provide a superior green product at prices comparable to traditional products within the same category designation and to validate the proposition that by eliminating price and performance discrepancies, consumers and industries will usually go green. In oil fields, it is our mission to revolutionize how our potential customers meet their production, maintenance and spill remediation challenges with green solutions that enhance production, eliminate unnecessary costs and keep their people and the environment safer. We trademarked the phrase “SAVE THE EARTH – SACRIFICE NOTHING®”, meaning that consumers and customers alike should not have to give up value or performance when choosing to go “green”. We believe we succeeded in supporting this proposition as we have validated our results and claims via third party testing, participated in extreme conditions through automotive racing and track clean ups and gained and maintained distribution at some of the United States largest retailers.
16
Results of Operations
(All dollar amounts referred to herein are in thousands, except as otherwise indicated.)
Three Months Ended December 31, 2013 and 2012
Our activities for the three months December 31, 2013 and 2012 essentially included capital origination, product development, manufacturing, marketing and sales of our bio-degradable performance and cleaning products and development of mass market product distribution networks for the intended distribution of our products.
Our results of operations are as follows:
|
Three Months Ended December 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Net sales
|
$ | 616 | $ | 1,274 | ||||
|
Loss from operations
|
(980 | ) | (2,271 | ) | ||||
|
Change in revaluation of derivatives
|
4,068 | (712 | ) | |||||
|
Loss on issuance of convertible debt
|
(369 | ) | (589 | ) | ||||
|
Interest expense, net
|
(993 | ) | (775 | ) | ||||
|
Net income (loss)
|
$ | 1,726 | $ | (4,347 | ) | |||
Net Sales
Net sales for the three months ended December 31, 2013 were $616, primarily attributed to sales of G-OIL® outdoor power equipment 4-cycle and 2-cycle engine oils. Net sales for the three months ended December 31, 2012 were $1,274, primarily attributed to sales of G-CLEAN® pressure washing products and G-OIL® outdoor power equipment 4-cycle engine oils. The decrease in net sales from 2012 to 2013 is due to prior year sales of G-CLEAN® pressure washing products compared to no sales for the three months ended December 31, 2013.
For the three months ended December 31, 2013, approximately 72% of our sales were from two customers, TTI (The Home Depot) and Walmart. For the three months ended December 31, 2012, approximately 88% of our sales were attributable to three customers, Menards, Inc., TTI (The Home Depot) and Walmart.
Net sales are comprised as follows:
|
Three Months Ended September 30,
|
||||||||
|
2013
|
2012
|
|||||||
|
Performance products (oils)
|
$ | 497 | $ | 612 | ||||
|
Cleaning products
|
$ | 119 | $ | 662 | ||||
|
Total
|
$ | 616 | $ | 1,274 | ||||
17
Cost of Sales (exclusive of depreciation and amortization)
Cost of sales (exclusive of depreciation and amortization) primarily consists of the cost of obtaining bio solvents, plant oils, additives, packaging components and fees paid to our manufacturer for the costs of bottling and blending our products. Cost of sales (exclusive of depreciation and amortization) for the three months ended December 31, 2013 and 2012 were $604, and $1,185, respectively. The decrease in cost of sales from 2013 to 2012 is primarily due to the decrease in net sales.
We will continue to evaluate other opportunities to improve gross margins on our existing product line. We intend to further increase profitability of our product base through various measures which may include changing product formulations, reducing components cost by increasing volume and reducing expenses by improving operations.
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 December 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Salaries
|
$ | 209 | $ | 242 | ||||
|
Selling, marketing, public relations and related
|
223 | 791 | ||||||
|
Development, product release and testing
|
88 | 200 | ||||||
|
Management and operating fees
|
97 | 208 | ||||||
|
Storage fees
|
- | 323 | ||||||
|
Legal and professional
|
57 | 139 | ||||||
|
Occupancy, communications and all other, net
|
204 | 157 | ||||||
|
Total selling, general and administrative expenses
|
$ | 878 | $ | 2,060 | ||||
The decrease in salaries is due to the employee’s agreement to reduce their salary in exchange for restricted stock and a decrease in headcount. The decrease in selling, marketing and public relations expenses is due to decreased sponsorship fees, advertising spending and promotional spending. The decrease in development, product release and testing is due to a reduction of third party testing. The decrease in management and operating fees is due to lower consulting and shipping fees. The storage fees are due to a prior year significant charge for raw materials stored on behalf of our manufacturer. The decrease in legal and professional is due to prior year consulting fees in connection with government grant efforts and lower legal costs.
Stock-based compensation
Stock-based compensation expense for the three months ended December 31, 2013 and 2012 was approximately $63 and $248, respectively. The decrease is due to lower stock options grants being issued by the Company compared to prior years.
Depreciation and amortization
Depreciation and amortization expense totaled $50 and $52 for the three months ended December 31, 2013 and 2012, respectively. Depreciation charges totaled $3 and $5 for the three months ended December 31, 2013 and 2012, respectively, and amortization expense for intangible assets totaled $47 for the three months ended December 31, 2013 and 2012, respectively. Depreciation and amortization expense is excluded from cost of sales.
18
Change in revaluation of derivatives
The change in fair value of our derivative liabilities resulted in a favorable adjustment of $4,068 for three months ended December 31, 2013 and an unfavorable adjustment of $712 for three months ended December 31, 2012. The value of the derivative liabilities was determined using the Black-Scholes method. See note 7 to our 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 $369 and $589 for the three months ended December 31, 2013 and 2012, respectively. The charge was in connection with the issuance of the secured convertible Debentures and associated warrants.
Interest expense, net
Net interest expense for the three months ended December 31, 2013 and 2012 was approximately $993 and $775, respectively. Interest expense consists of $804 in connection with the amortization of the debt discount on our outstanding secured convertible debentures, $129 in connection with interest on the outstanding secured convertible debentures, $52 for interest on notes payable to related parties and $8 in connection with the deferred financing costs relating to the outstanding secured convertible debentures. Interest income, which was not significant, consists of interest earned on bank deposits and an institutional money market fund.
Results of Operations
(All dollar amounts referred to herein are in thousands, except as otherwise indicated.)
Six months Ended December 31, 2013 and 2012
Our activities for the six months December 31, 2013 and 2012 essentially included capital origination, product development, manufacturing, marketing and sales of our bio-degradable performance and cleaning products and development of mass market product distribution networks for the intended distribution of our products.
Our results of operations are as follows:
|
Six months Ended December 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Net sales
|
$ | 1,755 | $ | 3,355 | ||||
|
Loss from operations
|
(2,302 | ) | (4,116 | ) | ||||
|
Change in revaluation of derivatives
|
4,655 | 743 | ||||||
|
Loss on issuance of convertible debt
|
(369 | ) | (589 | ) | ||||
|
Interest expense, net
|
(2,083 | ) | (1,012 | ) | ||||
|
Net loss
|
$ | (99 | ) | $ | (4,974 | ) | ||
Net Sales
Net sales for the six months ended December 31, 2013 were $1,755, primarily attributed to sales of G-OIL® outdoor power equipment 4-cycle engine oils and G-CLEAN® pressure washing products. Net sales for the six months ended December 31, 2012 were $3,355, primarily attributed to sales of G-CLEAN® oil well service products, G-CLEAN® pressure washing products, G-OIL® outdoor power equipment 4-cycle engine oils and G-OIL® 5W-30 motor oil. The decrease in net sales from 2012 to 2013 is due to prior year sales of G-CLEAN® oil and gas well service products compared to no sales for the six months ended December 31, 2013 and lower sales G-CLEAN® pressure washing products.
For the six months ended December 31, 2013, approximately 66% of our sales were from two customers, TTI (The Home Depot) and Menards. For the six months ended December 31, 2012, approximately 79% of our sales were from three customers, entities owned or controlled by Francesco Galesi (“Galesi Entities”), TTI and Menards, Inc.
19
Net sales are comprised as follows:
|
Six months Ended December 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Performance products (oils)
|
$ | 1,228 | $ | 1,429 | ||||
|
Cleaning products
|
$ | 527 | $ | 1,926 | ||||
|
Total
|
$ | 1,755 | $ | 3,355 | ||||
Cost of Sales (exclusive of depreciation and amortization)
Cost of sales (exclusive of depreciation and amortization) primarily consists of the cost of obtaining bio solvents, plant oils, additives, packaging components and fees paid to our manufacturer for the costs of bottling and blending our products. Cost of sales (exclusive of depreciation and amortization) for the six months ended December 31, 2013 and 2012 were $1,734, and $2,948, respectively. The decrease in cost of sales from 2013 to 2012 is primarily due to the decrease in net sales.
We will continue to evaluate other opportunities to improve gross margins on our existing product line. We intend to further increase profitability of our product base through various measures which may include changing product formulations, reducing components cost by increasing volume and reducing expenses by improving operations.
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:
|
Six months Ended December 31,
|
||||||||
|
2013
|
2012
|
|||||||
|
Salaries
|
$ | 417 | $ | 488 | ||||
|
Selling, marketing, public relations and related
|
546 | 1,739 | ||||||
|
Development, product release and testing
|
170 | 342 | ||||||
|
Management and operating fees
|
228 | 437 | ||||||
|
Storage fees
|
- | 323 | ||||||
|
Legal and professional
|
185 | 303 | ||||||
|
Occupancy, communications and all other, net
|
333 | 292 | ||||||
|
Total selling, general and administrative expenses
|
$ | 1,879 | $ | 3,924 | ||||
The decrease in salaries is due to the employee’s agreement to reduce their salary in exchange for restricted stock and a decrease in headcount. The decrease in selling, marketing and public relations expenses is due to decreased sponsorship fees, advertising spending and promotional spending. The decrease in development, product release and testing is due to a reduction of third party testing. The decrease in management and operating fees is due to lower shipping fees. The storage fees are due to a prior year significant charge for raw materials stored on behalf of our manufacturer. The decrease in legal and professional is due to prior year consulting fees in connection with government grant efforts and lower legal costs.
Stock-based compensation
Stock-based compensation expense for the six months ended December 31, 2013 and 2012 was approximately $344 and $495, respectively.
20
Depreciation and amortization
Depreciation and amortization expense totaled $101 and $104 for the six months ended December 31, 2013 and 2012, respectively. Depreciation charges totaled $8 and $11 for the six months ended December 31, 2013 and 2012, respectively, and amortization expense for intangible assets totaled $93 for the six months ended December 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 $4,655 and $743 for six months ended December 31, 2013 and 2012, respectively. The value of the derivative liabilities was determined using the Black-Scholes method. See note 7 to our 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 $369 and $589for the three months ended December 31, 2013 and 2012, respectively. The charge was in connection with the issuance of the secured convertible Debentures and associated warrants.
Interest expense, net
Net interest expense for the six months ended December 31, 2013 and 2012 was approximately $2,082 and $1,012, respectively. Interest expense consists of $1,533 in connection with the amortization of the debt discount on our outstanding secured convertible debentures, $244 in connection with interest on the outstanding secured convertible debentures, $186 in connection with the cancellation of the commitment shares included in the Lincoln Park Capital agreement, $104 for interest on notes payable to related parties and $15 in connection with the deferred financing costs relating to the outstanding secured convertible debentures. Interest income, which was not significant, consists of interest earned on bank deposits and an institutional money market fund.
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 December 31, 2013 and June 30, 2013, we had $92 and $189 in cash and an accumulated deficit of $75,402 and $75,303, respectively. At December 31, 2013 and June 30, 2013, we had a working capital deficit of $13,727 and $12,110, respectively.
Net cash used in operating activities was $1,188 and $4,914 for the six months ended December 31, 2013 and 2012, respectively. The decrease from 2012 to 2013 was primarily due to the decrease in funding and sales which generated less cash to spend on operations.
21
Net cash provided by financing activities was $1,091 and $5,070 for the six months ended December 31, 2013 and 2012, respectively. The decrease in financing activities is primarily due to proceeds from the issuance of note payables in the amount of $5,900, partially offset by payments of $1,020 in 2012 compared to issuance of note payable of $1,080 in 2013. The net proceeds from our financing activities were used to support purchases from suppliers and advertising 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 December 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.
Debentures and Warrants
In fiscal 2012 and 2013, we realized gross proceeds of $7,500 ($2,250 in December 2011, $4,000 in October 2012 and $1,250 in March 2013) from the sale of 6.0% Secured Convertible Debentures. In November 2013, we realized gross proceeds of $1,080 from the sale of additional 6.0% Secured Convertible Debentures, due March 31, 2016, and warrants to purchase 2,700,000 shares of Common Stock on or before March 31, 2018 to six accredited investors. The November 2013 debentures have a conversion price of $0.06 per share.
Due to the weighted average anti-dilution provision the conversion price of fiscal 2012 and 2013 debentures from is reduced from $0.17 to $0.16 per share. In addition the attached warrants exercise price is reduced from $0.21 to $0.20 per share. 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.
In February 2014, we raised $420 from the sales of Debentures and issued Warrants to five accredited investors.
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, 2013, our independent auditors stated that there is substantial doubt about our ability to continue as a going concern. These consolidated financial statements 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 December 31, 2013, we had an accumulated deficit of $75,402 with total stockholders’ deficit of $12,958. We had a working capital deficit of $13,727at December 31, 2013 and are currently in default of the related party notes payable disclosed in note 6. These notes matured on September 30, 2013, June 30, 2013 and April 30, 2014, respectively, and has not been extended and is payable upon demand.
We have undertaken, and will continue to implement, various measures to address our financial condition, including:
|
●
|
Continue discussions with existing and potential new investors to invest in us.
|
|
●
|
Seek debt, equity and other forms of financing, including funding through strategic partnerships.
|
|
●
|
Attempt to increase revenues in order to reduce or eliminate our operating losses and enable us to meet our financial obligations.
|
|
●
|
Reduce expenses to conserve cash.
|
|
●
|
Defer certain marketing activities.
|
|
●
|
Investigate and pursue transactions with third parties, including strategic transactions and relationships.
|
There can be no assurance that we will be able to secure the additional funding we need. If our efforts to do so are unsuccessful, we will be required to further reduce or eliminate our operations. These factors, among others, raise substantial doubt about our ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties.
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Contractual Arrangements
Significant contractual obligations as of December 31, 2013 are as follows:
|
Amount Due in
|
||||||||
|
Type of Obligation
|
Total Obligation
|
Less than 1 year
|
||||||
|
Sponsorship Agreements
|
$ | 2,050 | $ | 675 | ||||
|
Facility Lease
|
$ | 33 | $ | 33 | ||||
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.
Summary of Significant Accounting Policies and new Accounting Pronouncements
For the six months ended December 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, 2013.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this item
Item 4. 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 December 31, 2013 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. (All dollar amounts are in thousands)
In October 2013, we issued 816,000 shares of our common stock, with an aggregate fair market value of $115, to pay the accrued interest on the outstanding Debentures.
In October 2013, we issued 50,000 shares of our common stock, with an aggregate fair market value of $5, to pay for outstanding debt and marketing fees.
The foregoing issuances were exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) thereof. An appropriate restrictive legend was imprinted on the back of each issued stock certificate.
24
Item 6. – Exhibits
|
Exhibit Numbers
|
Description
|
||
|
31.1
|
Certification of President and Chief Marketing Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *
|
||
|
31.2
|
Certification of Chief Operating Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *
|
||
|
32.1
|
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*
|
||
|
101.INS
|
XBRL Instance Document*
|
||
|
101.CAL
|
XBRL Taxonomy Extension Schema Document*
|
||
|
101.SCH
|
XBRL Taxonomy Extension Calculation Linkbase Document*
|
||
|
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document*
|
||
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document*
|
||
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document*
|
||
|
*
|
Filed herewith.
|
||
25
SIGNATURES
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. | |||
|
Date: February 13, 2014
|
By:
|
/s/ Jeffrey Loch | |
| Name: Jeffrey Loch | |||
| Title: President and Chief Marketing Officer
(Principal Executive Officer)
|
|||
|
|
By:
|
/s/ Greg D. Adams | |
| Name: Greg D. Adams | |||
|
Title: Chief Operating Officer and Chief Financial Officer
(Principal Financial Officer)
|
|||
26