Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - GREEN EARTH TECHNOLOGIES, INC | Financial_Report.xls |
EX-31.2 - CERTIFICATION - GREEN EARTH TECHNOLOGIES, INC | getg_ex312.htm |
EX-32.1 - CERTIFICATION - GREEN EARTH TECHNOLOGIES, INC | getg_ex321.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
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
FOR THE QUARTERLY PERIOD ENDED: March 31, 2014
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
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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 ¨
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Accelerated filer ¨
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Non-accelerated filer ¨ (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 May 15, 2014, the issuer had a total of 184,867,091 shares of common stock, $0.001 par value, outstanding
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
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PAGE
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Item 1.
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Condensed Consolidated Financial Statements (Unaudited)
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Condensed Consolidated Balance Sheets at March 31, 2014 and June 30, 2013
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1
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Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2014 and 2013
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2
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Condensed Consolidated Statement of Stockholders’ Deficit for the Nine Months Ended March 31, 2014
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3
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Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2014 and 2013
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4
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Notes to Condensed Consolidated Financial Statements
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5
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Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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17
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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24
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Item 4.
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Controls and Procedures
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24
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PART II. OTHER INFORMATION
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||
Item 1.
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Legal Proceedings
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24
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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25
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Item 6.
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Exhibits
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25
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SIGNATURES
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26
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i
PART I. FINANCIAL INFORMATION
GREEN EARTH TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in thousands, except share data)
March 31,
2014
|
June 30,
2013
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 200 | $ | 189 | ||||
Accounts receivable, less allowance of $0 and $26
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266 | 726 | ||||||
Deferred cost, related party
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6,227 | 6,227 | ||||||
Inventories, net
|
455 | 804 | ||||||
Prepaid expenses and other current assets
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1,476 | 251 | ||||||
Total current assets
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8,624 | 8,197 | ||||||
Property and equipment, net
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18 | 29 | ||||||
Prepaid advertising
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296 | 296 | ||||||
Intangibles, net
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1,365 | 932 | ||||||
Total assets
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$ | 10,303 | $ | 9,454 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
||||||||
Current liabilities:
|
||||||||
Accounts payable
|
958 | 1,718 | ||||||
Accounts payable, related parties
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1,622 | 2,275 | ||||||
Accrued expenses
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1,526 | 1,108 | ||||||
Accrued expenses, related parties
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862 | 519 | ||||||
Deferred revenue, related parties
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6,459 | 6,375 | ||||||
Notes payable, related party
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3,400 | 3,400 | ||||||
Notes payable
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1,232 | 60 | ||||||
Secured convertible debentures, net of debt discount
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3,750 | - | ||||||
Derivative liability
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5,726 | 4,852 | ||||||
Total current liabilities
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25,535 | 20,307 | ||||||
Secured convertible debentures, net of debt discount
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1,228 | 2,604 | ||||||
Total liabilities
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26,763 | 22,911 | ||||||
Commitments
|
||||||||
Stockholders’ deficit
|
||||||||
Common stock, $0.001 par value, 500,000,000 shares authorized, 183,814,958 and 157,697,103 shares issued and outstanding, as of March 31, 2014 and June 30, 2013
|
184 | 158 | ||||||
Additional paid-in capital
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64,272 | 61,688 | ||||||
Accumulated deficit
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(80,916 | ) | (75,303 | ) | ||||
Total stockholders' deficit
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(16,460 | ) | (13,457 | ) | ||||
Total liabilities and stockholders' deficit
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$ | 10,303 | $ | 9,454 | ||||
See notes to condensed consolidated financial statements.
1
GREEN EARTH TECHNOLOGIES, INC. AND SUBSIDIARY
|
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share data)
|
Three Months Ended March 31,
|
Nine Months Ended March 31, | |||||||||||||||
2014
|
2013
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2014
|
2013
|
|||||||||||||
Net sales
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$ | 1,398 | $ | 2,035 | $ | 3,154 | $ | 5,390 | ||||||||
Operating expense:
|
||||||||||||||||
Cost of sales (exclusive of depreciation and amortization)
|
1,440 | 1,927 | 3,174 | 4,875 | ||||||||||||
Selling, general and administrative expenses
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999 | 1,683 | 2,877 | 5,607 | ||||||||||||
Stock-based compensation
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179 | 235 | 523 | 730 | ||||||||||||
Depreciation and amortization
|
50 | 52 | 151 | 156 | ||||||||||||
2,668 | 3,897 | 6,725 | 11,368 | |||||||||||||
Loss from operations
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(1,270 | ) | (1,862 | ) | (3,571 | ) | (5,978 | ) | ||||||||
Other income (expense):
|
||||||||||||||||
Change in revaluation of derivatives
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(2,746 | ) | 735 | 1,909 | 1,478 | |||||||||||
Loss on issuance of convertible debt
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(464 | ) | (257 | ) | (833 | ) | (846 | ) | ||||||||
Interest expense, net
|
(1,035 | ) | (793 | ) | (3,118 | ) | (1,805 | ) | ||||||||
Loss before income taxes
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(5,515 | ) | (2,177 | ) | (5,613 | ) | (7,151 | ) | ||||||||
Income tax
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- | - | - | - | ||||||||||||
Net Loss
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$ | (5,515 | ) | $ | (2,177 | ) | $ | (5,613 | ) | $ | (7,151 | ) | ||||
Basic and diluted net loss per common share
|
$ | ( 0.03 | ) | $ | (0.01 | ) | $ | (0.03 | ) | $ | (0.05 | ) | ||||
Weighted average common shares outstanding (basic)
|
169,378,000 | 156,438,000 | 163,008,000 | 155,307,000 |
See notes to condensed consolidated financial statements.
2
GREEN EARTH TECHNOLOGIES, INC
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
(Unaudited)
(in thousand’s except share data)
Common Stock
|
Additional
|
|||||||||||||||||||
Paid
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Accumulated
|
|||||||||||||||||||
Shares
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Amount
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In Capital
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Deficit
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Total
|
||||||||||||||||
Balance at June 30, 2013
|
157,697,103 | $ | 158 | $ | 61,688 | $ | (75,303 | ) | $ | (13,457 | ) | |||||||||
Shares issued for interest
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3,426,605 | 4 | 354 | - | 358 | |||||||||||||||
Restricted shares for employee compensation
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3,060,000 | 3 | 215 | - | 218 | |||||||||||||||
Shares issued for consulting services
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12,000,000 | 12 | 948 | - | 960 | |||||||||||||||
Shares issued for purchased technology
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5,200,000 | 5 | 567 | - | 572 | |||||||||||||||
Issuance of common stock to settle payables, related party
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2,156,250 | 2 | 170 | - | 172 | |||||||||||||||
Issuance of common stock to settle trade payable
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250,000 | - | 25 | - | 25 | |||||||||||||||
Shares issued for services
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25,000 | - | 4 | 4 | ||||||||||||||||
Stock-based compensation
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- | 301 | - | 301 | ||||||||||||||||
Net loss
|
- | - | - | (5,613 | ) | (5,613 | ) | |||||||||||||
Balance at March 31, 2014
|
183,814,958 | $ | 184 | $ | 64,272 | $ | (80,916 | ) | $ | (16,460 | ) |
3
GREEN EARTH TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended March 31,
|
||||||||
2014
|
2013
|
|||||||
Cash flows from operating activities
|
||||||||
Net loss
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$ | (5,613 | ) | $ | (7,151 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities
|
||||||||
Depreciation and amortization
|
151 | 156 | ||||||
Amortization of debt discount and deferred financing costs
|
2,374 | 1,437 | ||||||
Loss on issuance of convertible debt
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833 | 846 | ||||||
Increase in allowance for inventory
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169 | 199 | ||||||
Change in fair value of derivative liability
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(1,909 | ) | (1,478 | ) | ||||
Bad Debt Expense
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- | 8 | ||||||
Stock-based compensation expense
|
523 | 730 | ||||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
|
460 | 33 | ||||||
Inventories
|
180 | (568 | ) | |||||
Deferred cost, related party
|
- | (6,227 | ) | |||||
Prepaid expenses and other current assets
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(268 | ) | 119 | |||||
Accounts payable
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477 | (620 | ) | |||||
Accounts payable, related parties
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(553 | ) | 358 | |||||
Accrued expenses
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849 | 161 | ||||||
Accrued expenses, related parties
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343 | (12 | ) | |||||
Deferred revenue
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84 | 4,752 | ||||||
Net cash used in operating activities
|
(1,900 | ) | (7,257 | ) | ||||
Cash flows from financing activities
|
||||||||
Proceeds from issuance of common stock, net of issuance costs
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- | 428 | ||||||
Proceeds from issuance of secured convertible debentures
|
1,950 | 5,250 | ||||||
Proceeds from note payable, related parties
|
- | 2,900 | ||||||
Repayment of notes payable
|
(39 | ) | (1,040 | ) | ||||
Net cash provided by financing activities
|
1,911 | 7,538 | ||||||
Net increase in cash
|
11 | 281 | ||||||
Cash and cash equivalent
|
||||||||
Beginning of period
|
189 | 346 | ||||||
End of period
|
$ | 200 | $ | 627 | ||||
Supplemental information
|
||||||||
Interest payments
|
$ | - | $ | - | ||||
Income taxes paid
|
$ | 4 | $ | 6 | ||||
Non-cash investing and financing activities
|
||||||||
Interest paid in common stock
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$ | 358 | $ | 166 | ||||
Issuance of common stock to settle trade payable
|
$ | 25 | $ | - | ||||
Issuance of common stock to settle related party payable and accrued expenses
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$ | 172 | $ | - | ||||
Issuance of common stock for purchased technology
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$ | 572 | $ | - | ||||
Issuance of common stock for prepaid consultant fees
|
$ | 960 | $ | - | ||||
Trade payable converted into note payable
|
$ | 1,211 | $ | - |
See notes to condensed consolidated financial statements.
4
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.
5
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 March 31, 2014, the Company had an accumulated deficit of $80,916, with total stockholders’ deficit of $16,460. The Company has a working capital deficit of $16,911 at March 31, 2014 and is currently in default of the 3.25% Secured Note and the 6% Secured Notes issued to related party disclosed in notes 7 and 8. These notes matured on September 30, 2013 and June 30, 2013, 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.
|
●
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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:
March 31,
2014
|
June 30,
2013
|
|||||||
Raw materials
|
$ | 44 | $ | 128 | ||||
Finished goods
|
411 | 676 | ||||||
$ | 455 | $ | 804 |
Inventories are presented net of an obsolescence reserve of $1,312 and $1,181 at March 31, 2014 and June 30, 2013, respectively. During the nine months ended March 31, 2014 and 2013 the Company increased the reserve by $131 and $199, respectively, for inventory remaining.
6
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
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 March 31, 2014 because the transaction did not meet the Company’s revenue recognition criteria in accordance with generally accepted accounting principles. As of March 31, 2014, $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 sales of oil field services products are expected to be greater than the current value of the Deferred Cost.
4.
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
Prepaid expense and current assets consist of the following:
March 31,
2014
|
June 30,
2013
|
|||||||
Prepaid inventory
|
$ | 537 | $ | - | ||||
Prepaid consulting fees
|
906 | - | ||||||
Commitment fee
|
- | 186 | ||||||
Other
|
33 | 65 | ||||||
$ | 1,476 | $ | 251 |
Prepaid Consulting Fees
In February 2014 the Company entered into a consulting agreement with MAHARG Holdings Corporation (“MHC”). Under the agreement 12,000,000 shares of restricted common stock were issued to MHC. The Company recorded the share issuance as a prepaid asset of $960 and is expensing the asset over three years, the term of the agreement. At March 31, 2014 the balance of the prepaid asset is $906. The Company is using MHC as a conduit, on a non-exclusive basis, for selling and marketing the Company’s products pursuant to government contracts and activities in which MHC and its network is currently working. As compensation for MHC’s services to be rendered under the agreement, the Company will pay MHC commissions based on its gross profit margins on sales generated through MHC.
5.
|
INTANGIBLE ASSETS
|
Intangible assets consist of the following:
March 31,
2014
|
June 30,
2013
|
Estimated Useful
Lives
|
||||||||||
Purchased technology and exclusivity rights
|
$ | 3,122 | $ | 2,550 | 7 | |||||||
Less: accumulated amortization
|
1,757 | 1,618 | ||||||||||
|
$ | 1,365 | $ | 932 |
In March 2014 the Company issued 5,200,000 shares of restricted common stock for the purchase of technology. The fair value of the shares in connection with this transaction totaled $572.
7
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:
2014
|
$ | 67 | ||
2015
|
268 | |||
2016
|
268 | |||
2017
|
268 | |||
2018
|
268 | |||
Thereafter
|
226 | |||
$ | 1,365 |
Amortization expense included in depreciation and amortization totaled $140 for the nine months ended March 31, 2014 and 2013, respectively.
6.
|
ACCRUED EXPENSES
|
Accrued expenses consist of the following:
March 31,
2014
|
June 30,
2013
|
|||||||
Accrued payroll and taxes
|
$ | 391 | $ | 383 | ||||
Accrued interest
|
284 | 274 | ||||||
Accrued sponsorship fees
|
535 | 218 | ||||||
Accrued advertising
|
161 | - | ||||||
Accrued board of director fees
|
135 | 189 | ||||||
Other
|
20 | 44 | ||||||
$ | 1,526 | $ | 1,108 |
Accrued expenses, related party consist of the following:
March 31,
2014
|
June 30,
2013
|
|||||||
Accrued interest
|
$ | 524 | $ | 357 | ||||
Accrued other
|
338 | 162 | ||||||
$ | 862 | $ | 519 |
7.
|
NOTES PAYABLE, RELATED PARTY
|
6.0% Secured note, related party
At March 31, 2014 and June 30, 2013, the balance of the secured notes payable, related parties is $3,400. The note is held by a related party and is secured by eligible accounts receivable and purchase orders. As of March 31, 2014 and June 30, 2013 accrued interest of $436 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.
8.
|
NOTES PAYABLE
|
Notes payable, consist of the following:
March 31,
2014
|
June 30,
2013
|
|||||||
Promissory Note
|
$ | 1,172 | $ | - | ||||
3.25 % Secured note
|
$ | 60 | $ | 60 | ||||
$ | 1,232 | $ | 60 |
8
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Promissory note
In October 2013 our third party manufacturer, Olympic Oil, owned by Delta Petroleum Company (“Delta”), entered into a $1,211 promissory note agreement with the Company for past due invoices. At March 31, 2014 the balance of the promissory note is $1,172. In February 2014 the Company entered into a two year Forbearance, Security and Account Control Agreements with Delta. The agreements provide for Delta to continue with the manufacturing and fulfillment of the Company’s lubricant products to its customers. The receivables generated from these sales will be used as collateral and customer payments will be sent directly to a blocked bank account controlled by Delta. The profits generated from these sales will be applied to the promissory note. If by February 2015 the balance of the promissory note is greater than $606 then the Company will pay Delta the difference between the balance of the outstanding note minus $606. The full repayment of the promissory note is due in February 2016.
3.25% Secured note
As of March 31, 2014 and June 30, 2013, accrued interest was $236 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%.
9.
|
DERIVATIVE LIABILITY
|
Secured Convertible Debentures Conversion Option
The Debentures (as defined in note 10) 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 $0.15 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
|
|||||||||||||||
|
March 31,
|
Fair Value Measurement Using
|
||||||||||||||
2014
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Derivative liability - Debentures
|
$ | 4,025 | $ | - | $ | - | $ | 4,025 |
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, 2014 and June 30, 2013:
March 31,
2014
|
June 30,
2013
|
|||||||
Balance at beginning of period
|
$ | 2,794 | $ | 2,118 | ||||
Additions to derivative instruments
|
2,420 | 3,780 | ||||||
Change in fair market value of the derivative liability
|
(1,189 | ) | (3,104 | ) | ||||
Balance at end of period
|
$ | 4,025 | $ | 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.
9
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
The following are the key assumptions used in connection with this computation:
March 31,
2014
|
June 30,
2013
|
|||||||
Number of shares
|
82,500,000 | 44,118,000 | ||||||
Fair market value of stock
|
$ | 0.10 | $ | 0.13 | ||||
Conversion Price
|
$ | 0.06-$0.15 | $ | 0.17 | ||||
Volatility
|
128% -145 | % | 116% -119 | % | ||||
Risk-free interest rate
|
0.13%-.50 | % | 0.14%-0.71 | % | ||||
Expected dividend yield
|
0 | % | 0 | % | ||||
Life of Debentures (years)
|
.70-2.0 | 1.5-2.7 |
Warrant Liability
In connection with the issuance of Debentures, the Company issued warrants to purchase up to 26,934,000 shares of Common Stock (the “Warrants”). The Warrants have an exercise price of $0.19-$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 8,552,000 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
|
|||||||||||||||
|
March 31,
|
Fair Value Measurement Using
|
||||||||||||||
2014
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Derivative liability - Warrants
|
$ | 1,701 | $ | - | $ | - | $ | 1,701 |
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, 2014 and June 30, 2013:
March 31,
2014
|
June 30,
2013
|
|||||||
Balance at beginning of period
|
$ | 2,058 | $ | 1,389 | ||||
Additions to derivative instruments
|
363 | 2,316 | ||||||
Change in fair market value
|
(720 | ) | (1,647 | ) | ||||
Balance at end of period
|
$ | 1,701 | $ | 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.
10
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
The following are the key assumptions used in connection with this computation:
March 31,
2014
|
June 30,
2013
|
|||||||
Number of shares underlying the Warrants
|
26,934,000 | 22,059,000 | ||||||
Fair market value of stock
|
$ | 0.10 | $ | 0.13 | ||||
Exercise Price
|
$ | 0.19-$0.21 | $ | 0.21 | ||||
Volatility
|
122%-129 | % | 118%-134 | % | ||||
Risk-free interest rate
|
0.80%-.1.42 | % | 0.71%-.1.50 | % | ||||
Expected dividend yield
|
0 | % | 0 | % | ||||
Warrant life (years)
|
2.7-4.0 | 3.5-4.7 |
10.
|
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 fiscal 2014, the Company realized gross proceeds of $1,950 ($1,080 in November 2013 and $870 in March 2014) from the sale of additional 6.0% Secured Convertible Debentures, due March 31, 2016, and warrants to purchase 4,875,000 shares of Common Stock on or before March 31, 2018 to eleven accredited investors. The fiscal 2014 debentures have a conversion price of $0.06 per share.
In conjunction with the dilutive issuance of the fiscal 2014 debentures and shares issued in connection with the satisfaction of payables, purchase of technology, prepaid consulting fees, a reduction in cash based salaries and related party marketing fees, the conversion price of fiscal 2012 and 2013 debentures is reduced from $0.17 to $0.15 per share. Additionally the associated warrants exercise price is reduced from $0.21 to $0.19 per share.
Secured convertible debentures, net of debt discount, consist of the following:
March 31,
2014
|
June 30,
2013
|
|||||||
Convertible Debentures
|
$ | 9,450 | $ | 7,500 | ||||
Debt discount
|
(4,472 | ) | (4,896 | ) | ||||
$ | 4,978 | $ | 2,604 |
As of March 31, 2014, the current and non-current portions of the secured convertible debentures, net of debt discount were $3,750 and $1,228, respectively. Debt discount of $9,450 is being amortized over the life of the Debentures and is included in interest expense in the accompanying condensed consolidated statement of operations.
11
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
The March 2014 Debentures are subject to a registration rights agreement and the Company has until December 31, 2014 to file. If the Company does not file by this date, it may be subject to default penalties. The March 2013 and November 2013 Debentures are also subject to a registration rights agreement. The Company had until March 31, 2014 to file the registration statement but failed to do so and may be subject to default penalties.
Aggregate annual principal payments for the secured convertible debentures are as follows:
Period Ending March 31,
|
||||
2015
|
$ | 6,250 | ||
2016
|
3,200 | |||
$ | 9,450 |
11.
|
STOCKHOLDERS DEFICIT
|
Shares issued for interest
For the nine months ended March 31, 2014, the Company issued 3,427,000 shares of our common stock to pay accrued interest from April 1, 2013 to December 31, 2013 on the outstanding Debentures. The fair value of the shares in connection with this transaction totaled $358.
Restricted Stock Awards
For the nine months ended March 31, 2014, the Company issued 2,025,000 and 1,035,000 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 $141 and $77, respectively.
Shares issued for prepaid consulting fees
In February 2014 the Company issued 12,000,000 shares of restricted common stock to MHC as part of a consulting agreement for sales and marketing services. The fair value of the shares issued in connection with this transaction totaled $960.
Shares issued for intangible asset
In March 2014 the Company issued 5,200,000 shares of restricted common stock were issued to Inventek for to the purchase of technology utilized in the Company’s oil field services product line. The fair value of the shares in connection with this transaction totaled $572.
Shares issued for payables, related party
For the nine months ended March 31, 2014, the Company issued 1,250,000 and 906,000 restricted stock to Marketiquette and the board of directors, respectively, for their agreement to settle a portion of what was owed to them. The fair value of the shares in connection with this transaction totaled $100 and $72, respectively.
Other uses
For the nine months ended March 31, 2014, 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.
Stock Options
Common stock available for equity awards under the 2008 Employee Stock Award and Incentive Plan, as amended (the “2008 Plan”), is 40,000,000 shares as of March 31, 2014. Under the 2008 Plan, stock option grants may be exercised for a period up to ten years from the date of grant. Option awards are granted with an exercise price equal to the market price of the Company’s stock on the date of grant and generally vest over three years. At March 31, 2014, 14,298,000 shares are available for future grants under the 2008 Plan.
12
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Option activity for the nine months ended March 31, 2014 is as follows:
Number of Options
|
Weighted Average Exercise Price
|
Weighted Average Remaining Contractual Term
|
Aggregate Intrinsic
Value
|
|
||||||
Outstanding at June 30, 2013
|
24,757,000
|
$ |
0.32
|
7.5 years
|
||||||
Granted
|
1,000,000
|
$ |
0.08
|
|||||||
Exercised
|
-0-
|
|||||||||
Forfeited and Cancelled
|
(55,000)
|
|
||||||||
Outstanding at March 31, 2014
|
25,702,000
|
$ |
0.31
|
7.0 years
|
$ |
0
|
|
|||
Exercisable at March 31, 2014
|
20,936,000
|
$ |
0.35
|
7.0 years
|
$ |
0
|
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 March 31, 2014.
The fair value of each time-based option award is estimated on the date of grant using a Black-Scholes option pricing model with the following assumptions:
For the Period Ended
March 31, 2014
|
||||
Average expected life (years)
|
6.0 | |||
Average risk free interest rate
|
1.88 | % | ||
Expected volatility
|
143 | % | ||
Expected dividend rate
|
0 | % | ||
Expected forfeiture rate
|
5 | % |
Stock Option expense for the nine months ended March 31, 2014 was $301. As of March 31, 2014 the unrecognized compensation expense is $350.
Warrants
Warrant activity for the nine months ended March 31, 2014 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 |
2.6 years
|
||||||||||
Granted
|
4,875,000 | 0.21 |
0.8 years
|
|||||||||||
Exercised
|
-0- | |||||||||||||
Outstanding and exercisable at March 31, 2014
|
26,934,000 | $ | 0.19 |
3.4 years
|
$ | - |
13
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
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 March 31, 2014.
12. COMMITMENTS
Significant contractual obligations as March 31, 2014 are as follows:
Type of Obligation
|
Total
Obligation
|
Amount Due in
Less than 1 year |
||||||
Sponsorship Agreements
|
$ | 2,050 | $ | 775 | ||||
Facility Lease
|
$ | 42 | $ | 42 |
13. RELATED PARTY TRANSACTIONS
Inventek
The Company purchased inventory from Inventek totaling $45 and $148 for the three months March 31, 2014 and 2013, respectively, and $107 and $7,252 for the nine months ended March 31, 2014 and 2013, respectively. As of March 31, 2014, a credit of $450 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 March 31, 2014, Inventek beneficially owned approximately 9.0% of the Company’s issued and outstanding shares of Common Stock.
Marketiquette
The Company paid Marketiquette for marketing services a total of $78 and $146 for the three months ended March 31, 2014 and 2013, respectively, and $326 and $444 for the nine months ended March 31, 2014 and 2013, respectively, which are included in selling, general and administrative expenses. The Company issued 945,000 restricted shares to Marketiquette for marketing services and 1,250,000 shares to settle outstanding accounts payable during the nine months ended March 31, 2014, which are included in stock-based compensation expense. The fair value of the shares in connection with this transaction totaled $77. As of March 31, 2014 and June 30, 2013, amounts due to Marketiquette were $94 and $140, respectively. The wife of the Company’s President is the president and a director of Marketiquette. As of March 31, 2014, Marketiquette beneficially owned approximately 5.9% of the Company’s issued and outstanding shares of Common Stock.
Techtronics Industries North America Inc. (“TTI”)
For the three months ended March 31, 2014 and 2013, approximately 85% and 52% of the Company’s revenues, respectively, were earned from TTI and for the nine months ending March 31, 2014 and 2013, approximately 69% and 34% of the Company’s revenues, respectively, from TTI. As of March 31, 2014 and June 30, 2013, amounts due to TTI, included in accounts payable and accrued expenses, were $1,528 and $2,079, respectively. As of March 31, 2014 and June 30, 2013 advances received from TTI for future sales of cleaning and performance products was $459 and $375, respectively. As of March 31, 2014 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 7). As of March 31, 2014, TTI beneficially owned approximately 15.0% of the Company’s issued and outstanding shares of Common Stock.
Galesi
For the three months ended March 31, 2014 and 2013, approximately 0% and 0% of the Company’s revenues, respectively, were generated from companies owned or controlled by Galesi. For the nine months ended March 31, 2014 and 2013, approximately 0% and 18% of the Company’s revenues, respectively, were earned from Galesi. As of March 31, 2014 and June 30, 2013, the amounts due from these entities totaled $0 and $345, respectively. As of March 31, 2014 and June 30, 2013, amounts due to Galesi included $2,273 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 March 31, 2014, Galesi beneficially owned approximately 21.4% of the Company’s issued and outstanding shares of Common Stock. In December 2012, the Company received $6,000 from Galesi for anticipated proceeds from the sales of oil field services products, which is included in deferred revenue, related parties on the accompanying condensed consolidated statement of operations (See Note 3).
14
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Walter Raquet (“Raquet”)
Walter Raquet is a Director of the Company, a member of the audit committee and was appointed as interim chief executive officer effective April 30, 2014. As of March 31, 2014 and June 30, 2013, the amounts due to Mr. Raquet included $1,220 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 March 31, 2014, Mr. Raquet beneficially owned approximately 17.1% of the Company’s issued and outstanding shares of Common Stock.
14.
|
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 nine months ended March 31, 2014 and 2013, respectively, and accounts receivable as of March 31, 2014 and June 30, 2013, respectively:
March 31,
2014
|
March 31,
2013
|
|||||||
Sales
|
||||||||
TTI
|
69 | % | 34 | % | ||||
Menards
|
8 | % | 22 | % | ||||
Walmart
|
8 | % | 11 | % | ||||
Galesi entities
|
0 | % | 18 | % | ||||
March 31,
2014
|
June 30,
2013
|
|||||||
Accounts Receivable
|
||||||||
Walmart
|
83 | % | 33 | % | ||||
Galesi
|
0 | % | 54 | % | ||||
15
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
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 following is the Company’s inventory purchased from these vendors for the nine months ended March 31, 2014 and March 31, 2013, respectively, and accounts payable as of March 31, 2014 and June 30, 2013, respectively:
March 31,
2014
|
March 31,
2013
|
|||||||
Inventory Purchased
|
||||||||
Inventek
|
$ | 107 | $ | 7,252 | ||||
Delta
|
1,520 | 3,400 | ||||||
TTI
|
273 | 1,305 | ||||||
March 31,
2014
|
June 30,
2013
|
|||||||
Accounts Payable
|
||||||||
Inventek
|
$ | - | $ | 502 | ||||
Delta
|
1,577 | 1,191 | ||||||
TTI
|
1,589 | 1,634 |
Included in Delta accounts payable is a promissory note of $1,172 (see note 8).
16
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 oil field 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 patent 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 are currently shifting our sales efforts on 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 are actively pursuing relationships domestically and worldwide with oil field services companies, oil and gas exploration and production companies and distributors. We will continue to sell a number of our lubricant and cleaning products directly to retailers and through master distribution agreements with wholesalers and contractual arrangements with independent sales and marketing professionals. Our retail products are available at a number of national outlets and chain stores including Walmart, The Home Depot, Menards, ACE Hardware and Canadian Tire Corporation.
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 also have a 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 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 our products allow drillers, well operators, service providers and other potential customers to 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 have succeeded in supporting this proposition as we have validated our results and claims via third party testing, participation in extreme conditions through automotive racing and track clean ups and gained and maintained distribution at some of the United States largest retailers.
17
Results of Operations
(All dollar amounts referred to herein are in thousands, except as otherwise indicated.)
Three Months Ended March 31, 2014 and 2013
Our activities for the three months March 31, 2014 and 2013 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 March 31,
|
||||||||
2014
|
2013
|
|||||||
Net sales
|
$ | 1,398 | $ | 2,035 | ||||
Loss from operations
|
(1,270 | ) | (1,862 | ) | ||||
Change in revaluation of derivatives
|
(2,746 | ) | 735 | |||||
Loss on issuance of convertible debt
|
(464 | ) | (257 | ) | ||||
Interest expense, net
|
(1,035 | ) | (793 | ) | ||||
Net income (loss)
|
$ | (5,515 | ) | $ | (2,177 | ) |
Net Sales
Net sales for the three months ended March 31, 2014 were $1,398, primarily attributed to sales of G-OIL® outdoor power equipment 4-cycle. 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. The decrease in net sales from 2014 to 2013 is due to prior year sales of G-CLEAN® pressure washing products compared to minimal sales for the three months ended March 31, 2014.
For the three months ended March 31, 2014, approximately 95% of our sales were from two customers, TTI (The Home Depot) and Walmart. For the three months ended March 31, 2013, approximately 85% of our sales were attributable to three customers, TTI (The Home Depot), Menards, Inc. and Walmart.
Net sales are comprised as follows:
Three Months Ended March 31,
|
||||||||
2014
|
2013
|
|||||||
Performance products (oils)
|
$ | 1,303 | $ | 1,510 | ||||
Cleaning products
|
$ | 95 | $ | 525 | ||||
Total
|
$ | 1,398 | $ | 2,035 |
18
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 March 31, 2014 and 2013 were $1,440, and $1,927, respectively. The decrease in cost of sales from 2014 to 2013 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 March 31,
|
||||||||
2014
|
2013
|
|||||||
Salaries
|
$ | 88 | $ | 237 | ||||
Selling, marketing, public relations and related
|
572 | 724 | ||||||
Development, product release and testing
|
77 | 123 | ||||||
Management and operating fees
|
124 | 180 | ||||||
Legal and professional
|
14 | 104 | ||||||
Occupancy, communications and all other, net
|
124 | 315 | ||||||
Total selling, general and administrative expenses
|
$ | 999 | $ | 1,683 |
The decrease in salaries is due to a decrease in headcount and the employee’s agreement to reduce their salaries in exchange for restricted stock, which is included in stock-based compensation. The decrease in selling, marketing and public relations expenses is due to decreased sponsorship fees. 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 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 March 31, 2014 and 2013 was approximately $179 and $235, respectively. The decrease is due to stock options grants issued in prior years being fully expensed.
Depreciation and amortization
Depreciation and amortization expense totaled $50 and $52 for the three months ended March 31, 2014 and 2013, respectively. Depreciation charges totaled $3 and $5 for the three months ended March 31, 2014 and 2013, respectively, and amortization expense for intangible assets totaled $47 for the three months ended March 31, 2014 and 2013, respectively. Depreciation and amortization expense is excluded from cost of sales.
19
Change in revaluation of derivatives
The change in fair value of our derivative liabilities resulted in a unfavorable adjustment of $2,746 for three months ended March 31, 2014 and a favorable adjustment of $735 for three months ended March 31, 2013. The value of the derivative liabilities was determined using the Black-Scholes method. See note 9 for inputs used to calculate the fair value of our derivatives liabilities.
Loss on issuance of convertible debt
We recorded a charge of $464 and $257 for the three months ended March 31, 2014 and 2013, 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 March 31, 2014 and 2013 was approximately $1,035 and $793, respectively. Interest expense consists of $840 in connection with the amortization of the debt discount on our outstanding secured convertible debentures, $135 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.)
Nine months Ended March 31, 2014 and 2013
Our activities for the nine months March 31, 2014 and 2013 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:
Nine months Ended March 31,
|
||||||||
2014
|
2013
|
|||||||
Net sales
|
$ | 3,154 | $ | 5,390 | ||||
Loss from operations
|
(3,571 | ) | (5,978 | ) | ||||
Change in revaluation of derivatives
|
1,909 | 1,478 | ||||||
Loss on issuance of convertible debt
|
(833 | ) | (846 | ) | ||||
Interest expense, net
|
(3,118 | ) | (1,805 | ) | ||||
Net loss
|
$ | (5,613 | ) | $ | (7,151 | ) |
Net Sales
Net sales for the nine months ended March 31, 2014 were $3,154, primarily attributed to sales of G-OIL® outdoor power equipment 4-cycle engine oils and G-CLEAN® pressure washing products. 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. The decrease in net sales from 2014 to 2013 is due to prior year sales of G-CLEAN® oil and gas well service products compared to no sales for the nine months ended March 31, 2014 and lower sales G-CLEAN® pressure washing products.
For the nine months ended March 31, 2014, approximately 86% of our sales were from three customers, TTI (The Home Depot), Menards and Walmart. For the nine months ended March 31, 2013, approximately 84% of our sales were from four customers, entities owned or controlled by Francesco Galesi (“Galesi Entities”), TTI, Walmart and Menards, Inc.
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Net sales are comprised as follows:
Nine months Ended March 31,
|
||||||||
2014
|
2013
|
|||||||
Performance products (oils)
|
$ | 2,530 | $ | 2,942 | ||||
Cleaning products
|
$ | 624 | $ | 2,448 | ||||
Total
|
$ | 3,154 | $ | 5,390 |
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 nine months ended March 31, 2014 and 2013 were $3,174, and $4,875, respectively. The decrease in cost of sales from 2014 to 2013 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:
Nine months Ended March 31,
|
||||||||
2014
|
2013
|
|||||||
Salaries
|
$ | 505 | $ | 725 | ||||
Selling, marketing, public relations and related
|
1,118 | 2,447 | ||||||
Development, product release and testing
|
247 | 464 | ||||||
Management and operating fees
|
352 | 634 | ||||||
Storage fees
|
- | 323 | ||||||
Legal and professional
|
199 | 407 | ||||||
Occupancy, communications and all other, net
|
456 | 607 | ||||||
Total selling, general and administrative expenses
|
$ | 2,877 | $ | 5,607 |
The decrease in salaries is due to a decrease in headcount and the employee’s agreement to reduce their salaries in exchange for restricted stock, which is included in stock-based compensation. 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 and consulting 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 nine months ended March 31, 2014 and 2013 was approximately $523 and $730, respectively. The decrease is due to stock options grants issued in prior years being fully expensed.
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Depreciation and amortization
Depreciation and amortization expense totaled $151 and $156 for the nine months ended March 31, 2014 and 2013, respectively. Depreciation charges totaled $11 and $16 for the nine months ended March 31, 2014 and 2013, respectively, and amortization expense for intangible assets totaled $140 for the nine months ended March 31, 2014 and 2013, 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 $1,909 and $1,478 for nine months ended March 31, 2014 and 2013, respectively. The value of the derivative liabilities was determined using the Black-Scholes method. See note 9 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 $833 and $846 for the three months ended March 31, 2014 and 2013, 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 nine months ended March 31, 2014 and 2013 was approximately $3,118 and $1,805, respectively. Interest expense consists of $2,374 in connection with the amortization of the debt discount on our outstanding secured convertible debentures, $379 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, $156 for interest on notes payable to related parties and $23 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 March 31, 2014 and June 30, 2013, we had $200 and $189 in cash and an accumulated deficit of $80,916 and $75,303, respectively. At March 31, 2014 and June 30, 2013, we had a working capital deficit of $16,911 and $12,110, respectively.
Net cash used in operating activities was $1,900 and $7,257 for the nine months ended March 31, 2014 and 2013, respectively. The decrease from 2014 to 2013 was primarily due to the decrease in funding and sales which generated less cash to spend on operations.
Net cash provided by financing activities was $1,911 and $7,538 for the nine months ended March 31, 2014 and 2013, respectively. The decrease in financing activities is primarily due to proceeds from the issuance of note payables and secured debentures in the amount of $2,900 and $5,250, respectively, partially offset by payments of $1,040 in 2013 compared to issuance of note payable of $1,950 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.
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Losses from operations are continuing subsequent to March 31, 2014 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 fiscal 2014, we realized gross proceeds of $1,950 ($1,080 in November 2013 and $870 in March 2014) from the sale of additional 6.0% Secured Convertible Debentures, due March 31, 2016, and warrants to purchase 4,875,000 shares of Common Stock on or before March 31, 2018 to eleven accredited investors. The fiscal 2014 debentures have a conversion price of $0.06 per share.
Due to the weighted average anti-dilution provision the conversion price of $7,500 of debentures is reduced from $0.17 to $0.15 per share. In addition the attached warrants exercise price is reduced from $0.21 to $0.19 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.
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 March 31, 2014, we had an accumulated deficit of $80,916 with total stockholders’ deficit of $16,640. We had a working capital deficit of $16,911 at March 31, 2014 and are currently in default of the related party notes payable disclosed in notes 7 and 8. These notes matured on September 30, 2013 and June 30, 2013, 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 March 31, 2014 are as follows:
Total |
Amount Due in
|
|||||||
Type of Obligation
|
Obligation
|
Less than 1 year
|
||||||
Sponsorship Agreements
|
$ | 2,050 | $ | 775 | ||||
Facility Lease
|
$ | 42 | $ | 42 |
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 nine months ended March 31, 2014, 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 Interim Chief Executive Officer 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 Interim Chief Executive Officer 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 Interim Chief Executive Officer 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, 2014 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. (All dollar amounts are in thousands)
In January 2014, we issued 1,816,000 shares of our common stock, with an aggregate fair market value of $129, to pay the accrued interest on the outstanding Debentures.
In February 2014, we issued 12,000,000 shares of our common stock, with an aggregate fair market value of $960, for prepaid consulting fees.
In January 2014, we issued an aggregate of 4,281,000 shares of our common stock, with an aggregate fair market value of $279, to pay for outstanding debt and marketing fees.
In March 2014, we issued an aggregate of 5,200,000 shares of our common stock, with an aggregate fair market value of $572, to pay for the purchase of technology utilized in the Company's oil field services product line.
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.
Item 6. – Exhibits
Exhibit Numbers
|
Description
|
||
31.1
|
Certification of Interim Chief Executive 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 Interim Chief Executive 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.
|
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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: May 15, 2014
|
By:
|
/s/ Walter Raquet | |
Walter Raquet | |||
Interim Chief Executive Officer | |||
(Principal Executive Officer) |
By:
|
/s/ Greg D. Adams | ||
Greg D. Adams | |||
Chief Operating Officer and Chief Financial Officer (Principal Financial Officer) |
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