UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
| þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2009 |
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| OR |
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| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ |
Commission File No. 333-136583
(Name of the small business issuer as specified in its charter)
| Nevada | 41-2145716 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
| | |
| 7430 E. Butherus, Suite D, Scottsdale, AZ | 85260 |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (480) 222-6222
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: Common Stock, $0.001 par value
Indicate by check mark if the registrant is a well-known seasoned issuer (as defined in Rule 405 of the Act). Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K þ
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
| | Large Accelerated Filer o | Accelerated Filer o | Non-Accelerated Filer o | Smaller Reporting Company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ
The aggregate market value of Common Stock, $.001 par value, held by non-affiliates of the registrant based on the closing sales price of the Common Stock on the OCT:BB on July 10, 2009, was $11,502,629.
The number of shares of common stock outstanding as of July 10, 2009 was 123,300,764.
Documents incorporated by reference: None.
TABLE OF CONTENTS
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| Part I | | | 5 |
| | Item 1 | Description of Business | |
| | Item 1A | Risk Factors | 13 |
| | Item 1B | Unresolved Staff Comments | 22 |
| | Item 2 | Description of Property | |
| | Item 3 | Legal Proceedings | |
| | Item 4 | Submission of Matters to a Vote of Security Holders | |
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| Part II | | | 22 |
| | Item 5 | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | |
| | Item 6 | Selected Financial Data | |
| | Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 |
| | Item 7A | Quantitative and Qualitative Disclosure About Market Risk | |
| | Item 8 | Financial Statements and Supplementary Data | 32 |
| | Item 9 | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure | |
| | Item 9A(T) | Controls and Procedures | |
| | Item 9B | Other Information | 34 |
| | | | |
| Part III | | | 34 |
| | Item 10 | Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act | |
| | Item 11 | Executive Compensation | |
| | Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | |
| | Item 13 | Certain Relationships and Related Transactions, and Director Independence | |
| | Item 14 | Principal Accountant Fees and Services | |
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| Part IV | | | 41 |
| | Item 15 | Exhibits | |
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| Signatures | |
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| Exhibit Index | 43 |
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| Financial Statements | F-1 |
| EXHIBIT 21.1 List of Subsidiaries |
| EXHIBIT 31.1 Officers Certificate Pursuant to Section 302 |
| EXHIBIT 31.2 Officers Certificate Pursuant to Section 302 |
| EXHIBIT 32.1 Certificate Pursuant to 18 U.S.C. Section 1350 |
| EXHIBIT 32.2 Certificate Pursuant to 18 U.S.C. Section 1350 |
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this Annual Report on Form 10-K (“Annual Report”) for Green Planet Group, Inc. (“Green Planet,” “GPG,” the “Company,” “we,” “our” or “us”) contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding the growth of product lines, optimism regarding the business, expanding sales and other statements. Words such as expects, anticipates, intends, plans, believes, sees, estimates and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Actual results could vary materially from the description contained herein due to many factors including continued market acceptance of our products. In addition, actual results could vary materially based on changes or slower growth in the fuel additive products market; the potential inability to realize expected benefits from new products and products under development; domestic and international business and economic conditions; changes in the petroleum industry; unexpected difficulties in penetrating the commercial and industrial markets for our products; changes in customer demand or ordering patterns; changes in the competitive environment including pricing pressures or technological changes; technological advances; shortages of manufactured raw material and manufacturing capacity; future production variables impacting excess inventory and other risk factors listed in the section of this Annual Report entitled “Risk Factors” and from time to time in our Securities and Exchange Commission filings under “risk factors” and elsewhere.
Each forward-looking statement should be read in context with, and with an understanding of, the various disclosures concerning our business made elsewhere in this Annual Report, as well as other public reports filed by us with the United States Securities and Exchange Commission. Readers should not place undue reliance on any forward-looking statement as a prediction of actual results of developments. Except as required by applicable law or regulation, we undertake no obligation to update or revise any forward-looking statement contained in this Annual Report.
Introduction
We are engaged in the research, development, manufacturing and distribution of a variety of products that improve overall energy efficiency with a specific concentration on petroleum based energy sources. We currently have four wholly owned operating subsidiaries, EMTA Corp, XenTx Lubricants, Inc. (formerly Dyson Properties, Inc.), White Sands, LLC. and Lumea, Inc.
EMTA Corp has developed a new type of lubricant (metal conditioner) that interacts with metal surfaces. It hardens and smoothes the metals’ surface which results in reduced friction and therefore improves efficiency. We market this unique product under the brand name XenTx Extreme Engine Treatment, to both commercial/industrial users and to the general public. Today XenTx is available at a variety of retail stores, as well as many smaller auto-parts chains throughout the U.S. The product is also available in Canada and, more recently, in Mexico. In addition to our core products, we utilize the same technology in three new products that are in the initial stages of distribution, including an all purpose spray lubricant (XenTx Extreme Lubricating Spray), friction reducing automatic transmission fluid (XenTx Extreme Transmission Treatment), and a gasoline system cleaner (XenTx Extreme Fuel System Treatment).
XenTx Lubricants, Inc. (“XenTx Lube”) manufactures and sells automotive, industrial and racing performance oils and lubricants under the name Synergyn Racing or Synergyn Performance. The Synergyn products have been manufactured and distributed for the past 20 years and are sold throughout the U.S.
White Sands’ core products are primarily designed to aid in the combustion of diesel fuel. It has developed two distinct diesel fuel additives, Clean Boost improves combustion efficiency and reduces pollution and particulate emissions significantly. In addition, Clean Boost Low-Emissions (“Clean Boost LE”) insures that diesel fuel users will be able to meet or exceed the new, more stringent emissions rules. This product was first certified by the EPA and the Texas Commission on Environmental Quality (“TCEQ”) on March 26, 2007. In June 2008, the Company received an unconditional approval for the Clean Boost LE product from the TCEQ.
Lumea, Inc. was formed for the purpose of implementing a roll-up strategy in the light industrial (green) staffing space. This type of staffing company provides unskilled and semi-skilled laborers to large industrial and commercial corporations that have significant fluctuations in manpower needs. The strategy of acquiring well established light industrial staffing companies provides access to major industrial/commercial customers that are targets for the Company’s energy efficiency and emission reducing technologies.
Corporate History
We were incorporated under the laws of Louisiana on June 5, 1978 under the name Forum Mortgage Corp. We were reincorporated under the laws of the State of Nevada in July 2004 under the name Omni Alliance Group, Inc.
On March 31, 2006 we acquired EMTA Corp., Inc. (“EMTA”) in consideration for the issuance to EMTA’s shareholders of 30,828,989 shares of our common stock. At that time we also implemented a 233 for one reverse stock split and changed our name to EMTA Holdings, Inc. The acquisition of EMTA was accounted for as a reverse merger. As a result, the financial statements of EMTA Corp. became our financial statements. On May 20, 2009, the Company merged with a wholly owned Nevada subsidiary and changed its name to Green Planet Group, Inc.
EMTA Corp. was incorporated in March 2002 under the laws of the State of Nevada under the name Wiltex A, Inc. On October 1, 2004, Wiltex acquired the assets of Alaco Corporation in exchange for approximately 94% of the common stock of Wiltex. On that same date, it changed its name to EMTA Corp. Inc.
The Company acquired White Sands, L.L.C. (“White Sands”) for 897,487 shares of Holdings common stock as of March 31, 2006, at which time White Sands became a wholly-owned subsidiary of Green Planet Group, Inc.
Effective January 1, 2007, the Company took control of XenTx Lubricants, Inc. (formerly Dyson Properties, Inc.) for an aggregate purchase price of $2,100,000 which includes cash, stock and warrants. An initial payment of $100,000 was made on January 9, 2007 and a second cash payment of $150,000 was made on July 5, 2007 with the balance of $254,240 due in October, 2009. On March 26, 2007, the Company issued the seller 1,400,000 shares of common stock and cashless warrants to acquire 1,400,000 shares of common stock at an exercise price of $0.75 per share. In addition, the Company agreed to pay a royalty on all products sold that contain the Synergyn formulations.
Lumea, Inc and its three subsidiaries: Lumea Staffing, Inc., Lumea Staffing of California and Lumea Staffing of Illinois, Inc. were incorporated on February 26, 2009 under the laws of the State of Nevada. Lumea was formed to acquire selected assets and liabilities from Easy Staffing Solutions, Inc. The effective date of the asset purchase was March 1, 2009. The Company acquired these assets for 21.7 million shares of GPG common stock valued at $1,084,983, of which 6.7 million shares were issued to consultants, and notes for $8,750,000. In addition, it agreed to assume $2,505,694 of Accounts Payable debt and issued 2,500,000 stock options valued at $124,075 exercisable over 8 years.
Our Products
XenTx Extreme Engine Treatment
Through our wholly-owned subsidiary, EMTA Corp., we market XenTx Extreme Engine Treatment, a 100% synthetic metal conditioner that provides benefits to automobile engines in that it prevents the build up of engine metal particles in the walls of the engine. As an additive to standard engine oils, it attracts the loose particles of ferrous metals present in most oils and directs those particles to broken molecular chains that exist on the surface of the friction environment, in this case the engine walls. The product penetrates the carbon build up on the cylinder walls and attaches to the surface of the metal carrying wear metals molecules with it. The product continuously fills the pits, cracks, and slight imperfections present in all engine cylinders. In this way, it creates a dense protective surface that is highly resistant to scuffing and galling.
The process has both a cleaning effect on the engine and a smoothing effect on the engine cylinder surface. This results in less friction, lower operating temperatures and less power loss due to frictions and heat. With less rotations per minute producing the same power, less fuel is consumed leading to greater fuel efficiency as well as a reduction in exhaust emissions.
Clean Boost
Through our wholly-owned subsidiary, White Sands, we market Clean Boost™, a fuel oil additive that improves fuel and combustion efficiency by liberating more of the fuel’s chemical energy, in the flame zone of boilers, or during the power stroke of diesel engines. Soot formation is prevented and less fuel is wasted in the form of particulate emissions. Greenhouse gas and acid rain gases, soot (black smoke), carbon build-up and fouling, slagging and cold-end corrosion are all reduced, while engine and boiler performance improves. Turbochargers and exhaust gas boilers remain cleaner and require less maintenance and water washing.
Clean Boost™ reduces fuel consumption by 2 to 5% across a wide range of fossil fuels, from coal and heavy residual fuel oils to intermediate fuel oil blends, refined diesel fuels. It also lessens the emission of harmful gasses.
Clean Boost™ is effective in industrial boilers and diesel engines of all sizes and is used in marine shipping, power generation, mining, construction, ground transportation and wherever high fuel prices or compliance with emissions or opacity regulations is a concern.
Clean Boost when mixed with diesel fuel, reduces the exhaust gases from combustion to meet the most stringent requirements of both Texas and California. Clean Boost LE™ was tested at a renowned test facility with both the TCEQ and EPA as observers. The test results were submitted to Texas and then to the EPA which subsequently certified that Clean Boost LE™ met the goals of reducing diesel fuel emissions. The EPA Certification #201920002CB-LE and the TCEQ products #TXLED-A-00009 was issued in March of 2007. In June 2008, the Company received an unconditional approval for the Clean Boost LE product from the TCEQ.
These products are used in the automotive, oil and gas, shipping and mining sectors. We believe that both Clean Boost™ products help in the following ways in diesel applications in the automotive and other industries to:
| ● | | Lower fuel consumption (i.e., better fuel efficiency) |
| | Reduce exhaust emissions |
| | Lower maintenance requirements |
| | Reduce soot (carbon particles) in lubricating oil |
| | Carbon deposits in the combustion chamber are reduced |
| | Provide easier starting in cold weather |
Synergyn
Through our wholly-owned subsidiary, XenTx Lubricants, Inc. (formerly Dyson Properties), which was acquired effective January 1, 2007, we continue the sales and distribution of a 64 item product line known as Synergyn Racing, Synergyn Performance and Synergyn Lubricants. This product line was introduced over 20 years ago and has been improved as lubrication requirements have changed. With its focus on performance products, Synergyn sells many of its products to NASCAR, NHRA and similar racing organization participants.
XenTx Lube also manufactures private label products for a number of customers on a long-term contractual basis. Although some customers have unique formulas which XenTx Lube manufactures to their specifications, most customers utilize Synergyn’s formulas and package and rebrand these products for their customers’ use.
Lumea, Inc.
Through our wholly owned subsidiary Lumea Staffing, Inc., that was formed for purposes of implementing a roll-up strategy in the industrial (green) staffing space. Lumea currently has 26 offices in 10 states and manages approximately 4,000 temporary employees. The company currently has three subsidiaries: Lumea Staffing, Inc., Lumea Staffing of California, Inc., and Lumea Staffing of Illinois, Inc. The services available through Lumea Staffing include:
| ● | | Full service staffing with volume discounted rates |
| | Drug testing though our drug division, DOT Certified, Hair testing, DNA testing, Complete chain custody compliance, Certified results, multiple panel configurations available |
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| | Full range of Risk Management services that include Site Safety Evaluations, Early Intervention Programs, Safety Training, OSHA Compliance, Workers Compensation Premium Review, Case Management, Claims Review, Preferred Provider Networks, Back to Work Programs and Accident Investigation |
| | A full set of financial services products that improve recruiting and employee retentions |
| | Flu shots and CPR training for our Illinois clients |
Other Products
We have commenced shipping small quantities of XenTx spray lubricant, which is used as a general multi-purpose lubricant, and a transmission fluid that is a variation of the XenTx Extreme Engine Treatment and is primarily used for automatic transmissions. We may from time to time introduce additional products.
Sales and Marketing
Our objective is to market, sell and distribute our products in the most efficient, cost effective manner possible with our distribution channel strategy providing the widest range of customer coverage possible. We believe sales to automotive retailers through independent sales representatives affords us the best overall chance to gain and hold customers and allows us to control and maximize the product value chain benefits for us and the end-user.
We sell our products through retailers, auto parts suppliers, internet sales at our web sites: www.xentx.com, www.synergynracing.com and direct sales through sales representatives to commercial customers. We sell our retail and commercial product through our sales force of three and through independent sales representatives. Each sales representative tends to service one to a few retail outlets with which they have long term, strong relationships. Our compensation arrangement with these representatives is commission only.
Our products are currently sold in retail outlets in the United States and Canada. During the year ended March 31, 2009, no retailers accounted for more than 10% of our sales volume. These outlets include a variety of small independent retailers.
During the last three years, we have devoted substantial efforts to developing our sales force and retail distribution channels not only as an avenue to our original product, XenTx Extreme Engine Treatment, but for other products some of which are just now beginning to enter the marketplace.
We participate with retailers in advertising campaigns, marketing promotions and other direct and indirect marketing techniques to promote and sell the products. We expense the cost of these advertising efforts as incurred.
We also market our products directly to companies. These efforts include the sharing of laboratory and field trial test data, sponsorship of individual customer field trials, technical and non-technical communication through industry trade media with messages emphasizing fuel performance enhancement through technical innovation, fuel efficiency, maintenance cost savings, improved air quality and “no harm” to engine or environment product attributes.
We sell our complete line of staffing services utilizing our in-house national sales team. Each potential customer’s needs are thoroughly evaluated and our sales person creates a customized proposal. The Company’s senior management must sign and approve each proposal prior to it being submitted to the potential customer. We have been successful in that the majority of our customers establish long term relationships with us. Customers that have seasonal needs return year after year for us to fulfill their labor needs. In addition, our staffing company currently provides services to approximately 191 commercial/industrial customers and these are the same customers that we target to sell our high technology, fuel efficiency, emission reducing products. As a result we have completed our initial sales cross training and now have a total of 14 sales people on our national sales team.
Intellectual Property
The formula and composition of XenTx is proprietary to us and is safeguarded from disclosure through secrecy agreements with various parties. At least one of the components of the formula is covered by a patent that is owned by Dover Chemical Corporation (“Dover”). In addition, we have filed provisional patents on both diesel fuel additives as the first step in patenting both formulas.
We have obtained trademark registration of our marks XenTx and Clean Boost. Generally, these trademarks do not expire if we continue to use the trademarks and file the required periodic forms with the United States Patent and Trademark Office. With the acquisition of XenTx Lube we acquired both the trademark for Synergyn and all of the related formulas. None of the Synergyn formulas are patented.
Production and Manufacturing
With the acquisition of XenTx Lube we acquired our own manufacturing facilities. With this acquisition, the Company now has the ability to manufacture, package and distribute its products. The plant consists of approximately 54,000 sq. ft. of office, manufacturing and product storage located on approximately 5.03 acres in Durant, Oklahoma. The majority of the manufacturing process is blending various raw materials into a finished product based upon a specific formula and a customer purchase order.
Our XenTx Extreme Engine Treatment product is produced by Dover. We do not have a written agreement with Dover that requires us to place minimum orders or guarantees the delivery of certain quantities of product by Dover to us. If for any reason we lost the relationship with Dover, a disruption of the supply of our products could result until a substitute manufacturer was found. We have entered into a Secrecy Agreement with Dover pursuant to which that entity is required to safeguard the proprietary nature of the XenTx formula.
The Company now manufactures and packages its own products, therefore we assume substantially all of the risks associated with environmental, hazardous materials, and transportation of the products from our plant through delivery to the retailers.
We carry a product liability insurance policy for the losses customers might suffer as a result of proper use of our products. To date there have been no claims against this policy.
Research and Development
We continuously research new products and possible applications of our existing product and have a R&D consultant who devotes substantially all his time working on our projects.
Testing
We utilize two primary methods of testing: laboratory bench tests and field trials. We utilize both testing methods to further develop the body of test data necessary to support marketing and sales efforts. As we have matured, we have become aware of the importance of developing and managing specific testing protocols for field-based testing and adhering to already developed, industry recognized testing standards when engaged in laboratory bench tests. Numerous variables exist in any testing protocol, and if not carefully managed, one change in one variable could skew the test results. To address this challenge, a standardized testing and trial evaluation protocol has been developed. The use of this protocol allows us to:
| ● | | understand the size of the opportunity; |
| ● | | help prioritize available resources; |
| ● | | ensure approved testing is structured and conducted in a controlled way; and |
| ● | | ensure we will have full access to all testing results conducted by third parties. |
In addition to extensive field-based customer trials completed or under way, we have funded extensive laboratory bench testing at a well-known independent testing laboratory, Southwest Research Institute in San Antonio, Texas. Test results have confirmed the effectiveness of Clean Boost. In particular, Clean Boost achieved an average percent reduction in fuel consumption of approximately 3%. It also showed improved combustion efficiency, reduced ash formation and the virtual elimination of unburned carbon in the exhaust system and bottom ash.
The test was conducted using two identical tractors that hauled 48-foot flat beds with concrete ballast. Fuel consumption for each vehicle was measured during a baseline segment with commercially available #2 diesel fuel. Each of the test trucks vehicles accumulated 1,500 miles for conditioning prior to conducting of the test segment. Next, Clean Boost was added to the diesel fuel of the vehicles. This procedure resulted in measurable percentage differences in fuel consumption for each truck using fuel with the Clean Boost additive versus fuel without the additive as follows:
| | | | | % Improvement in Fuel Economy |
| | | Diesel Fuel | | Test Truck A | | Test Truck B | | Average of two trucks |
| | | | | | | | | |
| Test Segment | | Commercially available #2 diesel with Clean Boost | | 3.63% | | 2.49% | | 3.06% |
A second test was done by Southwest Research Institute regarding our low emission diesel fuel additive, Clean Boost-LE ™, with both Texas and EPA observers. The test required approximately 15 days of running on a certified diesel engine in a calibrated test cell. The results were then documented and presented to the Texas Low Emission Diesel Board which after review, submitted them to the EPA for their analysis. On March 26, 2007, the EPA certified that our product, Clean Boost LE ™, met the stringent emissions reduction requirements and the Company received its certification, #201920002CB-LE. In May 2008, the TCEQ reevaluated and implemented new standards and determined that our CB-LE meet all of the requirements without restrictions or retesting and issued its unconditional approval.
Fuel Efficient/Emission Reducing Technologies
Our business is a part of the wider industry that seeks to improve overall energy efficiency with a specific concentration on petroleum based energy sources. The industry is composed of a few relatively large companies and a large number of smaller, niche segment participants.
Industry participants’ products center around improved engine cleanliness and efficiency (for example, detergency characteristics applicable to fuel injector nozzles), improved fuel flow (for example, mitigation of fuel problems caused by low ambient temperature) and fuel system protection (for example, improved lubricity). These are common focus areas for the full range of gasoline and distillate fuels. Additives designed to address specific problem areas in specific fuel applications (for example, Cetane improver in diesel fuel) and static electricity dissipation in turbine engines are also significant.
There are many existing technologies that claim to have solved engine emissions problems from alternative fueled vehicles (electric cars, fuel cell vehicles, etc.) to engine magnets. Despite the vast amount of research that has been performed with the intention of solving emissions problems, we believe no single technology has yet to gain widespread acceptance from both the public (regulatory) and private sectors. The United States government and the governments of other countries have tried using economic incentives and tax breaks to promote the development of a variety of emissions reduction technologies. However, the base cost of many of these promotions, coupled with issues such as lack of appropriate infrastructure (for example, compressed natural gas storage and delivery systems) and technical limitations (for example, keeping alternative fuels emulsified, significant loss of power and fuel economy with current alternative fuels), currently makes market acceptance of many technologies and economic feasibility unlikely over the long term.
Our direct competitors include major oil and chemical companies, many of which have financial, technical and marketing resources significantly greater than ours. It is possible that developments by others will render our products obsolete or noncompetitive, that we will be not able to keep pace with new developments and that our products will not be able to supplant established products.
Some of our main competitors include the following:
Z-Max: a division of Speedway Motorsports, Inc. Z-Max is a widely recognized brand product has a retail shelf price of between $29.99 and $39.99. Speedway is a financially strong entity that markets Z-Max in a distinct package. In addition, Z-Max has significant signage at racetracks owned by Speedway.
DuraLube: although the company is currently in bankruptcy, there has been talk that an investor group may revive the company and its products. DuraLube is a recognized brand that holds shelf placement in major stores, including Wal-Mart.
Slick 50: is currently a Shell Lubricant Company product. The brand is owned by Shell Oil, a well capitalized company that has the ability to underwrite major advertising campaigns. Slick 50 is the leader in our product market that has significant shelf placement with all major retailers except Target.
As energy costs increase, and businesses are looking for ways to make energy products more efficient, competition within this sector itself is growing, so we will encounter competition from existing firms that offer competitive solutions in this area. These competitive companies could develop products that are superior to, or have greater market acceptance, than the products being developed and marketed by our company. We will have to compete against other companies with greater market recognition and greater financial, marketing and other resources.
Staffing
The light industrial staffing market is highly competitive with limited barriers to entry. We compete with several multi-national full-service companies, specialized temporary staffing companies, as well as local companies. The majority of temporary staffing companies serving the light industrial staffing market have local operations with fewer than five branches. In most geographic areas, no single company has a dominant share of the market. One or more of these competitors may decide at any time to enter or expand their existing activities in the temporary staffing market and provide new and increased competition to us. While entry to the market has limited barriers, lack of working capital frequently limits the growth of smaller competitors.
We believe that the primary competitive factors in obtaining and retaining customers are:
| ● | | The customer bill rates for temporary workers; |
| | The temporary employee pay rates; |
| | Attracting and retaining quality temporary workers; |
| | Deploying temporary employees on time and for the required duration; and |
| | The number and location of branches convenient to temporary employees and customer work sites. |
Competitive forces have historically limited our ability to raise our prices to immediately and fully offset increased costs of doing business, including increased labor costs, costs for workers’ compensation and state unemployment insurance. As a result of these forces, we have in the past faced pressure on our operating margins.
Government Regulations and Supervision
Government regulations across the globe regarding fuels are continually changing. Most regulation focuses on reducing fuel emissions. However, there is also growing concern about dependence on oil-based fuels. Fuels regulation exists at various levels of development and enforcement around the globe. In general, regulations to reduce harmful emissions and to reduce dependence on oil for fuel needs will only become more stringent. We believe this will be an advantage to us as our products’ benefits reduce fuel consumption and can peacefully co-exist with alternative fuel blends. As fuels regulatory compliance becomes more burdensome to fuel suppliers and users, we anticipate that demand for the benefits our products deliver will increase.
Since we now manufacture, store, and ship all of our products, we are required to be in compliance regarding all applicable environmental rules and regulations that regulate these types of activities. In addition, only our Clean Boost product requires governmental license as this substance is used in interstate trucking. In order for Clean Boost to be used in the United States, registration with the Environmental Protection Agency, or EPA, is required. In Fiscal Year 2007, we received EPA registration for one of our products and a EPA certification for the other product both of which are used in base fuels and fuel blends. We are also subject to similar international laws and regulations in the countries in which we operate, such as Canada and Mexico.
Employees
Our staff works for us on a consultant basis. Currently we have 5 such consultants, two of which are executives, one of which works in sales and two of which work in various administrative functions. At XenTx Lubricants there are 11 employees located in Durant, Oklahoma, which are divided into 2 management personnel, 3 administrators and 6 production personnel. These employees are paid on a weekly basis. The Lumea, Inc. group of companies involved in the industrial staffing business has approximately 85 direct and 2,600 temporary staff employees that work for the Company. None of our employees are represented by any labor union.
We are subject to a number of risks that could have a significant impact on the Company, its shareholders and lenders. Some of these are detailed below.
Change in Marketing and Sales Approach
We may experience a reduction in sales and marketing activity in our fuel efficiency emissions reducing technologies due to the Company’s significant change in the performance of these functions. In the year ended 2008, the Company has reduced its in house sales staff and is transitioning to an outside sales representative and an independent distributor strategy. We continue to try to implement the representative and distributor program and have been constrained by the lack of marketing funds. There can be no assurance that this strategy will not damage customer relationships as well as have a negative impact on revenues.
The loss of or a substantial reduction in, or change in the size or timing of, orders from distributors could harm our business.
The Company’s sales strategy is to establish long term contracts with independent sales representatives and fuel and lubrications distributors. Our goal is to convince the sales rep/distributor to invest a substantial amount of their resources into selling the Company’s products to both current and future customers. Although we believe we have established good relationships with these sales organizations, there can be no assurances that this sales strategy will be successful and that we can maintain a long term relationship with these companies.
We do not have long term commitments from our suppliers and manufacturers.
We may experience shortages of supplies and inventory because we do not have long-term agreements with our suppliers or manufacturers. The success of our Company is dependent on our ability to provide our customers with our products. Although we manufacture most of our products, we are dependent on our suppliers for component parts which are necessary for our manufacturing operations. In addition, certain of our present and future products and product components are (or will be) manufactured by third party manufacturers. Since we have no long-term contracts or other contractual assurances with these manufacturers for continued supply, pricing or access to component parts, no assurance can be given that such manufacturers will continue to supply us with adequate quantities of products at acceptable levels of quality and price. While we believe that we have good relationships with our suppliers and our manufacturers, if we are unable to extend or secure manufacturing services or to obtain component parts or finished products from one or more manufacturers on a timely basis and on acceptable terms, our results of operations could be adversely affected.
We face intense competition, and many of our competitors have substantially greater resources than we do.
We operate in a highly competitive environment. In addition, the competition in the market for fuel and engine enhancement additive products may intensify in the future as demands for greater efficiencies in vehicle mileage and pollutant reductions are demanded and legislated. There are numerous well-established companies and smaller entrepreneurial companies based in the United States with significant resources who are developing and marketing products and services that will compete with our products. In addition, many of our current and potential competitors have greater financial, operational and marketing resources. These resources may make it difficult for us to compete with them in the development and marketing of our products, which could harm our business.
Our success will depend on our ability to update our technology to remain competitive.
The engine and fuel additive industry is subject to technological change. As technological changes occur in the marketplace, we may have to modify our products in order to become or remain competitive. While we are continuing our research and development in new products in efforts to strengthen our competitive advantage, no assurances can be given that we will successfully implement technological improvements to our products on a timely basis, or at all. If we fail to anticipate or respond in a cost-effective and timely manner to government requirements, market trends or customer demands, or if there are any significant delays in product development or introduction, our revenues and profit margins may decline which could adversely affect our cash flows, liquidity and operating results.
We depend on market acceptance and recognition of the products of our customers. If our products do not gain market acceptance, our ability to compete will be adversely affected.
The fuel additive and engine additive industry is noted for manufacturing products that are ineffective and have no economic value. Although the Company has developed unique products that have been tested by independent testing and research facilities to verify the Company’s claims, there can be no assurance that these tests and related marketing materials will gain acceptance in the marketplace. If we cannot convince new customers to purchase our products, our revenues will be negatively affected.
Failure to meet customers’ expectations or deliver expected performance of our products could result in losses and negative publicity, which will harm our business.
If our products fail to perform in the manner expected by our customers, then our revenues may be delayed or lost due to adverse customer reaction, negative publicity about us and our products, which could adversely affect our ability to attract or retain customers. Furthermore, disappointed customers may initiate claims for substantial damages against us, regardless of our responsibility for such failure.
We may have difficulty managing our growth.
We have been experiencing significant growth in the scope of our operations and the number of our employees. This growth has placed significant demands on our management as well as our financial and operational resources. In order to achieve our business objectives, we anticipate that we will need to continue to grow. If this growth occurs, it will continue to place additional significant demands on our management and our financial and operational resources, and will require that we continue to develop and improve our operational, financial and other internal controls. Further, to date our business has been primarily in the United State, Canada and Mexico and were we to launch sales and distribution in other countries outside North America, we would further increase the challenges involved in implementing appropriate operational and financial systems, expanding manufacturing capacity and scaling up production, expanding our sales and marketing infrastructure and capabilities and providing adequate training and supervision to maintain high quality standards. The main challenge associated with our growth has been, and we believe will continue to be, product recognition, and effective marketing and advertising campaigns. Our inability to scale our business appropriately or otherwise adapt to growth would cause our business, financial condition and results of operations to suffer.
If we are unable to protect our intellectual property rights or our intellectual property rights are inadequate, our competitive position could be harmed or we could be required to incur expenses to enforce our rights.
Our future success will depend, in part, on our ability to obtain and maintain patent protection for our products and technology, to preserve our trade secrets and to operate without infringing the intellectual property of others. In part, we rely on patents to establish and maintain proprietary rights in our technology and products. While we hold licenses to a number of issued patents and have other patent applications pending on our products and technology, we cannot assure you that any additional patents will be issued, that the scope of any patent protection will be effective in helping us address our competition or that any of our patents will be held valid if subsequently challenged. Other companies also may independently develop similar products, duplicate our products or design products that circumvent our patents.
In addition, if our intellectual property rights are inadequate, we may be exposed to third-party infringement claims against us. Although we have not been a party to any infringement claims and are currently not aware of any anticipated infringement claim, we cannot predict whether third parties will assert claims of infringement against us, or whether any future claims will prevent us from operating our business as planned. If we are forced to defend against third-party infringement claims, whether they are with or without merit or are determined in our favor, we could face expensive and time-consuming litigation. If an infringement claim is determined against us, we may be required to pay monetary damages or ongoing royalties. In addition, if a third party successfully asserts an infringement claim against us and we are unable to develop suitable non-infringing alternatives or license the infringed or similar intellectual property on reasonable terms on a timely basis, then our business could suffer.
If we are required to further write down goodwill or identifiable intangible assets, the related charge could materially impact our reported net income or loss for the period in which it occurs.
We have recorded goodwill and intangibles in conjunction with the acquisition of the staffing business. We will perform annual reviews of each of these items for impairment. We did not record any such charges in 2009, the year of acquisition However, we continue to have approximately $8.9 million in goodwill on our balance sheet at March 31, 2009, as well as $3.7 million in identifiable intangible assets. As part of the analysis of goodwill impairment, SFAS No. 142, “Goodwill and Other Intangible Assets” (SFAS 142) requires the Company’s management to estimate the fair value of the reporting units on at least an annual basis. At December 31, 2008, we performed our annual goodwill and indefinite lived intangible assets impairment test and concluded that there was no further impairment of goodwill and intangible assets. In addition, at March 31, 2009, we determined that there were no events or changes in circumstances that indicated that the carrying values of other identifiable intangible assets subject to amortization may not be recoverable. We believe that our goodwill was not impaired at March 31, 2009. Although a future impairment of goodwill and identifiable intangible assets would not affect our cash flow, it would negatively impact our operating results.
If we are unable to meet customer demand or comply with quality regulations, our sales will suffer.
We own our own manufacturing, production and bottling plant in Durant Oklahoma. We manufacture and blend many of our products at this facility. In order to achieve our business objectives, we will need to significantly expand our capabilities to produce the quantities necessary to meet demand. We may encounter difficulties in scaling-up production of our products, including problems involving production capacity and yields, quality control and assurance, component supply and shortages of qualified personnel. In addition, our manufacturing facilities are subject to periodic inspections by governmental regulatory agencies. Our success will depend in part upon our ability to manufacture our products in compliance with regulatory requirements. Our business will suffer if we do not succeed in manufacturing our products on a timely basis and with acceptable manufacturing costs while at the same time maintaining good quality control and complying with applicable regulatory requirements.
Substantially all of our assets are secured under credit facilities with a group of lenders and in the event of default under the credit facility we may lose all of our assets.
The Company has entered into four separate financing arrangements whereby these lenders have collateralized their loans with substantially all of our assets. One of these loans is currently in default and both the lender and the Company are currently negotiating new terms and a resolution. If the default cannot be cured or any default on any other credit facility cannot be cured, the Company could lose all of its assets which would make it difficult to continue operations at our current facilities. The Company would be forced to move its operations and to find additional third party manufacturing, if possible, that would agree to produce our products at our current prices. Our business would suffer and our ability to raise any additional funds would be negatively impacted, both of which would impact our ability to continue in business.
We may not be able to secure additional financing to meet our future capital needs.
We anticipate needing significant capital to manufacture product, carry adequate inventory levels and continue or further develop our existing products and introduce new products, increase awareness of our brand names and expand our operating and management infrastructure as we grow sales. We may use capital more rapidly than currently anticipated. Additionally, we may incur higher operating expenses and generate lower revenue than currently expected, and we may be required to depend on external financing to satisfy our operating and capital needs. We may be unable to secure additional debt or equity financing on terms acceptable to us, or at all, at the time when we need such funding. If we do raise funds by issuing additional equity or convertible debt securities, the ownership percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which would result in dilution to our existing stockholders. If we raise additional funds by issuing debt, we may be subject to debt covenants, such as the debt covenants under our secured credit facility, which could place limitations on our operations including our ability to declare and pay dividends. Our inability to raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative impact on our business, financial condition and results of operations.
If we cannot build and maintain strong brand loyalty our business may suffer.
We believe that the importance of brand recognition will increase as more companies produce competing products. Development and awareness of our brands will depend largely on our ability to advertise and market successfully. If we are unsuccessful, our brands may not be able to gain widespread acceptance among consumers. Our failure to develop our brands sufficiently would have a material adverse effect on our business, results of operations and financial condition.
Economic conditions may cause reduced demand for staffing services.
The current recession has negatively affected our customers and our business, and could continue to negatively affect our customers and materially adversely affect our results of operations and liquidity.
The current recession is having a significant negative impact on businesses around the world. The full impact of this recession on our customers, especially our customers engaged in construction, cannot be predicted and may be quite severe. These and other economic factors, such as consumer demand, unemployment, inflation levels and the availability of credit could have a material adverse effect on demand for our services and on our financial condition and operating results. We sell our services to a large number of small and mid-sized businesses and these businesses have been and are more likely to be impacted by unfavorable general economic and market conditions than larger and better capitalized companies. If our customers cannot access credit to support increased demand for their product or if demand for their products declines, they will have less need for our services.
Competition for customers in the staffing markets we serve is intense, and if we are not able to effectively compete, our financial results could be harmed and the price of our securities could decline.
The temporary services industry is highly competitive, with limited barriers to entry. Several very large and mid-sized full-service and specialized temporary labor companies, as well as small local operations, compete with us in the staffing industry. Competition in the markets we serve is intense and these competitive forces limit our ability to raise prices to our customers. For example, competitive forces have historically limited our ability to raise our prices to immediately and fully offset increased costs of doing business, including increased labor costs, costs for workers’ compensation and state unemployment insurance. As a result of these forces, we have in the past faced pressure on our operating margins. Pressure on our margins remains intense, and we cannot assure you that it will not continue. If we are not able to effectively compete in the staffing markets we serve, our operating margins and other financial results will be harmed and the price of our securities could decline.
If we are not able to obtain or maintain insurance on commercially reasonable terms, our financial condition or results of operations could suffer.
We maintain various types of insurance coverage to help offset the costs associated with certain risks to which we are exposed. We have previously experienced, and could again experience, changes in the insurance markets that result in significantly increased insurance costs and higher deductibles. For example, we are required to pay workers’ compensation benefits for our temporary and permanent employees. While we have secured coverage with AIG Holdings, Inc. for occurrences during the period from March 2009 to March 2010, our insurance policies must be renewed annually, and we cannot guarantee that we will be able to successfully renew such policies for any period after March 2010. In the event we are not able to obtain workers’ compensation insurance, or any of our other insurance coverages, on commercially reasonable terms, our ability to operate our business would be significantly impacted and our financial condition and results of operations could suffer. If our financial results deteriorate, our insurance carrier may accelerate our premium payments or require all premiums to be paid in one initial payment. Such a change in our insurance payment terms could impact our available cash, and our financial condition or operations could suffer.
Our reserves for workers’ compensation claims, other liabilities, and our allowance for doubtful accounts may be inadequate, and we may incur additional charges if the actual amounts exceed the estimated amounts.
We incur and process workers’ compensation claims for those claims for small or routine injuries and our risk management and medical staff process these claims. For more complex or extensive injuries the claims are immediately turned over to the insurance carrier. We will evaluate losses and coverage regularly throughout the year and make adjustments accordingly. If actual losses under our workers’ compensation policy exceed anticipated losses the Company may be subject to increased premiums or cancelation of the policy. We have established an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments. Although we continually review the financial strength and credit worthiness of our customers and make necessary adjustments when indicated, if the financial condition of our customers were to deteriorate, resulting in an impairment of their ability to make payments, we may incur additional losses.
Our operations expose us to the risk of litigation which could lead to significant potential liability and costs that could harm our business, financial condition or results of operations.
We are in the business of employing people and placing them in the workplaces of other businesses. As a result, we are subject to a large number of federal and state laws and regulations relating to employment. This creates a risk of potential claims that we have violated laws related to discrimination and harassment, health and safety, wage and hour laws, criminal activity, personal injury and other claims. We are also subject to other types of claims in the ordinary course of our business. Some or all of these claims may give rise to litigation, which could be time-consuming for our management team, costly and harmful to our business.
We are continually subject to the risk of new regulation, which could harm our business.
Each year a number of bills are introduced to Federal, State, and local governments, any one of which, if enacted, could impose conditions which could harm our business. This proposed legislation has included provisions such as a requirement that temporary employees receive equal pay and benefits as permanent employees, requirements regarding employee health care, and a requirement that our customers provide workers’ compensation insurance for our temporary employees. We actively oppose proposed legislation adverse to our business and inform policy makers of the social and economic benefits of our business. However, we cannot guarantee that any of this legislation will not be enacted, in which event demand for our service may suffer.
The cost of compliance with government laws and regulations is significant and could harm our operating results.
We incur significant costs to comply with complex federal, state, and local laws and regulations relating to employment, including occupational safety and health provisions, wage and hour requirements (including minimum wages), workers’ compensation unemployment insurance, and immigration. In addition, from time to time we are subject to audit by various state and governmental authorities to determine our compliance with a variety of these laws and regulations. We may, from time to time, incur fines and other losses or negative publicity with respect to any such allegations. If we incur additional costs to comply with these laws and regulations or as a result of fines or other losses and we are not able to increase the rates we charge our customers to fully cover any such increase, our margins and operating results may be harmed.
Our credit facility requires that we meet certain levels of financial performance. In the event we fail either to meet these requirements or have them waived, we may be subject to penalties and we could be forced to seek additional financing.
We have a revolving credit agreement with certain unaffiliated financial institutions (the “Credit Facility”) that expires in March 2010. The Credit Facility requires that we comply with certain financial covenants. Among other things, these covenants require us to maintain certain leverage and coverage ratios. Deterioration of our financial results would make it harder for us to comply with these financial covenants. We cannot be assured that our lenders would consent to any modifications on commercially reasonable terms in the future. In the event that we do not comply with the covenants and the lenders do not waive such non-compliance, then we will be in default of the Credit Facility, which could subject us to penalty rates of interest and accelerate the maturity of the outstanding balances. Accordingly, in the event of a default under the Credit Facility, we could be required to seek additional sources of capital to satisfy our liquidity needs. These additional sources of financing may not be available on commercially reasonable terms, or at all.
We have significant working capital requirements.
We require significant working capital in order to operate our business. We may experience periods of negative cash flow from operations and investment activities, especially during seasonal peaks in revenue experienced in the second and third quarter of the year. We invest significant cash into the opening and operations of new branches until they begin to generate revenue sufficient to cover their operating costs. We also pay our temporary employees before customers pay us for the services provided. As a result, we must maintain cash reserves to pay our temporary employees prior to receiving payment from our customers. Our collateral requirements may increase in future periods, which would decrease amounts available for working capital purposes. If our available cash balances and borrowing base under our existing credit facility do not grow commensurate with the growth in our working capital requirements, or if our banking partners experience cash shortages or are unwilling to provide us with necessary cash, we could be required to explore alternative sources of financing to satisfy our liquidity needs.
Our management information and computer processing systems are critical to the operations of our business and any failure, interruption in service, or security failure could harm our ability to effectively operate our business.
The efficient operation of our business is dependent on our management information systems. We rely heavily on our management information systems to manage our order entry, order fulfillment, pricing, and point-of-sale processes. The failure of our management information systems to perform as we anticipate could disrupt our business and could result in decreased revenue, increased overhead costs and could require that we commit significant additional capital and management resources to resolve the issue, causing our business and results of operations to suffer materially. Failure to protect the integrity and security of our customers’ and employees’ information could expose us to litigation and materially damage our standing with our customers.
Our business would suffer if we could not attract enough temporary employees or skilled trade workers.
We compete with other temporary personnel companies to meet our customer needs and we must continually attract reliable temporary employees to fill positions. In certain geographic areas of the United States the predecessor has experienced short-term worker shortages and we may continue to experience such shortages in the future. If we are unable to find temporary employees or skilled trade workers to fulfill the needs of our customers over an extended period of time, we could lose customers and our business could suffer.
Failure in our pursuit or execution of new business ventures, strategic alliances and acquisitions could have a material adverse impact on our business.
Our long-term growth strategy includes expansion via new business ventures and acquisitions. While we employ several different valuation methodologies to assess a potential growth opportunity, we can give no assurance that new business ventures and strategic acquisitions will positively affect our financial performance. Acquisitions may result in the diversion of our capital and our management’s attention from other business issues and opportunities. Unsuccessful acquisition efforts may result in significant additional expenses that would not otherwise be incurred. We may not be able to assimilate or integrate successfully companies that we acquire, including their personnel, financial systems, distribution, operations and general operating procedures. If we fail to assimilate or integrate acquired companies successfully, our business could suffer materially. In addition, we may not realize the revenues and cost savings that we expect to achieve or that would justify the acquisition investment, and we may incur costs in excess of what we anticipate. We may also encounter challenges in achieving appropriate internal control over financial reporting in connection with the integration of an acquired company. In addition, the integration of any acquired company, and its financial results, into ours may have a material adverse effect on our operating results.
We are highly dependent on the cash flows and net earnings we generate during our second and third fiscal quarters.
A majority of our cash flow from operating activities is generated during the 2nd and 3rd quarters which include the summer months. Unexpected events or developments such as natural disasters, manmade disasters and adverse economic conditions in our second and third quarter could have a material adverse effect on our operating cash flows.
Risks Relating To Our Common Stock
There is a limited public trading market for our common stock.
Our Common Stock presently trades on the Over the Counter Bulletin Board under the symbol “GNPG:OB.” We cannot assure you, however, that such market will continue or that you will be able to liquidate your shares acquired at the price you paid or otherwise. We also cannot assure you that any other market will be established in the future. The price of our common stock may be highly volatile and your liquidity may be adversely affected in the future.
We have a substantial number of shares authorized but not yet issued.
Our Articles of Incorporation authorize the issuance of up to 250,000,000 shares of common stock and 1,000,000 preferred capital shares. Our Board of Directors has the authority to issue additional shares of common stock and to issue options and warrants to purchase shares of our common stock without stockholder approval. Future issuance of common stock and preferred stock could be at values substantially below current market prices and therefore could represent further substantial dilution to our stockholders. In addition, the Board could issue large blocks of voting stock to fend off unwanted tender offers or hostile takeovers without further shareholder approval.
We have historically not paid dividends and do not intend to pay dividends.
We have historically not paid dividends to our stockholders and management does not anticipate paying any cash dividends on our common stock to our stockholders for the foreseeable future. The Company intends to retain future earnings, if any, for use in the operation and expansion of our business.
| UNRESOLVED STAFF COMMENTS |
Smaller reporting companies are not required to provide the information required by this item.
The Company owns its operating plant and facilities in Durant Oklahoma. This property consists of 5.03 acres of land with three buildings totaling 53,459 square feet of industrial and office space. The property is subject to a first mortgage loan of approximately $807,062. This facility is the Company’s blending, bottling and distribution center for its XenTx and Synergyn products. The Company also leases 2,800 square feet of office space in Scottsdale Arizona for its corporate offices at an annual rental of $48,964 increasing annually to $54,384 in 2012. The staffing company also leases office space of 3,100 square feet, also located in Scottsdale, Arizona at an annual rate of $83,676. In addition, the company also leases 27 small offices throughout the U.S. at an annual cost of approximately $485,000.
| SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
No matters were submitted for shareholders vote during the fourth quarter.
| MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Market Information
Our common stock has been traded on the Over the Counter Bulletin Board under the symbol EMHD:OB since February 9, 2007. Since April 8, 2006, our stock has been trading on the Pink Sheets. On July 8, 2009, our stock symbol was changed to GNPG:OB.
The following is the range of high and low bid prices for our common stock for the periods indicated:
| | | Bid Prices |
| | | High | | Low |
| | | | | | | | | |
| Quarter ended June 30, 2007 | | $ | 0.95 | | | $ | 0.14 | |
| Quarter ended September 30, 2007 | | $ | 0.44 | | | $ | 0.06 | |
| Quarter ended December 31, 2007 | | $ | 0.25 | | | $ | 0.06 | |
| Quarter ended March 31, 2008 | | $ | 0.35 | | | $ | 0.13 | |
| Quarter ended June 30, 2008 | | $ | 0.43 | | | $ | 0.18 | |
| Quarter ended September 30, 2008 | | $ | 0.23 | | | $ | 0.06 | |
| Quarter ended December 31, 2008 | | $ | 0.08 | | | $ | 0.02 | |
| Quarter ended March 31, 2009 | | $ | 0.09 | | | $ | 0.03 | |
| Quarter ended June 30, 2009 | | $ | 0.10 | | | $ | 0.02 | |
Bid quotations represent interdealer prices without adjustment for retail markup, markdown and/or commissions and may not necessarily represent actual transactions.
Stockholders
As of July 10th, 2009, the number of stockholders of record was approximately 1,400.
Dividends
We have not paid any dividends on our common stock, and we do not anticipate paying any dividends in the foreseeable future. Our Board of Directors intends to follow a policy of retaining earnings, if any, to finance the growth of the Company. The declaration and payment of dividends in the future will be determined by our Board of Directors in light of conditions then existing, including the Company’s earnings, financial condition, capital requirements and other factors.
Securities Authorized for Issuance under Equity Compensation Plans
In March 2008, the Company issued 5,415,000 stock options to employees, directors and consultants. One third of which each become vested on October 1, 2008, April 1, 2009 and October 1, 2009 provided the participant’s continue service to the Company. The options are exercisable for three years from the grant date. At March 31, 2009, 450,000 of the original options had been forfeited and no options have been exercised.
Equity Compensation Plan Information
| Plan category | | Number of securities to be issued upon exercise of outstanding options, warrants and rights | | Weighted-average exercise price of outstanding options, warrants and rights | | Number of securities remaining available for future issuance under equity compensation plans excluding securities reflected in column (a) |
| | | (a) | | (b) | | (c) |
| | | | | | | |
Equity compensation plans approved by security holders | | 0 | | 0 | | 0 |
| | | | | | | |
Equity compensation plans not approved by security holders | | 4,965,000 | | $0.20 | | 15,293,354 |
| | | | | | | |
| Total | | 4,965,000 | | $0.20 | | 15,293,354 |
____________
| (1) | The options were issued pursuant to a Registration Statement on Form S-8 filed by the Company. |
Recent Sales of Unregistered Securities.
None.
Smaller reporting companies are not required to provide the information required by this item.
| MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
In addition to historical information, this section contains “forward-looking” statements, including statements regarding the growth of product lines, optimism regarding the business, expanding sales and other statements. Words such as expects, anticipates, intends, plans, believes, sees, estimates and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks and uncertainties that are difficult to predict. Actual results could vary materially from the description contained herein due to many factors including continued market acceptance of our products. In addition, actual results could vary materially based on changes or slower growth in the fuel additive products market; the potential inability to realize expected benefits from new products and products under development; domestic and international business and economic conditions; changes in the petroleum industry; unexpected difficulties in penetrating the commercial and industrial markets for our products; changes in customer demand or ordering patterns; changes in the competitive environment including pricing pressures or technological changes; technological advances; shortages of manufactured raw material and manufacturing capacity; future production variables impacting excess inventory and other risk factors listed in the section of this Annual Report entitled “Risk Factors” and from time to time in our Securities and Exchange Commission filings under “risk factors” and elsewhere.
Each forward-looking statement should be read in context with, and with an understanding of, the various disclosures concerning our business made elsewhere in this Annual Report, as well as other public reports filed by us with the Securities and Exchange Commission. Readers should not place undue reliance on any forward-looking statement as a prediction of actual results of developments. Except as required by applicable law or regulation, we undertake no obligation to update or revise any forward-looking statement contained in this Annual Report. This section should be read in conjunction with our consolidated financial statements.
RESULTS OF OPERATIONS
The following table sets forth our results of operations for the years ended March 31, 2009 and 2008 as a percentage of net sales:
| | | | 2009 | | 2008 |
| | | | | | | | |
| NET SALES | | | 100.0 | % | | 100.0 | % |
| | | | | | | | |
| COST OF SALES | | | 76.7 | % | | 47.1 | % |
| | | | | | | | |
| GROSS PROFIT | | | 23.3 | % | | 52.9 | % |
| | | | | | | | |
| OPERATING EXPENSES | | | | | | | |
| Selling, general and administrative | | | 41.4 | % | | 97.4 | % |
| Depreciation and amortization | | | 3.4 | % | | 8.9 | % |
| Allowance for bad debts | | | 10.6 | % | | 0.0 | % |
| Research and development | | | 0.0 | % | | 4.3 | % |
| | | | | | | | |
| TOTAL OPERATING EXPENSES | | | 55.4 | % | | 110.6 | % |
| | | | | | | | |
(Continued)
| | | | 2009 | | 2008 |
| | | | | | | | |
| LOSS FROM OPERATIONS | | | (32.0) | % | | (57.7) | % |
| | | | | | | | |
| Other income (expense) | | | 0.0 | % | | 0.0 | % |
| Interest expense | | | 2.9 | % | | (76.7) | % |
| | | | | | | | |
| LOSS BEFORE INCOME TAXES | | | (29.1) | % | | (134.4) | % |
| Income tax benefit | | | 0.0 | % | | 0.0 | % |
| | | | | | | | |
| NET INCOME (LOSS) | | | (29.1) | % | | (134.4) | % |
Year ended March 31, 2009 as compared to year ended March 31, 2008
Net Sales: Net Sales increased from $2,769,949 in 2008 to $9,170,794 in 2009 or an increase of $6,400,845. This represents an increase of 231% over the prior year. This increase was due to improved XenTx sales to the commercial/industrial market and the increase in Dyson sales. During the fourth quarter of 2009 sales for Lumea were $5,784,408. Also, the company reduced its emphasis on retail sales and concentrated on the commercial/industrial market, particularly with long haul trucking fleets and large earth moving equipment companies.
Gross Margin: Gross Margin decreased to 23.3% from 52.9% or a decrease of 29.6%. This was due to increased petroleum based product costs used by the Dyson product mix and the impact of lower margins from our staffing companies.
Selling, General and Administrative Expenses: The Company increased its SG &A from $2,696,507 to $3,798,290 or an increase of $1,101,783. This was due to the increase in consulting costs and sales and promotional expenses and the acquisition of the staffing sales team.
Research and Development: The expense for research and development was reduced from $118,546 to $0 or a reduction of $118,546. This was due to our decision to delay all product development and testing until the next year and allow more funds to be directed to inventory and receivables as a result of increase sales demand.
IMPACT OF INFLATION
Inflation has not had a material effect on our results of operations. We expect the cost of petroleum base products to track the increase and decrease in the worldwide oil prices.
SEASONALITY
The seasons of the year have no material impact on the Company’s fuel efficiency/emission reducing products or services but it does have an impact on both revenues and margin of our staffing companies. Revenues are lowest in the first calendar quarter and largest in the third calendar quarter.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
We have experienced net losses and negative cash flows from operations and investing activities for the fiscal years 2009 and 2008. The aggregate net losses for the last two fiscal years aggregated $2,672,370 and $3,722,529, respectively, resulting in a decreased loss in the current year of $1,050,159. Contributing factors to the 2009 results of operations were an increase in the allowance for bad debts of $970,501, an increase in selling, general and administrative expenses of $1,100,783, offset by $2,127,500 from the issuance of stock for services and interest and stock option expense of $358,362 compared to only $301,722 for stock issue for services in 2008 and the credit to interest expense for the year of $1,151,045 from the reduction in the derivative liability for the year. Therefore, on a net cash basis, the selling, general and administrative expenses declined from $2,394,785 to $1,312,428, or a deduction of 45%. We have funded our operations to date by borrowings from third parties and investors, a substantial portion of which are convertible into our common stock. In fiscal 2008, we completed a long-term debt financing in the gross amount of $1,469,482 and sales of common stock of $1,115,312. The inability of the Company to raise capital through the private sale of common stock or through the issuance of debt instruments at acceptable prices and in a timely manner will have a negative impact on the results of operations and viability of the Company.
At March 31, 2009, the Company does not have any significant commitments for capital expenditures. The Company is discussing with potential customers the manufacturing and delivery logistics and depending on the results of such negotiations, the Company may be required to expand its manufacturing capabilities. We have no special purpose entities or off balance sheet financing arrangements, commitments, or guarantees other than certain long-term operating lease arrangements for our corporate facilities and short-term purchase order commitments to our suppliers.
At March 31, 2009, the Company aggregate of accounts payable, accrued liabilities and notes due within one year has increased by $12,676,920 from $4,424,713. These obligations together with operation costs will have to be funded from operations and additional funding from debt and equity offerings.
The Company’s cost of raw materials is highly dependent on the cost of petroleum products and synthetic materials. To the extent that such prices fluctuate significantly the Company may be unable to adjust sales prices to reflect cost increased and secondarily price increases may negatively influence sales.
OFF BALANCE SHEET ARRANGEMENTS
Not applicable.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation - The consolidated financial statements include the accounts of Green Planet Group, Inc. and its consolidated subsidiaries and wholly-owned limited liability company. The financial statements for the year ended March 31, 2009 include the operations of Lumea since March 1, 2009. All significant intercompany transactions and profits have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with United States generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, derivative liabilities, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ significantly from these estimates.
Cash Equivalents - The Company invests its excess cash in short-term investments with various banks and financial institutions. Short-term investments are cash equivalents, as they are part of the cash management activities of the company and are comprised of investments having maturities of three months or less when purchased.
Allowance for Doubtful Accounts - The Company provides an allowance for doubtful accounts when management estimates collectibility to be uncertain. Accounts receivable are continually reviewed to determine which, if any, accounts are doubtful of collection. In making the determination of the appropriate allowance amount, the Company considers current economic and industry conditions, relationships with each significant customer, overall customer credit-worthiness and historical experience. The allowance for doubtful accounts was $806,846 and $41 at March 31, 2009 and 2008.
Inventories - Inventories are stated at the lower of cost or market value. Cost of inventories is determined by the first-in, first-out (FIFO) method. Obsolete or abandoned inventories are charged to operations in the period that it is determined that the items are not longer viable sales products.
Property, Plant, and Equipment - Plant and equipment are carried at cost. Repair and maintenance costs are charged against operations while renewals and betterments are capitalized as additions to the related assets. The Company depreciates its plant and equipment and computers on a straight line basis. Estimated useful life of the plant is 39.5 years and the equipment ranges from 3 to 10 years.
Intangible Assets - Intangible assets consist of patents, trademarks, government approvals and customer relationships (including client contracts). For financial statement purposes, identifiable intangible assets with a defined life are being amortized using the straight-line method over the estimated useful lives of 7 years for the EPA license and 5 years for the customer relationships. Costs incurred by the Company in connection with patent, trademark applications and approvals from governmental agencies such as the Environmental Protection Agency, including legal fees, patent and trademark fees and specific testing costs, are expensed as incurred. Purchased intangible costs of completed developments are capitalized and amortized over an estimated economic life of the asset, generally 7 years. commencing on the acquisition date. Costs subsequent to the acquisition date are expensed as incurred.
Goodwill - Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill and other intangible assets having an indefinite useful life are not amortized for financial statement purposes. The Company performs an annual impairment test each year and in the event that facts and circumstances indicate that goodwill and other identifiable intangible assets may be impaired, an interim impairment test would be required. The Company’s testing approach will utilize a discounted cash flow analysis to determine the fair value of its reporting units for comparison to their corresponding book values. If the book value exceeds the estimated fair value for a reporting unit, a potential impairment is indicated and Statement of Financial Accounting Standard (SFAS) No. 142, “Goodwill and Other Intangible Assets,” prescribes the approach for determining the impairment amount, if any.
Impairment of Long-Lived Assets - In accordance with the Statement of Financial Accounting Standards No. 144 (“FAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews long-lived assets, including, but not limited to, property and equipment, patents and other assets, for impairment annually or whenever events or changes in circumstances indicate the carrying amounts of assets may not be recoverable. The carrying value of long-lived assets is assessed for impairment by evaluating operating performance and future undiscounted cash flows of the underlying assets. If the sum of the expected future cash flows of an asset is less than its carrying value, an impairment measurement is required. Impairment charges are recorded to the extent that an asset’s carrying value exceeds fair value. Accordingly, actual results could vary significantly from such estimates. There were no impairment charges during the periods presented.
Fair Value Disclosures - The carrying values of cash, accounts receivable, deposits, prepaid expenses, accounts payable and accrued expenses generally approximate the respective fair values of these instruments due to their current nature.
The fair values of debt instruments for disclosure purposes only are estimated based upon the present value of the estimated cash flows at interest rates applicable to similar instruments.
The Company generally does not use derivative financial instruments to hedge exposures to cash flow or market risks. However, certain other financial instruments, such as warrants and embedded conversion features that are indexed to the Company’s common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.
Revenue Recognition - Revenues are recognized at the time of shipment of products to customers, or at the time of transfer of title, if later, and when collection is reasonably assured. All amounts in a sales transaction billed to a customer related to shipping and handling are reported as revenues. Staffing revenue is recognized for work performed at the completion of the work week and the client is billed.
Provisions for sales discounts and rebates to customers are recorded, based upon the terms of sales contracts, in the same period the related sales are recorded, as a deduction to the sale. Sales discounts and rebates are offered to certain customers to promote customer loyalty and encourage greater product sales.
Components of Cost of Sales - Cost of sales is comprised of raw material costs including freight and duty, inbound handling costs associated with the receipt of raw materials, contract manufacturing costs, third party bottling and packaging, maintenance and storage costs, plant and engineering overhead allocation, terminals and other warehousing costs, and handling costs. Lumea’s cost of goods sold is comprised of gross labor and related payroll taxes and fees.
Selling Expenses - Included in selling and general administrative expenses are the commission expenses for both employees and outside sales representatives ranging from 1.5% to 11.5% per dollar of sales. The Company expends significant amounts to advertise and distinguish its products from those of its competitors through the use of in-store advertising, printed media, internet and broadcast media. Lumea’s sales staff is compensated with a base pay plus commissions on new business developed.
Research, Testing and Development - Research, testing and development costs are expensed as incurred. Research and development expenses, including testing, were $0 and $118,546 for the years ended March 31, 2009 and 2008, respectively. Costs to acquire in-process research and development (IPR&D) projects that have no alternative future use and that have not yet reached technological feasibility at the date of acquisition are expensed upon acquisition.
Income Taxes - We provide for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of the assets and liabilities.
The recording of a net deferred tax asset assumes the realization of such asset in the future; otherwise a valuation allowance must be recorded to reduce this asset to its net realizable value. The Company considers future pretax income and, if necessary, ongoing prudent and feasible tax planning strategies in assessing the need for such a valuation allowance. In the event that the Company determines that it may not be able to realize all or part of the net deferred tax asset in the future, a valuation allowance for the deferred tax asset is charged against income in the period such determination is made. The Company has recorded full valuation allowances as of March 31, 2009 and 2008.
Concentrations of Credit Risks - Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Although the amount of credit exposure to any one institution may exceed federally insured amounts, the Company limits its cash investments to high-quality financial institutions in order to minimize its credit risk. With respect to accounts receivable, such receivables are primarily from distributors and retailers located in the United States and foreign distributors. The Company extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables is dependent on each customer’s financial condition. At March 31, 2009, no client accounted for more that 10% of accounts receivable.
Segment Information
We operate in two industry segments, the development, manufacture and sale of private and commercial vehicle energy efficient enhancement products and the industrial staffing areas. The products are designed to extend engine life, promote fuel efficiency and reduce emissions. During the years ended At March 31, 2009 and 2008, these products were being marketed by the Company and sales were predominantly in the United States of America, Nigeria and Canada. The staffing industry revenues in 2009 were from the United States of America.
New accounting pronouncements:
GAAP Hierarchy
In May 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” GPG does not expect the adoption of SFAS No. 162 to have a material effect on its results of operations and financial position.
Convertible Debt
In May 2008, the FASB issued Financial Statement Position (FSP) Accounting Principles Board (APB) 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis and will be adopted by GPG in the first quarter of fiscal 2010. GPG is currently evaluating the potential impact, if any, of the adoption of FSP APB 14-1 on its results of operations and financial position.
Non-controlling Interests
In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements — an amendment of Accounting Research Bulletin No. 51.” SFAS No. 160 establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest, and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. SFAS No. 160 also establishes disclosure requirements that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008 and will be adopted by the Company in the first quarter of fiscal 2010. We do not expect the adoption of SFAS No. 160 to have a material effect on its results of operations and financial position.
Fair Value Option
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities — Including an Amendment of FASB Statement No. 115,” which permits an entity to measure many financial assets and financial liabilities at fair value that are not currently required to be measured at fair value. Entities that elect the fair value option will report unrealized gains and losses in earnings at each subsequent reporting date. The fair value option may be elected on an instrument-by-instrument basis, with few exceptions. SFAS No. 159 amends previous guidance to extend the use of the fair value option to available-for-sale and held-to-maturity securities. The statement also establishes presentation and disclosure requirements to help financial statement users understand the effect of the election. This statement is effective for fiscal years beginning after November 15, 2007. GPG has not elected to adopt the provisions of SFAS No. 159 and will evaluate its adoption in future periods.
Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS No. 157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement applies under other accounting pronouncements that require or permit fair value measurement where the FASB has previously determined that under those pronouncements fair value is the appropriate measurement. This statement does not require any new fair value measurements but may require companies to change current practice. This statement is effective for fiscal years beginning after November 15, 2007. GPG has adopted the provisions of SFAS No. 157 and its adoption has not had a material effect on our results of operations and financial position.
Defined Benefit Pension and Other Postretirement Plans
Litigation - The Company is and may become a party in routine legal actions or proceedings in the ordinary course of its business. The Company is a defendant in one case for the payment of advertising costs in which the Company does not believe that the services were adequately performed. Management does not believe that the outcome of these routine matters will have a material adverse effect on the Company’s consolidated financial position or results of operations.
Environmental - The Company’s operations are subject to extensive federal, state and local laws, regulations and ordinances in the United States relating to the generation, storage, handling, emission, transportation and discharge of certain materials, substances and waste into the environment, and various other health and safety matters. Governmental authorities have the power to enforce compliance with their regulations, and violators may be subject to fines, injunctions or both. The Company must devote substantial financial resources to ensure compliance, and it believes that it is in substantial compliance with all the applicable laws and regulations.
| QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Smaller reporting companies are not required to provide the information required by this item.
| FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
The Financial Statements that constitute Item 8 are included at the end of this report beginning on Page F-1.
| CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
Disclosure Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this annual report, being March 31, 2009, we carried out an evaluation of the effectiveness of the design and operation of our Company’s disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our company’s management, including our company’s Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, our Company’s Chief Executive Officer concluded that our Company’s disclosure controls and procedures were effective as of March 31, 2009. There has been no change in our internal controls over financial reporting that occurred during our last fiscal quarter ended March 31, 2009 that has materially affected, or is reasonably likely to materially affect our internal controls over financial reporting.
Disclosure controls and procedures and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time period specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in the Company’s internal controls over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.
Management’s Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate control over financial reporting. In order to evaluate the effectiveness of internal control over financial reporting as required by Section 404 of the Sarbanes-Oxley Act, management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that our Company’s internal control over financial reporting was effective as of March 31, 2009.
As a result of the acquisition on March 1, 2009, we were unable to implement all of the internal controls necessary to convert what had been a privately held company to a public subsidiary. Management is committed to improving the internal controls of this acquisition and will continue to implement such changes as are necessary to bring this subsidiary into compliance with appropriate internal controls. Due to the nature of these weaknesses and additional procedures performed, management has concluded that the likelihood that a material misstatement of the annual financial statements is remote.
Our Company’s management, including our Chief Executive Officer and Chief Accounting Officer, does not expect that our Company’s disclosure controls and procedures or our Company’s internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of the controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected.
This annual report does not include an attestation report of our Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit our Company to provide only management’s report in this annual report.
| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT |
The following persons are our executive officers and directors as of the date hereof:
| Name | | Age | | Position |
| | | | | |
| Edmond Lonergan | | 63 | | Chairman, President |
| James Marshall | | 64 | | Chief Financial Officer, Secretary, Director |
| Kenneth Bennett | | 50 | | Director |
| Edward Miller | | 66 | | Director |
| Pat Choate | | 68 | | Director |
The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee, indicating the principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out.
Edmond Lonergan has been our Chief Executive Officer and a director since March 2006 and the President and Chief Executive Officer of EMTA Corp. since October 2004. He is also the founder of and, since 1996, has been active at Corporate Architects, Inc., a Scottsdale, Arizona-based consulting firm that provides mergers and acquisitions advice to public and private companies. Corporate Architects has extensive experience in reverse mergers, investment banking, and business and management consulting. Prior thereto he was involved in various capacities at a number of companies in the financial services, electronics and data processing industries.
James Marshall has been our Chief Financial Officer since June 2006. Mr. Marshall has held certain accounting licensure from the states of Arizona, Michigan, California, Illinois and Florida. Mr. Marshall has been a director of REIT Americas, Inc. since August 2005 and Chief Financial Officer since March of 2007. He has and continues to be the chief financial officer for Safepay Solutions, Inc. since March of 2006. Mr. Marshall was chief financial officer for Bronco Energy Fund, Inc. from December 2004 through April 2006, and a director and chairman of the audit committee of Fidelis Energy, Inc. from October 2003 through February 2005. Mr. Marshall was the founder and chief executive officer of Residential Resources Mortgage Investments Corporation, RRR AMEX, a mortgage based REIT with assets in excess of $400 million and a staff of 42. Prior to March 1985, Mr. Marshall was the National Finance Partner for Kenneth Leventhal & Company and was Managing Partner of that firms Phoenix Office for five years. Career experiences include responsibilities for major land acquisitions and dispositions and their structuring. His audit and tax experience included publicly-held companies for which Mr. Marshall was responsible for banks, savings and loan associations, real estate developers, mortgage bankers, insurance companies, builders and contractors. Mr. Marshall has more than 35 years accounting, audit and tax experience on a wide range of public and private companies.
Kenneth Bennett has been a director since 2007. In January 2009, Mr. Bennett was appointed Secretary of State of Arizona to fill that vacancy until the results of the State election to be held in November, 2010. From 1998 through 2006 Mr. Bennett was an Arizona State Senator and President of the Senate during the last four years. He has served on numerous State committees, the Arizona State Board of Education, Governor’s Task Force on Education Reform and the Education Leaders Council in Washington, D.C. Mr. Bennett has been President of Bennett Oil Co. in Prescott Arizona since 1984, a regional fuel distribution company.
Edward A. Miller has been a director since 2006. Since February 1996, Mr. Miller has been president and director of DSI Consulting, a business consulting firm in Florida and New Hampshire. For over forty years, Mr. Miller has served in senior management roles leading and managing a series of for-profit and not-for-profit organizations designed to develop, enhance and further the growth, capabilities and competitiveness of US companies and government agencies involved in the education, healthcare, environmental, energy, national security and manufacturing sectors. Mr. Miller’s education was acquired at the Western New England College where he received his Bachelor of Science degree in Mechanical Engineering. He has also completed all graduate courseware towards MSEE at the University of Massachusetts.
Pat Choate has been a director since May 2006. Pat Choate is a political economist, think tank strategist, policy analyst, and author who studies U.S. competitiveness and public policy. Presently, he directs a Washington-based policy institute, the Manufacturing Policy Project, and teaches Advanced Issues Management at George Washington University’s Graduate School of Political Management. Mr. Choate also co-hosts the nationally syndicated weekly radio program “The Week Ahead.” Since the beginning in July 2006, Pat has been a nightly newsmaker on a Washington radio show hour where he discusses the issues of the day with guests in the news and the call in audience. Mr. Choate has a varied career in the private and public sectors. His public positions include that of economic advisor to two Governors of the State of Oklahoma, Commissioner of Economic Development for the State of Tennessee, and senior positions in the Federal Government at the US Commerce Department and the Office of Management and Budget. In the 1980’s, Pat Choate was Vice President for Policy for TRW, a diversified multinational corporation. Mr. Choate is the author of six books, dozens of monographs, and hundreds of articles on competitiveness, management, and public policy. Today, he is Director of the Manufacturing Policy Project, a Washington based public policy institute.
Board of Directors
Our bylaws state that the Board of Directors shall consist of not less than one person. The specific number of Board members within this range is established by the Board of Directors and is currently set at three. The terms of all directors will expire at the next annual meeting of our company’s stockholders, or when their successors are elected and qualified. Directors are elected each year, and all directors serve one-year terms. Officers serve at the pleasure of the Board of Directors. There are no arrangements or understandings between our company and any other person pursuant to which he was or is to be selected as a director, executive officer or nominee. There are no other persons whose activities are material or are expected to be material to our company’s affairs.
The Board of Directors met three times during fiscal 2009. During that time, each Board member attended all of the meetings of the Board held during that period.
Board of Directors - Committees
We have an Audit Committee and a Compensation Committee.
Audit Committee. The Audit Committee, currently consisting of Mr. Miller and Mr. Choate, reviews the audit and control functions of Green Planet Group, Inc., the Company’s accounting principles, policies and practices and financial reporting, the scope of the audit conducted by our company’s auditors, the fees and all non-audit services of the independent auditors and the independent auditors’ opinion and letter of comment to management and management’s response thereto. The Audit Committee was designated on October 1, 2005 and held two meetings during the fiscal year ended March 31, 2009.
Compensation Committee. The Compensation Committee is currently comprised of two non-employee Board members, Pat Choate and Edward Miller. The Compensation Committee reviews and recommends to the Board the salaries, bonuses and prerequisites of our company’s executive officers. The Compensation Committee also reviews and recommends to the Board any new compensation or retirement plans and administers such plans. No executive officer of our company serves as a member of the board of directors or compensation committee of any other entity that has one or more executive officers serving as a member of our company’s Board of Directors or Compensation Committee. The Compensation Committee held one meeting during the fiscal year ended March 31, 2009.
Audit Committee Financial Expert
The Company has a standing Audit Committee that includes two members. Mr. Miller has been designated as the “Audit Committee Financial Expert,” as defined by Regulation S-K, and is an “independent” director, as defined under the rules of NASDAQ National Stock Market and the SEC rules and regulations.
The following table sets forth the compensation of the Company’s Chief Executive Officer and director and each of the Company’s two other most highly compensated executive officers during the last three fiscal years of the Company. The remuneration described in the table does not include the cost to the Company of benefits furnished to the named executive officers, including premiums for health insurance and other benefits provided to such individual that are extended in connection with the conduct of the Company’s business.
Summary Compensation Table
| SUMMARY COMPENSATION TABLE | |
| Name and Principal Position | | Year | | Salary ($) | | | Stock Awards ($) (1) | | | Total ($) | |
| | | | | | | | | | | | |
| Edmond L. Lonergan, Chief Executive Officer, | | 2009 | | $ | 98,125 | | | $ | 40,000 | | | $ | 138,125 | |
| President and Director, Principle Executive Officer | | 2008 | | $ | 116,725 | | | $ | 144,000 | | | $ | 260,725 | |
| | | 2007 | | $ | 104,000 | | | $ | 160,000 | | | $ | 264,000 | |
| | | | | | | | | | | | | | | |
| James C. Marshall, Chief Financial Officer, | | 2009 | | $ | 89,773 | | | $ | 20,000 | | | $ | 109,773 | |
| Secretary, Treasurer and Director, Principle | | 2008 | | $ | 78,000 | | | $ | 48,000 | | | $ | 126,000 | |
| Accounting Officer | | 2007 | | $ | 90,000 | | | $ | 56,000 | | | $ | 146,000 | |
____________
| (1) | Based on fair market value of common stock on date of award. |
There were no outstanding equity awards at the end of the year.
Compensation of Directors
None.
| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
The following tables present information, to the best of the Company’s knowledge, about the beneficial ownership of its common stock on July 10, 2009 relating to the beneficial ownership of the Company’s common stock by those persons known to beneficially own more than 5% of the Company’s capital stock and by its directors and executive officers. The percentage of beneficial ownership for the following table is based on 123,300,764 shares of common stock outstanding.
Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and does not necessarily indicate beneficial ownership for any other purpose. Under these rules, beneficial ownership includes those shares of common stock over which the stockholder has sole or shared voting or investment power. It also includes shares of common stock that the stockholder has a right to acquire within 60 days through the exercise of any option, warrant or other right. The percentage ownership of the outstanding common stock, however, is based on the assumption, expressly required by the rules of the Securities and Exchange Commission, that only the person or entity whose ownership is being reported has converted options or warrants into shares of our common stock.
Security Ownership of Certain Beneficial Owners
| | | Amount of | | Percent |
| Name and Address of Beneficial Owner | | Beneficial Ownership | | of Class (1) |
| | | | | |
| Michael Brannon | | 6,122,269 | | 5.0 % |
| 7430 E. Butherus Dr. | | | | |
| Scottsdale, AZ 85260 | | | | |
| | | | | |
| Edmond Lonergan | | 8,879,834 | | 7.2 % |
| Chairman, CEO, President | | | | |
| 7430 E. Butherus Dr. | | | | |
| Scottsdale, AZ 85260 | | | | |
| | | | | |
| T. Squared Investments LLC | | 6,786,400 | | 5.5% |
| 1325 Sixth Avenue, Floor 28 | | | | |
| New York, NY 10019 | | | | |
| | | | | |
| Cliff Blake | | 9,955,500 | | 8.1% |
| 33747 N. Scottsdale Road, Suite 135 | | | | |
| Scottsdale, AZ 85266 | | | | |
| | | | | |
| All executive officers and directors as | | 11,954,834 (2) | | 9.7% |
| a group (5 persons) | | | | |
____________
| (1) | Rounded to the nearest tenth of a percent. |
| (2) | Includes shares beneficially owned by officers and directors. |
| | | Amount of | | Percent |
| Name and Address of Beneficial Owner | | Beneficial Ownership | | of Class (1 ) |
| | | | | |
| Edmond Lonergan | | 8,879,834 | | 7.2% |
| Chairman, President | | | | |
| 7430 E. Butherus Dr. | | | | |
| Scottsdale, AZ 85260 | | | | |
| | | | | |
| James Marshall | | 1,800,000 | | 1.5% |
| Chief Financial Officer | | | | |
| 7430 E. Butherus Dr. | | | | |
| Scottsdale, AZ 85260 | | | | |
| | | | | |
| Kenneth Bennett | | 1,000,000 | | 0.8% |
| Vice President and Director | | | | |
| 7430 E. Butherus Dr. | | | | |
| Scottsdale, AZ 85260 | | | | |
| | | | | |
| Edward Miller | | 85,000 | | 0.1% |
| Director | | | | |
| 7430 E. Butherus Dr. | | | | |
| Scottsdale, AZ 85260 | | | | |
| | | | | |
| Pat Choate | | 190,000 | | 0.2% |
| Director | | | | |
| 7430 E. Butherus Dr. | | | | |
| Scottsdale, AZ 85260 | | | | |
| | | | | |
| Total | | 11,954,834 | | 9.7% |
____________
| (1) | Rounded to the nearest tenth of a percent. |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
We have not been a party to any transaction, proposed transaction, or series of transactions in which the amount involved exceeds $60,000, and in which, to its knowledge, any of its directors, officers, five percent beneficial security holder, or any member of the immediate family of the foregoing persons has had or will have a direct or indirect material interest except that (1) during 2009 a company owned by the Chief Executive Office received a placement fee in conjunction with the acquisition of the Lumea assets resulting from a prior contract with the seller of the assets and (2) Michael Brannon loaned the Company $200,000 on a short term note which requires repayment plus interest. In conjunction with the placement his company received 3,366,660 shares with a market value on the date of the closing of $100,100.
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES |
On May 29, 2009, the Board of Directors authorized engaging Semple, Marchal & Cooper, LLP (“SMC”) as the Company’s new independent accountants to audit the Company’s financial statements for the fiscal year ending March 31, 2009.
Audit Fees. The aggregate fees paid for the annual audit of financial statements included in our Registration Statements including the year ended March 31, 2008 amounted to approximately $97,000 and the review of our quarterly reports for the year ended March 31, 2009.
Audit Related Fees. For the year ended March 31, 2008, we paid $45,000 to SMC for other audit related fees.
Tax Fees. For the years ended March 31, 2008 and March 31, 2009, we paid no fees to SMC for tax services.
All Other Fees. For the year ended March 31, 2008 and March 31, 2009, we paid no fees to SMC for any non-audit services.
The above-mentioned fees are set forth as follows in tabular form:
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Audit Fees | | $ | 52,000 | | | $ | 53,092 | |
| Audit Related Fees | | | 45,000 | | | | 45,000 | |
| Tax Fees | | | -0- | | | | -0- | |
| All Other Fees | | | -0- | | | | -0- | |
The members of the Company’s independent Directors of the Board of Directors serves as the Audit Committee and has unanimously approved all audit and non-audit services provided by the independent auditors. The independent accountants and management are required to periodically report to the Audit Committee or Board of Directors regarding the extent of services provided by the independent accountants, and the fees for the services performed to date. There have been no non-audit services provided by our independent accountant for the year ended March 31, 2009.
The information required by this Item is set forth in the section of this Annual Report entitled “EXHIBIT INDEX” and is incorporated herein by reference.
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | |
| | GREEN PLANET GROUP, INC. |
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| Dated: August 31, 2009 | By: | /s/ Edmond L. Lonergan |
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| | By: Edmond L. Lonergan Its: Chief Executive Officer (Principal Executive Officer) and Director |
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| Dated: August 31, 2009 | By: | /s/ James C. Marshall |
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| | By: James C. Marshall Its: Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |
In accordance with the Exchange Act, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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| Dated: August 31, 2009 | | /s/ Edmond L. Lonergan |
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| | Edmond L. Lonergan – Chief Executive Officer and Director |
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| Dated: August 31, 2009 | | /s/ James C. Marshall |
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| | James C. Marshall – Chief Financial Officer and Director |
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| Dated: August 31, 2009 | | /s/ Kenneth Bennett |
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| | Kenneth Bennett – Director |
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| Dated: August 31, 2009 | | /s/ Ed Miller |
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| Dated: August 31, 2009 | | /s/ Pat Choate |
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EXHIBIT INDEX
| Number | | Exhibit |
| | | |
| 2.1 | | Purchase and Sale Agreement dated as of January 5, 2007 between Dyson Properties, Inc. and ATME Acquisitions, Inc., and wholly owned subsidiary of EMTA Holdings, Inc. (2) |
| 3.1 | | Certificate of Incorporation (1) |
| 3.2 | | By-Laws (1) |
| 4.1 | | Form of Callable Secured Convertible Note (1) |
| 4.2 | | Form of Stock Purchase Warrant (1) |
| 4.3 | | Amendment to Warrant (1) |
| 10.1 | | Agreement, dated October 1, 2004, between EMTA Corp. and Corporate Architects, Inc. (1) |
| 10.2 | | Agreement, dated June 15, 2006, between the Company and James Marshall (1) |
| 10.3 | | Securities Purchase Agreement, dated April 28, 2006, by and among the Company, AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC. (1) |
| 10.4 | | Registration Rights Agreement, dated April 28, 2006, by and among the Company, AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC. (1) |
| 10.5 | | Security Agreement, dated as of April 28, 2006, by and among the Company, AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC. (1) |
| 10.6 | | Intellectual Property Security Agreement, dated April 28, 2006, by and among the Company, AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC. (1) |
| 10.7 | | Amendment No. 1 dated August 9, 2006, to Registration Rights Agreement, dated April 28, 2006, by and among the Company, AJW Offshore, Ltd., AJW Qualified Partners, LLC, AJW Partners, LLC and New Millennium Capital Partners II, LLC. (1) |
| 10.8 | | Securities Purchase Agreement (5) |
| 10.9 | | Registration Rights Agreement (5) |
| 10.10 | | Term Note Security Agreement (5) |
| 10.11 | | Stock Pledge Agreement (5) |
| 10.12 | | Secured Term Note (5) |
| 10.13 | | Form of Term Note Security Agreement (5) |
| 10.14 | | Form of Production Holdings Warrant (5) |
| 10.15 | | Form of Exchange Warrant (5) |
| 10.16 | | Form of Put Option (5) |
| 10.17 | | Dyson Properties, Inc. Amended and Restated Sales/Purchase Agreement dated March 26, 2007 (6) |
| 10.18 | | Amendment No. 1 to Dyson Properties, Inc. Amended and Restated Sales/Purchase Agreement, dated June 26, 2007 (6) |
| 10.19 | | Amended and Restated Secured Term Note between EMTA Production Holdings, Inc. and Shelter Island Opportunity Fund, LLC, dated June 30, 2008 (6) |
| 10.20 | | Amendment to Securities Purchase Agreement by and among Shelter Island Opportunity Fund, LLC, EMTA Holdings, Inc., and EMTA Production Holdings, Inc., dated June 30, 2008 (6) |
| 10.21 | | Amended and Restated Secured Term Note between EMTA Production Holdings, Inc. and Shelter Island Opportunity Fund, LLC, dated December 10, 2007 (6) |
| 10.22 | | Amendment to Securities Purchase Agreement by and among Shelter Island Opportunity Fund, LLC, EMTA Holdings, Inc. and EMTA Production Holdings, Inc., dated December 10, 2007 (6) |
| 10.23 | | Asset Purchase Agreement by and between EMTA Holdings, Inc. through its wholly-owned subsidiary, Lumea, Inc., and Easy Staffing Services, Inc., ESSI, Inc. and Easy Staffing Solutions of IL, Inc. (7) |
| 10.24 | | Promissory Note from Lumea, Inc. to Easy Staffing Services, Inc., in the amount of $5,750,000 and Promissory Note from Lumea, Inc. to Easy Staffing Services, Inc. in the amount of $3,000,000 (7) |
| 10.25 | | Security Agreements by and between Lumea, Inc. and Easy Staffing Services, Inc. (7) |
| 10.26 | | Indemnification and Stock Option Agreement by and between the Company, Lumea, Inc. and Cliff Blake (7) |
(Continued)
| Number | | Exhibit |
| | | |
| 10.27 | | Commercial Financing Agreement by and between Lumea, Inc., Lumea Staffing of CA, Inc., Lumea Staffing, Inc., Lumea Staffing of IL, Inc. and Porter Capital Corporation (7) |
| 10.28 | | Amended and Restated Commercial Financing Agreement by and between Lumea, Inc., Lumea Staffing of CA, Inc., Lumea Staffing, Inc., Lumea Staffing of IL, Inc. and Porter Capital Corporation (7) |
| 10.29 | | Validity Guarantee – Lonergan (7) |
| 10.30 | | Validity Guarantee – Marshall (7) |
| 21.1 | | List of Subsidiaries |
| 31.1 | | Officer’s Certificate Pursuant to Section 302 |
| 31.2 | | Officer’s Certificate Pursuant to Section 302 |
| 32.1 | | Certification Pursuant to Section 906 |
| 32.2 | | Certification Pursuant to Section 906 |
____________
| (1) | Filed with registrations statement filed August 14, 2006 |
| (2) | Filed with Form 8-K filed January 10, 2007 |
| (3) | Filed with Form 8-K filed April 9, 2007 |
| (4) | Filed with Form 8-K filed June 8, 2007 |
| (5) | Filed with Form 8-K filed July 12, 2007 |
| (6) | Filed with Form 10-K for Fiscal Year Ended March 31, 2008, filed July 15, 2008 |
| (7) | Filed with Form 8-K filed March 16, 2009 |
Item 8. Financial Statements and Supplementary Data
INDEX
| | | Page |
| | | |
| Years Ended March 31, 2009 and 2008 | | |
| | | |
Report of Independent Registered Public Accounting Firm - Semple, Marchal & Cooper, LLP | | F-2 |
| | | |
| Consolidated Balance Sheets As of March 31, 2009 and 2008 (Restated) | | F-3 |
| | | |
| Consolidated Statements of Operations For the Years Ended March 31, 2009 and 2008 (Restated) | | F-4 |
| | | |
| Consolidated Statement of Stockholders’ Equity/(Deficit) For the Years Ended March 31, 2009 and 2008 (Restated) | | F-5 |
| | | |
| Consolidated Statements of Cash Flows For the Years Ended March 31, 2009 and 2008 (Restated) | | F-6 – F-7 |
| | | |
| Notes to Consolidated Financial Statements March 31, 2009 and 2008 | | F-8 – F-49 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Green Planet Group, Inc.
We have audited the accompanying consolidated balance sheets of Green Planet Group, Inc. as of March 31, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders’ equity/(deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Green Planet Group, Inc. at March 31, 2009 and 2008, and the results of its operations, changes in stockholders’ equity/(deficit) and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company’s significant operating losses and negative working capital raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ Semple, Marchal & Cooper, LLP |
| |
| Phoenix, Arizona |
July 14, 2009, except for Notes 9, 11 and 17 for which the date is August ___, 2009 |
Green Planet Group, Inc. and Subsidiaries
Consolidated Balance Sheets
| | | March 31, | | | March 31, | |
| ASSETS | | 2009 | | | 2008 | |
| | | (Restated) | | | (Restated) | |
| Current Assets: | | | | | | |
| Cash | | $ | 470,288 | | | $ | 59,544 | |
| Accounts receivable, net of allowance for doubtful accounts | | | 4,349,866 | | | | 932,125 | |
| Notes receivable | | | – | | | | 137,500 | |
| Inventory | | | 369,403 | | | | 416,793 | |
| Prepaid expenses | | | 1,654,431 | | | | 330,289 | |
| Total Current Assets | | | 6,843,988 | | | | 1, 876,251 | |
| Property, plant and equipment, net of accumulated depreciation | | | 1,900,834 | | | | 1,786,967 | |
| Other Assets: | | | | | | | | |
| Other assets | | | 295,372 | | | | 267,529 | |
| Intangible assets | | | 3,745,025 | | | | 633,611 | |
| Goodwill | | | 8,979,822 | | | | – | |
| Total Other Assets | | | 13,020,219 | | | | 901,140 | |
| Total Assets | | | 21,765,041 | | | $ | 4,564,358 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | |
| | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts payable | | $ | 1,210,127 | | | $ | 815,936 | |
| Accounts payable - affiliates | | | 165,565 | | | | – | |
| Accrued liabilities | | | 4,765,026 | | | | 1,657,416 | |
| Cashless warrant liability | | | 57,876 | | | | 257,379 | |
| Notes payable and amounts due within one year | | | 6,536,202 | | | | 1,951,365 | |
| Derivative liability | | | 643,750 | | | | 1,794,795 | |
| Convertible notes payable | | | 5,054,100 | | | | – | |
| Total Current Liabilities | | | 18,432,646 | | | | 6,476,891 | |
| Notes payable due after one year | | | 9,061,650 | | | | 1,087,112 | |
| Conversion share derivative liability | | | – | | | | 5,054,100 | |
| Total Liabilities | | | 27,494,296 | | | | 12,618,103 | |
| Stockholders’ Equity: | | | | | | | | |
| Preferred Stock, $0.001 par value, 1,000,000 authorized; | | | | | | | | |
| no shares issued and outstanding | | | – | | | | – | |
| Common Stock, $0.001 par value, 250,000,000 | | | | | | | | |
| authorized, issued and outstanding 117,440,764 | | | | | | | | |
| and 54,885,103 at March 31, 2009 and | | | | | | | | |
| 2008, respectively | | | 117,441 | | | | 54,885 | |
| Additional paid-in capital | | | 14,714,148 | | | | 9,779,844 | |
| Accumulated Deficit | | | (20,560,844 | ) | | | (17,888,474 | ) |
| Total Stockholders’ Equity/(Deficit) | | | (5,729,255 | ) | | | (8,053,745 | ) |
| Total Liabilities and Stockholders’ Equity/(Deficit) | | $ | 21,765,041 | | | $ | 4,564,358 | |
See accompanying notes to these consolidated financial statements.
Consolidated Statements of Operations
| | | For the Year Ended | |
| | | March 31, | |
| | | 2009 | | | 2008 | |
| Revenue: | | (Restated) | | | (Restated) | |
| | | | | | | |
| Sales, net of returns and allowances | | $ | 9,170,794 | | | $ | 2,769,949 | |
| Cost of sales | | | 7,030,015 | | | | 1,305,328 | |
| | | | | | | | | |
| Gross Profit | | | 2,140,779 | | | | 1,464,621 | |
| | | | | | | | | |
| Operating Expenses: | | | | | | | | |
| Selling, general and administrative | | | 3,798,290 | | | | 2,696,506 | |
| Depreciation and amortization | | | 308,833 | | | | 247,768 | |
| Allowance for bad debts | | | 970,542 | | | | 41 | |
| Research and development | | | – | | | | 118,546 | |
| | | | | | | | | |
| Total Operating Expenses | | | 5,077,665 | | | | 3,062,861 | |
| | | | | | | | | |
| Loss From Operations | | | (2,936,866 | ) | | | (1,598,240 | ) |
| | | | | | | | | |
| Other Income and (Expense): | | | | | | | | |
| Other income | | | 416 | | | | – | |
| Interest (expense)/income | | | 264,100 | | | | (2,124,289 | ) |
| | | | | | | | | |
| Loss before provision for income taxes | | | (2,672,370 | ) | | | (3,722,529 | ) |
| | | | | | | | | |
| Provision for/(benefit of) income taxes | | | – | | | | – | |
| | | | | | | | | |
| Net Loss | | $ | (2,672,370 | ) | | $ | (3,722,529 | ) |
| | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | |
| Basic and diluted loss per share | | $ | (0.04 | ) | | $ | (0.08 | ) |
| Weighted average shares outstanding | | | 73,612,313 | | | | 44,490,994 | |
See accompanying notes to these consolidated financial statements.
Consolidated Statements of Stockholders’ Equity/(Deficit)
| | | | | | Additional | | | | | | | |
| | | Common Stock | | | Paid-in | | | Accumulated | | | | |
| | | Shares | | | Par Value | | | Capital | | | Deficit | | | Total | |
| | | | | | | | | (Restated) | | | (Restated) | | | (Restated) | |
| | | | | | | | | | | | | | | | |
Balance March 31, 2007 (Restated) | | | 40,396,004 | | | | 40,396 | | | | 8,176,899 | | | | (14,165,945 | ) | | | (5,948,650 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for cash | | | 9,050,000 | | | | 9,050 | | | | 1,106,262 | | | | | | | | 1,115,312 | |
| Shares issued for services of employees and others | | | 4,239,099 | | | | 4,239 | | | | 297,483 | | | | | | | | 301,722 | |
Shares issued on conversion of debt (Restated) | | | 1,200,000 | | | | 1,200 | | | | 199,200 | | | | | | | | 200,400 | |
Net loss for the year ended March 31, 2008 (Restated) | | | | | | | | | | | | | | | (3,722,529 | ) | | | (3,722,529 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Balance March 31, 2008 (Restated) | | | 54,885,103 | | | $ | 54,885 | | | $ | 9,779,844 | | | $ | (17,888,474 | ) | | $ | (8,053,745 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Shares issued for cash | | | 13,531,000 | | | | 13,531 | | | | 1,263,409 | | | | | | | | 1,276,940 | |
| Shares issued for acquisition | | | 21,699,661 | | | | 21,700 | | | | 1,063,283 | | | | | | | | 1,084,983 | |
| Shares issued for services of consultants and others | | | 25,425,000 | | | | 25,425 | | | | 2,039,075 | | | | | | | | 2,064,500 | |
| Shares issued for interest payments | | | 700,000 | | | | 700 | | | | 62,300 | | | | | | | | 63,000 | |
| Shares issued on conversion of debt | | | 1,200,000 | | | | 1,200 | | | | 23,800 | | | | | | | | 25,000 | |
| Stock option expense | | | | | | | | | | | 482,437 | | | | | | | | 482,437 | |
Net loss for the year ended March 31, 2009 (Restated) | | | | | | | | | | | | | | | (2,672,370 | ) | | | (2,672,370 | ) |
| | | | | | | | | | | | | | | | | | | | | |
Balance March 31, 2009 (Restated) | | | 117,440,764 | | | $ | 117,441 | | | $ | 14,714,148 | | | $ | (20,560,844 | ) | | $ | (5,729,255 | ) |
See accompanying notes to these consolidated financial statements.
Consolidated Statements of Cash Flows
| | | For the year ended | |
| | | March 31, | |
| | | 2009 | | | 2008 | |
| | | (Restated) | | | (Restated) | |
| Cash Flows from Operating Activities: | | | | | | |
| Net Loss | | $ | (2,672,370 | ) | | $ | (3,722,529 | ) |
| Adjustments to reconcile net loss to net cash | | | | | | | | |
| provided by operating activities: | | | | | | | | |
| Depreciation and amortization | | | 308,833 | | | | 247,768 | |
| Bad debt provision | | | 970,542 | | | | – | |
| Inventory valuation | | | 84,176 | | | | – | |
| Amortization of debt discount | | | 267,441 | | | | 295,050 | |
| Change in derivative valuation | | | (1,151,045) | | | | 1,272,446 | |
| Shares issued for services and interest | | | 2,127,500 | | | | 289,722 | |
| Stock grants to employees | | | 358,362 | | | | 12,000 | |
| Cashless warrant conversion | | | (199,503 | ) | | | 199,096 | |
| Changes in assets and liabilities, excluding | | | | | | | | |
| effects of acquisitions: | | | | | | | | |
| Receivables | | | (3,417,741 | ) | | | (864,554 | ) |
| Inventories | | | (36,786 | ) | | | 169,660 | |
| Prepaids | | | (1,432,612 | ) | | | (34,545 | ) |
| Other assets | | | (186,813 | ) | | | 9,805 | |
| Intangibles and goodwill | | | (12,148,767 | ) | | | – | |
| Accounts payable | | | 394,195 | | | | 175,080 | |
| Accounts payable - affiliates | | | 165,565 | | | | – | |
| Accrued liabilities | | | 3,107,610 | | | | 261,353 | |
| Cash provided (used) by operating activities | | | (13,461,413 | ) | | | (1,689,649 | ) |
| Investing Activities: | | | | | | | | |
| Capital expenditures | | | (332,435 | ) | | | (12,090 | ) |
| Acquisitions of business | | | – | | | | (119,760 | ) |
| Note receivable | | | 137,500 | | | | (137,500 | ) |
| Cash used by investing activities | | | (194,935 | ) | | | (269,350 | ) |
| Financing Activities: | | | | | | | | |
| Net borrowings of debt | | | 12,871,300 | | | | 1,413,442 | |
| Repayment of debt | | | (81,146 | ) | | | (611,327 | ) |
| Net proceeds from issuance of common shares | | | 1,276,940 | | | | 1,115,312 | |
| Net cash used by financing activities | | | 14,067,094 | | | | 1,917,427 | |
| Net increase (decrease) in cash | | | 410,746 | | | | (41,572 | ) |
| Cash at beginning of period | | | 59,544 | | | | 101,116 | |
| Cash at end of period | | $ | 470,290 | | | $ | 59,544 | |
(Continued)
See accompanying notes to these consolidated financial statements.
Consolidated Statements of Cash Flows
(Continued)
| | | For the year ended | |
| | | March 31, | |
| | | 2009 | | | 2008 | |
| | | (Restated) | | | (Restated) | |
| Supplemental disclosures of cash flow information: | | | | | | |
| Cash paid during the year for: | | | | | | |
| Interest | | $ | 126,689 | | | $ | 367,536 | |
| Income taxes | | $ | – | | | $ | – | |
| | | | | | | | | |
| Non Cash Activities: | | | | | | | | |
| Notes payable converted to common stock | | $ | (25,000 | ) | | $ | (100,200 | ) |
| Common stock issued for notes payable | | | 1,200 | | | | 1,200 | |
| Additional paid-in capital from conversion of note payable | | | 23,800 | | | | 99,000 | |
| | | $ | – | | | $ | – | |
See accompanying notes to these consolidated financial statements.
Green Planet Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
For the Years Ended March 31, 2009 and 2008
Note 1 - The Company
The Company - Green Planet Group, Inc. (which is referred to herein together with its subsidiaries as “Green Planet,” “GPG,” “the Company,” “we”, “us” or “our”), formerly EMTA Holdings, Inc. and before that Omni Alliance Group, Inc., was organized and incorporated in the state of Nevada. On March 31, 2006, we changed our name from Omni Alliance Group, Inc. to EMTA Holdings, Inc., and on May 22, 2009 we changed the name through merger with a wholly owned subsidiary to Green Planet Group, Inc. Our common stock now trades on the OTC-Bulletin Board market under the trading symbol “GNPG:OB.”
Nature of the Business - We are a specialty energy conservation chemical company that produces and supplies technologies to the global transportation, industrial and consumer markets. These technologies include gasoline, oil and diesel additives for engines and other transportation-related fluids and industrial lubricants.
Acquisitions and Mergers
XenTx Lubricants, Inc. - Effective January 1, 2007 the Company has acquired Dyson Properties, Inc. Dyson manufactures and sells automotive racing and performance oils and lubricants under the name Synergyn Racing and also produces products under contract to third parties. The Synergyn line established in 1987 compliments the XenTx line and gives EMTA manufacturing and distribution capabilities from the Synergyn plant in Durant, OK. In 2008, Dyson Properties, Inc. changed its name to XenTx Lubricants, Inc.
This acquisition gave the Company the ability to manufacture, bottle and distribute its products through the Dyson location in Durant OK. We expect to expand distribution of both product lines through the cross marketing of each other’s products.
The aggregate purchase price was $2,100,000, paid in cash and stock. The initial payment of $100,000 was made on January 9, 2007. An additional $150,000 was paid on the Closing Date, July 5, 2007. The balance of $254,240 will be paid in December 31, 2009. In addition, on March 26, 2007 the Company issued 1,400,000 shares of common stock to the seller and the right to 1,400,000 warrants to acquire a like number of shares on a cashless basis at an exercise price of $0.75 per share for a period of three years from the Closing Date. In addition, the seller will be entitled to a royalty for all sales of the Synergyn products for five years at a rate of $0.20 per gallon or $0.20 per pound as the case may be, paid quarterly on the first $600,000 of royalties earned during the royalty term and $0.10 per gallon or per pound thereafter for the remainder of the royalty term. During the year ended March 31, 2008, the purchase price was adjusted by $119,760 pursuant to the Purchase Agreement
The purchase price was allocated to the fair value of assets acquired and liabilities assumed as follows:
| Cash and receivables | | $ | 22,122 | |
| Inventory | | | 129,855 | |
| Property and equipment | | | 1,893,151 | |
| Total assets acquired | | | 2,045,128 | |
| Total liabilities assumed | | | 1,371,112 | |
| Net assets acquired | | $ | 674,016 | |
Lumea, Inc. - Effective March 1, 2009, the Company through its wholly owned subsidiary Lumea, Inc, formerly ATME Acquisitions, Inc., acquired certain assets and assumed certain liabilities of Easy Staffing Solutions, Inc. and its subsidiaries. With these acquisitions Lumea became a supplier of the staffing needs for light industrial and other companies in 18 states.
The aggregate purchase price is $12,464,752, to be paid in by the assumption of debt, issuance of long term notes and the Company’s common stock to the seller. The Company assumed $2,505,694 of the seller’s liabilities and issued two notes to the seller in the amounts of $5,750,000 and $3,000,000, at interest rates of 3.25% per annum each, the first loan requires monthly principal and interest payments of $100,000 through March 2014 and the second note requires the payment of principal and interest at maturity, March 1, 2014. The Company also issued 21,699,661 shares of common stock with a fair value at the time of purchase of $1,084,983, and 2,500,000 stock options valued at $124,075.
The purchase price was allocated to the fair value of assets acquired and liabilities assumed as follows:
| | $ | 191,910 | |
| Customer relationships | | | 3,293,020 | |
| Goodwill | | | 8,979,822 | |
| Total assets acquired | | | 12,464,752 | |
| Total liabilities assumed | | | 11,255,694 | |
| Net assets acquired | | $ | 1,209,058 | |
Continuance of Operations
These consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The general business strategy of the Company is to develop products and operate its sales force and to acquire additional businesses. The Company has negative working capital, has incurred operating losses and requires additional capital to fund development activities, meet its obligations and maintain its operations. These conditions raise doubt about the Company’s ability to continue as a going concern. The Company completed a private offering of its restricted common stock in April 2008 with the sale of 10,206,000 shares, with net proceeds to the Company of $1,211,962. Of this amount, $1,015,312 was received in the fourth quarter of 2008 and is included in the year ended March 31, 2008 and the balance was received in the first quarter of March 31, 2009. Additionally, the Company also received $1,080,290 from the sale of restricted stock during the year ended March 31, 2009. The Company is in negotiations to obtain additional necessary capital to complete its regulatory approvals, expand production and sales and generally meet its business objectives. The Company forecasts that the equity obtained and additional borrowing capacity will provide sufficient funds to complete its primary development activities and achieve profitable operations. Accordingly, these financial statements do not include any adjustments that might result from this uncertainty.
Note 2 - Significant Accounting Policies
Consolidation - The consolidated financial statements include the accounts of Green Planet Group, Inc. and its consolidated subsidiaries and wholly-owned limited liability company. The financial statements for the year ended March 31, 2009 only include the operations of Lumea, Inc. and its subsidiaries since March 1, 2009. All significant intercompany transactions and profits have been eliminated.
Use of Estimates - The preparation of financial statements in conformity with United States generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, derivative liabilities, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ significantly from these estimates.
Cash Equivalents - The Company invests its excess cash in short-term investments with various banks and financial institutions. Short-term investments are cash equivalents, as they are part of the cash management activities of the company and are comprised of investments having maturities of three months or less when purchased.
Allowance for Doubtful Accounts - The Company provides an allowance for doubtful accounts when management estimates collectibility to be uncertain. Accounts receivable are continually reviewed to determine which, if any, accounts are doubtful of collection. In making the determination of the appropriate allowance amount, the Company considers current economic and industry conditions, relationships with each significant customer, overall customer credit-worthiness and historical experience. The allowance for doubtful accounts was $806,846 and $34,149 at March 31, 2009 and 2008, respectively.
Inventories - Inventories are stated at the lower of cost or market value. Cost of inventories is determined by the first-in, first-out (FIFO) method. Obsolete or abandoned inventories are charged to operations in the period that it is determined that the items are not longer viable sales products.
Property, Plant, and Equipment - Plant and equipment are carried at cost. Repair and maintenance costs are charged against operations while renewals and betterments are capitalized as additions to the related assets. The Company depreciates its plant and equipment and computers on a straight line basis. Estimated useful life of the plant is 39.5 years and the equipment ranges from 3 to 10 years.
Intangible Assets - Intangible assets consist of patents, trademarks, government approvals and customer relationships (including client contracts). For financial statement purposes, identifiable intangible assets with a defined life are being amortized using the straight-line method over the estimated useful lives of seven years for the EPA license and 5 years for the customer relationships. Costs incurred by the Company in connection with patent, trademark applications and approvals from governmental agencies such as the Environmental Protection Agency, including legal fees, patent and trademark fees and specific testing costs, are expensed as incurred. Purchased intangible costs of completed developments are capitalized and amortized over an estimated economic life of the asset, generally seven years, commencing on the acquisition date. Costs subsequent to the acquisition date are expensed as incurred.
Goodwill - Goodwill represents the excess of the purchase price over the fair value of the net assets acquired. Goodwill and other intangible assets having an indefinite useful life are not amortized for financial statement purposes. The Company performs an annual impairment test each year and in the event that facts and circumstances indicate that goodwill and other identifiable intangible assets may be impaired, an interim impairment test would be required. The Company’s testing approach will utilize a discounted cash flow analysis to determine the fair value of its reporting units for comparison to their corresponding book values. If the book value exceeds the estimated fair value for a reporting unit, a potential impairment is indicated and Statement of Financial Accounting Standard (SFAS) No. 142, Goodwill and Other Intangible Assets prescribes the approach for determining the impairment amount, if any.
Impairment of Long-Lived Assets - In accordance with the Statement of Financial Accounting Standards No. 144 (“FAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets,” the Company reviews long-lived assets, including, but not limited to, property and equipment, patents and other assets, for impairment annually or whenever events or changes in circumstances indicate the carrying amounts of assets may not be recoverable. The carrying value of long-lived assets is assessed for impairment by evaluating operating performance and future undiscounted cash flows of the underlying assets. If the sum of the expected future cash flows of an asset is less than its carrying value, an impairment measurement is required. Impairment charges are recorded to the extent that an asset’s carrying value exceeds fair value. Accordingly, actual results could vary significantly from such estimates. There were no impairment charges during the periods presented.
Fair Value Disclosures - The carrying values of cash, accounts receivable, deposits, prepaid expenses, accounts payable and accrued expenses generally approximate the respective fair values of these instruments due to their current nature.
Derivative Financial Instruments - The Company accounts for derivative instruments and debt instruments in accordance with the interpretative guidance of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”), EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock,” APB No. 14, “Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants,” EITF 98-5, “Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios” (“EITF 98-5”), and EITF 00-27, “Application of Issue No. 98-5 to Certain Convertible Instruments” (“EITF 00-27”), and associated pronouncements related to the classification and measurement of warrants and instruments with conversion features. It is necessary for the Company to make certain assumptions and estimates to value derivatives and debt instruments.
Provisions for sales discounts and rebates to customers are recorded, based upon the terms of sales contracts, in the same period the related sales are recorded, as a deduction to the sale. Sales discounts and rebates are offered to certain customers to promote customer loyalty and encourage greater product sales. As a general rule, the Company does not charge interest on its accounts receivables.
Components of Cost of Sales - Cost of sales is comprised of raw material costs including freight and duty, inbound handling costs associated with the receipt of raw materials, contract manufacturing costs, third party bottling and packaging, maintenance and storage costs, plant and engineering overhead allocation, terminals and other warehousing costs, and handling costs.
Selling Expenses - Included in selling and general administrative expenses are the commission expenses for both employees and outside sales representatives ranging from 1.5% to 11.5% per dollar of sales. Our staffing sales representatives are paid a commission on new sales. The Company expends significant amounts to advertise and distinguish its products from those of its competitors through the use of in-store advertising, printed media, internet and broadcast media.
Research, Testing and Development - Research, testing and development costs are expensed as incurred. Research and development expenses, including testing, were $0 and $118,546 for the years ended March 31, 2009 and 2008, respectively. Costs to acquire in-process research and development (IPR&D) projects that have no alternative future use and that have not yet reached technological feasibility at the date of acquisition are expensed upon acquisition.
Income Taxes - We provide for income taxes in accordance with SFAS No. 109, “Accounting for Income Taxes.” SFAS No. 109 requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of the assets and liabilities.
The recording of a net deferred tax asset assumes the realization of such asset in the future; otherwise a valuation allowance must be recorded to reduce this asset to its net realizable value. The Company considers future pretax income and, if necessary, ongoing prudent and feasible tax planning strategies in assessing the need for such a valuation allowance. In the event that the Company determines that it may not be able to realize all or part of the net deferred tax asset in the future, a valuation allowance for the deferred tax asset is charged against income in the period such determination is made. The Company has recorded full valuation allowances as of March 31, 2009 and 2008.
Concentrations of Credit Risks - Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Although the amount of credit exposure to any one institution may exceed federally insured amounts, the Company limits its cash investments to high-quality financial institutions in order to minimize its credit risk. With respect to accounts receivable, such receivables are primarily from distributors and retailers located in the United States and foreign distributors. The Company extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables is dependent on each customer’s financial condition. At March 31, 2009 and 2008, the amounts due from foreign distributors were $1,363,756 and $745,952, which represent 32.2% and 79.9% of accounts receivable, respectively.
Segment Information
We operate in two industry segments, the development, manufacture and sale of private and commercial vehicle energy efficient enhancement products and employee staffing services. The enhancement products are designed to extend engine life, promote fuel efficiency and reduce emissions. These products are being marketed by the Company and sales were predominantly in the United States of America, Canada, Mexico and Nigeria. The staffing segment was added on March 1, 2009 and provides staffing services primarily to the light industrial segment of the economy.
New accounting pronouncements:
Fair Value Measurement
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements (“SFAS 157”), as amended in February 2008 by FSP FAS 157-2, Effective Date of FASB Statement No. 157. The provisions of SFAS 157 were effective for the Company as of April 1, 2008. However, FSP FAS 157-2 deferred the effective date for all nonfinancial assets and liabilities, except those recognized or disclosed at fair value on an annual or more frequent basis, until April 1, 2009. SFAS 157 defines fair value, creates a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The Company does not expect the adoption of SFAS 157 to have a material effect on its results of operations and financial position.
Fair Value Option
In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115 (“SFAS 159”), which permits all entities to choose to measure eligible items at fair value on specified election dates. The associated unrealized gains and losses on the items for which the fair value option has been elected shall be reported in earnings. SFAS 159 became effective for the Company as of April 1, 2008; however, the Company has not elected to utilize the fair value option on any of its financial assets or liabilities under the scope of SFAS 159.
Non-controlling Interests
In December 2007, the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements — an amendment of ARB No. 51 (“SFAS 160”). SFAS 160 requires a company to clearly identify and present ownership interests in subsidiaries held by parties other than the company in the consolidated financial statements within the equity section but separate from the company’s equity. It also requires the amount of consolidated net income attributable to the parent and to the non-controlling interest be clearly identified and presented on the face of the consolidated statement of operations; changes in ownership interest be accounted for similarly, as equity transactions; and when a subsidiary is deconsolidated, any retained non-controlling equity investment in the former subsidiary and the gain or loss on the deconsolidation of the subsidiary be measured at fair value. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008, and earlier application is prohibited. SFAS 160 is not applicable as the Company does not have any non-controlling interests.
Business Combinations
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations (“SFAS 141(R)”). The objective of SFAS 141(R) is to improve the information provided in financial reports about a business combination and its effects. SFAS 141(R) states that all business combinations (whether full, partial or step acquisitions) must apply the “acquisition method.” In applying the acquisition method, the acquirer must determine the fair value of the acquired business as of the acquisition date and recognize the fair value of the acquired assets and liabilities assumed. As a result, it will require that certain forms of contingent consideration and certain acquired contingencies be recorded at fair value at the acquisition date. SFAS 141(R) also states acquisition costs will generally be expensed as incurred and restructuring costs will be expensed in periods after the acquisition date. This statement is effective for business combination transactions for which the acquisition date is on or after April 1, 2009, and earlier application is prohibited. The Company will adopt this statement on April 1, 2009. The impact of the adoption of SFAS 141(R) on the Company’s financial statements will largely be dependent on the size and nature of the business combinations completed after the adoption of this statement. While SFAS 141(R) generally applies only to transactions that close after its effective date, the amendments to SFAS 109 and FIN 48 are applied prospectively as of the adoption date and will apply to business combinations with acquisition dates before the effective date of SFAS 141(R). The Company estimates that the affect on the recorded valuation allowance and unrecognized tax benefits, which are associated with prior acquisitions will not have a material effect on the results of operations or statement of position in future periods, if recognized in future periods.
Disclosures about Derivative Instruments and Hedging Activities
In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities-an amendment of FASB Statement No. 133 (“SFAS 161”). This Statement changes the disclosure requirements for derivative instruments and hedging activities. Entities are required to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company adopted SFAS 161 on January 1, 2009, the beginning of the Company’s fiscal 2009 fourth quarter.
GAAP Hierarchy
In May 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 162, “The Hierarchy of Generally Accepted Accounting Principles.” SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (the GAAP hierarchy). SFAS No. 162 will become effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles.” EMTA does not expect the adoption of SFAS No. 162 to have a material effect on its results of operations and financial position.
Convertible Debt
In May 2008, the FASB issued Financial Statement Position (FSP) Accounting Principles Board (APB) 14-1 “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. FSP APB 14-1 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis and will be adopted by EMTA in the first quarter of fiscal 2010. EMTA is currently evaluating the potential impact, if any, of the adoption of FSP APB 14-1 on its results of operations and financial position.
Litigation - The Company is and may become a party in routine legal actions or proceedings in the ordinary course of its business. Management does not believe that the outcome of these routine matters will have a material adverse effect on the Company’s consolidated financial position or results of operations.
Environmental - The Company’s enhancement products and related operations are subject to extensive federal, state and local laws, regulations and ordinances in the United States relating to the generation, storage, handling, emission, transportation and discharge of certain materials, substances and waste into the environment, and various other health and safety matters. Governmental authorities have the power to enforce compliance with their regulations, and violators may be subject to fines, injunctions or both. The Company must devote substantial financial resources to ensure compliance, and it believes that it is in substantial compliance with all the applicable laws and regulations.
Note 3 - Inventories
Inventory consists of finished goods, work in process and raw material as follows:
| | | March 31, 2009 | | | March 31, 2008 | |
| | | | | | | | | |
| Finished goods | | $ | 173,523 | | | $ | 340,087 | |
| Raw material | | | 195,880 | | | | 76,706 | |
| | | $ | 369,403 | | | $ | 416,793 | |
At March 31, 2009 and 2008, equipment and computers consisted of the following:
| | | March 31, 2009 | | | March 31, 2008 | |
| | | | | | | | | |
| Property and plant | | $ | 1,453,650 | | | $ | 1,442,401 | |
| Equipment and computers | | | 839,690 | | | | 518,504 | |
| Less accumulated depreciation | | | (392,506 | ) | | | (173,938 | ) |
| Net equipment and Computers | | $ | 1,900,834 | | | $ | 1,789,967 | |
During the years ended March 31, 2009 and 2008, depreciation and amortization expense was $127,227 and $121,046, respectively.
During the year ended March 31, 2008, the carrying value of assets acquired from XenTx Lubricants, Inc. were reduced by $119,760 in accordance with the Purchase Agreement.
Note 5 - Intangible Assets and Goodwill
Intangible assets consist of technology of production and license rights under the Environmental Protection Agency to market one of the products acquired in the acquisition of White Sands, L.L.C. on March 31, 2006. The Company intends to market the related products as soon as production and marketing strategies can be completed. The Company is amortizing this investment over its estimated useful life of seven years on a straight line basis. For the years ended March 31, 2009 and March 31, 2008, amortization was $126,722 in each year. The customer relationships is the value of the purchased business relationships acquired as part of the purchase by Lumea of the staffing business on March 1, 2009. The amortization of this intangible is being amortized over 5 years and for the period ended March 31, 2009 the amortization was $54,884.
Intangible assets subject to amortization:
| | Weighted | | March 31, 2009 | |
| | Average | | Gross Carrying | | | Accumulated | | | Net Carrying | |
| | Useful Life | | Amount | | | Amortization | | | Amount | |
| | | | | | | | | | | |
| Intangible assets subject to amortization: | | | | | | | | | | |
| EPA licenses | 7 years | | $ | 887,055 | | | $ | 380,166 | | | $ | 506,889 | |
| Customer relationships | 5 years | | | 3,293,020 | | | | 54,884 | | | | 3,238,136 | |
| | | | $ | 4,180,075 | | | $ | 435,050 | | | $ | 3,745,025 | |
| | | | | | | | | | | | | | |
| Goodwill not subject to amortization: | | | | | | | | | | | | | |
| Goodwill: | | | | | | | | | | | | | |
| Goodwill | | | $ | 8,855,747 | | | $ | – | | | $ | 8,855,747 | |
| | | | $ | 8,855,747 | | | $ | – | | | $ | 8,855,747 | |
| | | | | | | | | | | | | | |
| Intangible assets subject to amortization: | | | | | | | | | | | | | |
| | Weighted | | March 31, 2008 | |
| | Average | | Gross Carrying | | | Accumulated | | | Net Carrying | |
| | Useful Life | | Amount | | | Amortization | | | Amount | |
| | | | | | | | | | | |
| Intangible assets subject to amortization: | | | | | | | | | | | | | |
| EPA licenses | 7 years | | $ | 887,055 | | | $ | 253,444 | | | $ | 633,611 | |
| | | | $ | 887,055 | | | $ | 253,444 | | | $ | 633,611 | |
The scheduled amortization to be recognized over the next five years are as follows:
| 2010 | | $ | 785,330 |
2011 | | $ | 785,330 |
2012 | | $ | 785,330 |
2013 | | $ | 785,331 |
2014 | | $ | 603,720 |
Accrued liabilities consist of the following as of March 31, 2009 and 2008:
| | | March 31, 2009 | | | March 31, 2008 | |
| | | | | | | | | |
| Accrued marketing and advertising | | $ | 300,000 | | | $ | 300,000 | |
| Accrued reimbursement to product testing partner | | | 978,151 | | | | 978,151 | |
| Accrued interest | | | 804,717 | | | | 288,046 | |
| Accrued payroll, taxes and benefits | | | 2,446,929 | | | | – | |
| Other | | | 235,229 | | | | 91,219 | |
| | | $ | 4,765,026 | | | $ | 1,657,416 | |
As part of our testing of products and new applications the Company agreed to reimburse one of our testing partners for the costs incurred in such testing.
Note 7 - Notes and Contracts Payable
| | | March 31, | |
| | | 2009 | | | 2008 | |
| | | | | | | | | |
| Revolving line of credit against factored Lumea receivables (2) | | $ | 2,055,015 | | | $ | – | |
| Bank loans, payable in installments | | | 359,803 | | | | 287,943 | |
| Mortgage loan payable, monthly payments of principal and interest at 3 month LIBOR plus 4.7% (1) | | | 806,853 | | | | 807,062 | |
| Payments due seller of XenTx Lubricants | | | 254,240 | | | | 254,240 | |
| Loan from Dyson | | | 60,000 | | | | 35,000 | |
| Notes payable | | | 1,475,380 | | | | 1,396,232 | |
| Loans from individuals, due within one year | | | 461,000 | | | | 258,000 | |
| Purchase note payable | | | 1,569,139 | | | | – | |
| Purchase note 1 | | | 5,667,626 | | | | – | |
| Purchase note 2 | | | 2,888,796 | | | | – | |
| | | | | | | | | |
| Total | | | 15,597,852 | | | | 3,038,477 | |
| Less current portion | | | 6,536,202 | | | | 1,951,365 | |
| | | | | | | | | |
| Long-term debt | | $ | 9,061,650 | | | $ | 1,087,112 | |
____________
| (1) | In conjunction with the acquisition of Dyson, the mortgage became payable as a result of the change of control of that company. The Company is in the process of refinancing the property. |
| (2) | The Company maintains a $7 million line of credit relating to its factored accounts receivable. |
Bank Loans consist of two loans that became due in the first quarter of 2009; these loans are secured by receivables, inventory and equipment in Durant, Oklahoma. The Company is working to replace these loans and has arranged a payment schedule to retire these loans. The Mortgage Loan Payable has matured as a result of the change in control of the operations in Durant. The Company continues to make principal and interest payments while the Company obtains a replacement loan on the property. Interest is reset quarterly at Libor plus 4.7%.
The amounts due sellers bear interest at a rate of 8.0% and is due in October 31, 2009.
Substantially all of the staffing receivables are pledged as collateral for the revolving line of credit. At March 31, 2009, the Company had pledged receivables of $2,532,926.
Notes payable include amounts due after one year consists of the loan from Shelter Island Opportunity Fund with interest at 12.25% per annum and secured by the plant and equipment in Durant, Oklahoma and Purchase Notes 1 and 2 are secured by all of the business assets of Lumea. Maturities for the remainder of the loans are as follows:
2011 | | $ | 1,366,644 |
2012 | | $ | 1,307,703 |
2013 | | $ | 1,356,881 |
2014 | | $ | 4,556,874 |
| Thereafter | | $ | 473,548 |
The balance of the notes payable consist of commercial loans of a vehicles and equipment in the normal course of business.
The Loans from individuals includes three loans which are all due within one year and bear interest from 9% to 12%.
Note 8 - Income Taxes
Through March 31, 2009, we recorded a valuation allowance of $5,871,215 against deferred income tax assets primarily associated with tax loss carry forwards. Our significant operating losses experienced in prior years establishes a presumption that realization of these income tax benefits does not meet a “more likely than not” standard.
We have net operating loss carry forwards of approximately $14,255,779. Our net operating loss carry forwards will expire between 2025 and 2029.
Significant components of our deferred tax assets and liabilities at the balance sheet dates were as follows:
| | March 31, | |
| | 2009 | | 2008 | |
| | | | | |
| Deferred Tax Assets and Liabilities | | | | |
| Deferred tax assets: | | | | |
| Net operating loss carryforwards | | $ | 5,480,393 | | | $ | 4,594,546 | |
| Allowance for doubtful accounts | | | 390,822 | | | | 16,204 | |
| Total | | | 5,871,215 | | | | 4,610,750 | |
| Less: Valuation allowance | | | (5,871,215 | ) | | | (4,610,750 | ) |
| Total deferred tax assets | | | – | | | | – | |
| Total deferred tax liabilities | | | – | | | | – | |
| Net deferred tax liabilities | | $ | – | | | $ | – | |
| | Fiscal Years Ended March 31, | |
| | 2008 | | 2007 | |
| | | | | |
| Reconciliation | | | | |
| Income tax credit at statutory rate | | $ | (780,303 | ) | | $ | (765,364 | ) |
| Effect of state income taxes | | | (105,545 | ) | | | (103,508 | ) |
| Valuation allowance | | | 885,848 | | | | 868,872 | |
| Income taxes (credit) | | $ | – | | | $ | – | |
Future realization of the net operating losses is dependent on generating sufficient taxable income prior to their expiration. Tax effects are based on a 34% Federal income tax rate. The net operating losses expire as follows:
| | | Amount | |
| | | | | |
| 2025 | | $ | 1,524,541 | |
| 2026 | | | 5,132,298 | |
| 2027 | | | 3,052,902 | |
| 2028 | | | 2,251,030 | |
| 2029 | | | 2,295,008 | |
| Total net operating loss available | | $ | 14,255,779 | |
Note 9 - Fair Value Measurements
The Company adopted SFAS No. 157 as of April 1, 2009. SFAS No. 157 applies to certain assets and liabilities that are being measured and reported on a fair value basis. SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosure about fair value measurements. SFAS No. 157 enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. SFAS No. 157 requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
The Company records liabilities related to its warrants (See Note 11 – Derivative Financial Instruments) and the beneficial conversion feature of its convertible debentures (See Note 10 – Convertible Debt) at their fair market values as provided by SFAS No. 157.
The following table provides fair market measurements of the warrant and beneficial conversion feature liabilities as of March 31, 2009:
| | | Fair Value Measurements at Reporting Date Using Significant Unobservable Inputs (Level 3) | |
| | | | | |
| Warrant liabilities | | $ | 643,750 | |
| Beneficial conversion feature liabilities | | | 2,527,050 | |
| | | $ | 3,170,800 | |
The change in fair market value of the warrant and beneficial conversion feature liabilities is included in interest expense in the Consolidated Statements of Operations.
The following table provides a reconciliation of the beginning and ending balances of the warrant and beneficial conversion feature liabilities as of March 31, 2009:
| | | Warrant liability | | | Beneficial conversion feature liability | | | Total | |
| | | | | | | | | | | | | |
| Beginning balance April 1, 2008 | | $ | 1,794,796 | | | $ | 2,527,050 | | | $ | 4,321,846 | |
| Change in fair market value of beneficial conversion liabilities due to partial maturity of note and conversion feature | | | – | | | | – | | | | | |
| Change in fair market value of warrant and beneficial conversion liabilities | | | (1,151,046 | ) | | | – | | | | (1,151,046 | ) |
| Ending balance Marcch 31, 2009 | | $ | 643,750 | | | $ | 2,527,050 | | | $ | 3,170,800 | |
Certain financial instruments are carried at cost on the consolidated balance sheets, which approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, other short-term liabilities, and capital lease obligations.
Note 10 – Convertible Debt
The Company entered into a Convertible Loan Agreement which also entitled the lenders to warrants and to convert the loans, at their option, to common stock of the Company. The debt is convertible at a rate of 50% of the then current market price at the time of conversion. At March 31, 2009, the value of the 6% Convertible Notes, with interest quarterly, was as follows:
| Maturity | | Face Amount | | | Conversion Derivative | | | Balance | |
| | | | | | | | | | |
| April 28, 2009 | | $ | 327,050 | | | $ | 327,050 | | | $ | 657,100 | |
| August 17, 2009 | | | 700,000 | | | | 700,000 | | | | 1,400,000 | |
| October 28, 2009 | | | 300,000 | | | | 300,000 | | | | 600,000 | |
| November 10, 2009 | | | 1,200,000 | | | | 1,200,000 | | | | 2,400,000 | |
| Total | | $ | 2,527,050 | | | $ | 2,527,050 | | | $ | 5,054,100 | |
Interest expense for the year ended March 31, 2009 and 2008 was $151,623 and $154,507, respectively.
Note 11 – Derivative Financial Instruments
In connection with various financings through November 10, 2006, the Company has issued warrants to purchase shares of common stock in conjunction with the convertible notes to purchase 12,000,000 shares of common stock at an exercise price of $2.50 per share. The Company also issued warrants to a broker in the transaction for the exercise of 70,000 shares of common stock at an exercise price of $2.50. These warrants expire if not exercised at various dates in 2013 through November 10, 2013. At March 31, 2009, all of the 12,000,000 warrants have been issued entitling the lender to one share for each warrant at an exercise price of $2.50 per share.
The agreements include registration rights and certain other terms and conditions related to share settlement of the embedded conversion features and the warrants. In this instance, EITF 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, requires allocation of the proceeds between the various instruments and the derivative elements carried at fair values.
In additional, in conjunction with financings, purchases and consulting transactions between April 1, 2007 and March 31, 2009 the Company issued additional warrants, net of expirations, to purchase 8,725,000 shares of the Company’s common stock at exercise prices between $0.04 and $2.50 per share. At March 31, 2009, 2,500,000 warrants were not exercisable and become exercisable at a rate 150,000 shares per quarter. No warrants have been exercised.
At March 31, 2009, there were 20,725,000 shares subject to warrants at a weighted average exercise price of $1.69.
| | | Number of Shares | | Weighted Average |
| | | Subject to Outstanding | | Remaining |
| | | Warrants | | Contractual Life |
| | and Exercisable | | (years) |
| | | | | | | |
| | $ 0.75 | | | 5,775,000 | | 3.25 |
| | $ 2.50 | | | 12,450,000 | | 4.26 |
| | | | | 18,225,000 | | |
| Not exercisable | | | 2,500,000 | | |
| | | | | 20,725,000 | | |
In addition to the spot price of the stock and remaining term of the warrant, other factors used in the binomial model included in the analysis at June 30, 2009 were the volatility of 230.5%, risk free rate of between 0.56% and 3.19% and a dividend rate of $0 per period.
Note 12 - Commitments and Contingencies
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash. The Company periodically evaluates the credit worthiness of financial institutions, and maintains cash accounts only in large high quality financial institutions, thereby minimizing exposure for deposits in excess of federally insured amounts.
Lease Commitments
The Company has lease agreements for office space in Scottsdale, Arizona and for 26 offices throughout the United States. The remaining lease commitment for the two Scottsdale office are 3 and 5 years and the other offices is year to year or month-to-month. The following table sets forth the aggregate minimum future annual lease commitments at March 31, 2009 under all non-cancelable leases for fiscal years ending March 31:
| 2010 | | $ | 374,923 | |
| 2011 | | | 292,276 | |
| 2012 | | | 225,921 | |
| 2013 | | | 110,350 | |
| 2014 | | | 63,064 | |
| Thereafter | | | 110,052 | |
| | | $ | 1,176,586 | |
Lease expense for the years ended March 31, 2009 and 2008 were $99,431 and $90,398, respectively. The total of all scheduled lease payments, assuming all locations are continued at the same rates, is $623,315 per year.
In conjunction with the acquisition of the assets of Lumea, a company owned by the President/CEO of the Company had a prior placement agreement with the Sellers of the assets and as such was entitled to receive compensation for such placement with any entity. As part of the closing that company was paid a fee of $168,333 which was paid by the issuance of 3,366,667 shares of Green Planet’s restricted common stock. The executives of the Company were issued a total of 1.5 million restricted shares of common stock during 2009 as part of their compensation. The Company recognized expense of $60,000 in conjunction with these issuances.
Note 14 - Company Stock
Preferred Stock
At March 31, 2009 and 2008, the Company had 1,000,000 shares of $0.001 par value authorized and no outstanding or issued shares. If and when issued, such shares will have the rights, preferences, privileges and restrictions as determined by the Board of Directors.
Common Stock
At March 31, 2009 and 2008, the Company had 250,000,000 shares authorized of $0.001 par value common stock, of which issued and outstanding shares were 117,440,764 and 54,885,103, respectively.
Warrants
In conjunction with four fundings during the year ended March 31, 2007, the Company issued 7,000,000 warrants at an exercise price of $2.50 per share and 5,000,000 warrants to cure a default caused by late filing of the registration statement with the Securities and Exchange Commission and 700,000 cashless warrants to the broker that brought the loan packages to the Company. All of these warrants expire seven years from issue.
Also, the Company issued 1,400,000 cashless warrants to the seller in conjunction with the acquisition of Dyson Properties, Inc. that expire March 26, 2010.
During the year ended March 31, 2008, the Company issued 5,775,000 warrants at an exercise price of $0.75 per share and 519,750 cashless warrants at an exercise price of $0.75 for a period of 5 years in conjunction with a loan funding in June of 2007. The Company also issued warrants to purchase 500,000 shares at an exercise price of $0.75 for a term of two years in conjunction with the investor’s purchase of common stock that expire on May 21, 2009.
At March 31, 2009, the status of outstanding warrants is as follows:
| Issue Date | | Shares Exercisable | | Weighted Average Exercise Price | | Expiration Date |
| | | | | | | | |
| September 27, 2005 | | 450,000 | | $ | 2.50 | | September 26, 2010 |
| April 29, 2006 | | 1,866,667 | | $ | 2.50 | | April 28, 2013 |
| June 28, 2006 | | 5,000,000 | | $ | 2.50 | | August 10, 2013 |
| August 17, 2006 | | 1,633,333 | | $ | 2.50 | | August 17, 2013 |
| October 28, 2006 | | 700,000 | | $ | 2.50 | | October 28, 2013 |
| November 10, 2006 | | 2,800,000 | | $ | 2.50 | | November 10, 2013 |
| May 21, 2007 | | 500,000 | | $ | .75 | | May 20, 2009 |
| July 1, 2007 | | 5,775,000 | | $ | .75 | | June 30, 2012 |
| Cashless April 20-November 10, 2006 | | 700,000 | | $ | 2.50 | | April 9 - November 10, 2015 |
| Cashless March 26, 2007 | | 1,400,000 | | $ | .75 | | March 26, 2010 |
| Cashless July 1, 2007 | | 519,750 | | $ | .75 | | June 30, 2012 |
| March 1, 2009 | | 2,500,000 (1) | | $ | .04 | | March 1, 2017 |
____________
| (1) | Options are vested at 150,000 shares at the end of each fiscal quarter starting on June 30, 2009. |
The warrants have no intrinsic value at March 31, 2009.
Stock Options
At March 31, 2009, the Company had one stock option plan under which grants were outstanding. The stock options outstanding are for grants issued under the Company’s 2007 Stock Incentive Plan.
The 2007 Stock Incentive Plan
During the fiscal year ended March 31, 2009, the Company adopted a stock option plan, entitled the “2007 Incentive Plan” (the “2007 Plan”), under which the Company may grant options to purchase up to 20,000,000 shares of common stock.
The 2007 Plan is administered by the Board of Directors or a Committee of the Board of Directors which has the authority to determine the persons to whom the options may be granted, the number of shares of common stock to be covered by each option grant, and the terms and provisions of each option grant. Options granted under the 2007 Plan may be incentive stock options or non-qualified options, and may be issued to employees, consultants, advisors and directors of the Company and its subsidiaries. The exercise price of options granted under the 2007 Plan may not be less than the fair market value of the shares of common stock on the date of grant, and may not be granted more than ten years from the date of adoption of the plan or exercised more than ten years from the date of grant.
The following table sets forth the Company’s stock option activity during the year ended March 31, 2009:
| | Shares Underlying Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Life | | Aggregate Intrinsic Value |
| | | | | | | | | |
| Outstanding at March 31, 2007 | – | | $ | – | | – | | – |
| Granted | 5,415,000 | | | .20 | | 3.0 | | – |
| Exercised | – | | | – | | – | | – |
| Canceled | – | | | – | | – | | – |
| | | | | | | | | |
| Outstanding at March 31, 2008 | 5,415,000 | | | .20 | | 3.0 | | – |
| Granted | – | | | – | | – | | – |
| Exercised | – | | | – | | – | | – |
| Canceled | 450,000 | | | .20 | | – | | – |
| | | | | | | | | |
| Outstanding at March 31, 2009 | 4,965,000 | | $ | .20 | | 2.0 | | – |
| | | Number of Options | | | Weighted-Average Grant-Date Fair Value | |
| | | | | | | | | |
| Non-vested as of March 31, 2007 | | | – | | | $ | – | |
| Granted | | | 5,415,000 | | | | .11 | |
| Forfeited | | | – | | | | – | |
| Vested | | | – | | | | – | |
| | | | | | | | | |
| Non-vested as of March 31, 2008 | | | 5,415,000 | | | $ | .11 | |
| Granted | | | – | | | | .11 | |
| Forfeited | | | (450,000 | ) | | | – | |
| Vested | | | (3,310,000 | ) | | | – | |
| | | | | | | | | |
| Non-vested as of March 31, 2009 | | | 1,655,000 | | | $ | .11 | |
During the year ended March 31, 2008, the Company granted options to purchase an aggregate of 5,415,000 shares of common stock to employees, directors and consultants for services to be provided. These options are exercisable at $0.20 per share, and vest one third on October 1, 2008, April 1, 2009 and October 1, 2009 with an expiration of three years from the date of grant for all options. The Company has valued these at their fair value on the date of grant using the Hull-White enhanced option-pricing model. During the year ended March 31, 2009 the Company recognized expense of $358,362.
The original unrecognized stock-based compensation expense related to the unvested options was approximately $610,548 and will be recognized as expense over the vesting periods of 18 months. This estimate is based on the number of unvested options currently outstanding and could change based on the number of options granted or forfeited in the future. These options have no intrinsic value at March 31, 2009 or March 31, 2008.
The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates.
The Company based its expected volatility on the historical volatility of similar companies with consideration given to the expected life of the award. The Company continued to consistently use this method until March 31, 2009 when it appeared that sufficient market acceptance of its stock and volume has reached a stable level.
The risk-free interest rate used for each grant is equal to the U.S. Treasury yield in effect at the time of grant for instruments with a similar expected life.
The expected term of options granted was determined based on the historical exercise behavior of similar peer groups.
The Company has never declared or paid a cash dividend, and has no current plans to pay a cash dividend in the future.
SFAS 123(R) also requires that the Company recognize compensation expense for only the portions that are expected to vest. Therefore, the Company has estimated expected forfeitures of stock options with the adoption of SFAS 123(R). In developing a forfeiture rate estimate, the Company considered its historical experience. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.
The fair value of options were estimated at the date of grant with the following weighted-average assumptions for the fiscal year ended March 31, 2008:
| | | 2008 |
| | | |
| Risk Free Interest Rate | | | 1.79 | % |
| Expected Life | | 3.0 years |
| Expected Volatility | | | 116 | % |
| Expected Dividend Yield | | | 0 | % |
The per share weighted average fair value of stock options granted for the fiscal year ended March 31, 2008 was $0.11.
Note 15 - Earnings (Loss) Per Share
Basic income (loss) per common share is computed by dividing the results of operations by the weighted average number of shares outstanding during the period. For purposes of the determining the number of shares outstanding the shares received by the acquirer in the reverse acquisition are treated as outstanding for all periods prior to the transaction.
Diluted income (loss) earnings per common share adjusts basic income (loss) per common share for the effects of convertible securities, stock options, warrants and other potentially dilutive financial instruments only in periods in which such effect is dilutive. No instruments were dilutive at March 31, 2009 or 2008. The diluted income (loss) per common share excludes the dilutive effect of approximately 22,999,750 and 21,344,750 warrants and stock options at March 31, 2009 and 2008, respectively, since such warrants and options have an exercise price in excess of the average market value of the Company’s common stock during the respective periods.
Note 16 – Segment Reporting
Green Planet Group, Inc. has two reportable segments: the engine, fuel additives and green energy products and the industrial staffing segments. The first segment is comprised of the XenTx Lubricants, EMTA Corp. and White Sands entities and the staffing segment is comprised of Lumea, Inc. and its operating subsidiaries. Prior to March 1, 2009, Green Planet Group, Inc. only had the first reporting segment of business.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Interest expense related to the individual entities is paid by or charged to those entities and the related debt is included as that entity’s liability. Green Planet management evaluates performance based on profit or loss before income taxes not including nonrecurring gains and losses.
There have been no significant intersegment sales or costs.
Green Planet’s business is conducted through separate legal entities that are wholly owned subsidiaries. Each entity has a specific set of business objectives and line of business.
The Company analyzes the result of the operations of the individual entities and the segments. Green Planet does not allocate income taxes and unusual items to the segments. The segment information for the year ended March 31, 2009 is presented below.
| | | Additives & | | | | | | Corporate | | | | |
| | | Green Energy | | | Staffing | | | & Eliminations | | | Consolidated | |
| | | | | | | | | | | | | |
| Income statement information: | | | | | | | | | | | | |
| United States sales | | $ | 2,348,053 | | | $ | 5,784,408 | | | $ | – | | | $ | 8,132,461 | |
| Foreign sales | | | 1,038,333 | | | | – | | | | – | | | | 1,038,333 | |
| Gross sales | | | 3,386,386 | | | | 5,784,408 | | | | – | | | | 9,170,794 | |
| Net sales | | | 3,386,386 | | | | 5,784,408 | | | | – | | | | 9,170,794 | |
| Depreciation and amortization | | | 244,259 | | | | 64,574 | | | | – | | | | 308,833 | |
| Interest (expense)/income | | | 218,519 | | | | 67,317 | | | | 549,936 | | | | 264,100 | |
| Loss before income taxes | | | (1,263,515 | ) | | | (362,912 | ) | | | (1,045,943 | ) | | | (2,672,370 | ) |
| Net loss | | | (1,263,515 | ) | | | (362,912 | ) | | | (1,045,943 | ) | | | (2,672,370 | ) |
| | | | | | | | | | | | | | | | | |
| Balance sheet information: | | | | | | | | | | | | | | | | |
| Total assets | | | 4,146,987 | | | | 13,729,688 | | | | 3,888,366 | | | | 21,765,041 | |
Note 17 - Restatement of Prior Financial Statements
On July 31, 2009, the board of directors (the “Board”) of Green Planet Group, Inc. (the “Company”) concluded that the Company’s previously filed consolidated financial statements for the fiscal year ends March 31, 2007, 2008 and 2009 on Form 10-K and the quarterly statements from September 30, 2006 (the first required filing date) through December 31, 2008 on Form 10-Q should no longer be relied upon. The Board with the recommendation of management came to this conclusion based on comments received the Accounting Staff of the Division of Corporate Finance of the Securities and Exchange Commission (the “SEC”) in its review of the Company’s financial statements for the year ended March 31, 2008 and interim filings through December 31, 2008. After discussion, review and analysis of our accounting and disclosures, the Company identified the following issues:
| | 1) | The Company treated the convertible debt and related warrants under EITF 00-27 under which such converted or exercised instruments are recognized as equity and under the EITF 00-19, and owing to the unlimited nature of the potential issuances, the instruments are to be treated as liabilities or assets and revalued each reporting period. |
| | 2) | Under Statement of Financial Accounting Standards No. 150 “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity,” Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities,” and Emerging Issues Task Force Staff Position EITF 00-19 “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own,” which state in part that convertible instruments should be valued at their fair value at date of issuance and derivatives, such as warrants, should be valued at their fair value at issuance and each subsequent reporting date. |
| | 3) | Accordingly, the Company is restating the financial statements referred to above. In summary, in conjunction with the aggregate face amount of the convertible loans of $3,000,000 with net proceeds of $2,512,500, the Company estimates that at the closing of the various convertible loans in the year ended March 31, 2007 the Company will book an additional $3,000,000 of loan balance representing the 50% conversion feature of the instruments to common stock of the Company and a derivative liability of $39,207,874 for the then fair value of the warrants issued and outstanding. At the end of the reporting period credits of $13,960,334 to adjust for the “default warrants” issued and valued under EITF 00-27 in error and a valuation allowance of $38,685,527 to adjust to the yearend valuation resulting in a net decrease of $10,437,986 in the net loss for March 31, 2007. At March 31, 2008, the year end valuation resulted in additional interest expense of $1,272,447 and a increase in the net loss for the period of a like amount and at March 31, 2009 the Company has a reduction of interest expense by $1,151,045 and a decrease in the net loss for the period of the same amount. For the three months ended June 30, 2008 the Company is reporting as additional interest expense of $1,070,548 and a change in the net income for the period from $167,517 to a loss of $903,031. The results of these changes are reflected in the following balance sheets and statements of operations for the years ended March 31, 2009, 2008 and 2007 and the quarterly periods ended June 30, 2007 and 2008, September 30, 2006, 2007 and 2008 and December 31, 2006, 2007 and 2008: |
| Consolidated Balance Sheets | |
| | | March 31, 2009 | |
| | | As Originally | | | | | | | | | After | |
| ASSETS | | Reported | | | Adjustments | | | | | | Restatement | |
| | | | | | | | | | | | | |
| Current Assets: | | | | | | | | | | | | |
| Cash | | $ | 470,288 | | | $ | – | | | | | | $ | 470,288 | |
| Accounts receivable | | | 4,349,866 | | | | – | | | | | | | 4,349,866 | |
| Inventory | | | 369,403 | | | | – | | | | | | | 369,403 | |
| Prepaid expenses | | | 1,495,461 | | | | 158,970 | | | A | | | | 1,654,431 | |
| Total Current Assets | | | 6,685,018 | | | | 158,970 | | | | | | | 6,843,988 | |
| Plant and equipment, net of accumulated depreciation | | | 1,900,834 | | | | – | | | | | | | 1,900,834 | |
| Other Assets: | | | | | | | | | | | | | | | |
| Other assets | | | 189,164 | | | | 106,208 | | | A | | | | 295,372 | |
| Intangible assets | | | 3,745,025 | | | | – | | | | | | | 3,745,025 | |
| Goodwill | | | 8,979,822 | | | | – | | | | | | | 8,979,822 | |
| Total Other Assets | | | 12,914,011 | | | | 106,208 | | | | | | | 13,020,219 | |
| Total Assets | | $ | 21,499,863 | | | $ | 265,178 | | | | | | $ | 21,765,041 | |
| | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 1,210,127 | | | $ | – | | | | | | $ | 1,210,127 | |
| Accounts payable - affiliates | | | 165,565 | | | | – | | | | | | | 165,565 | |
| Accrued liabilities | | | 4,765,026 | | | | – | | | | | | | 4,765,026 | |
| Cashless warrant liability | | | 57,876 | | | | – | | | | | | | 57,876 | |
| Notes payable and amounts due within one year | | | 6,429,994 | | | | 106,208 | | | A | | | | 6,536,202 | |
| Derivative liability | | | – | | | | 643,750 | | | B | | | | 643,750 | |
| Convertible notes payable | | | 2,474,287 | | | | 2,579,813 | | | C | | | | 5,054,100 | |
| Total Current Liabilities | | | 15,102,875 | | | | 3,329,771 | | | | | | | 18,432,646 | |
| | | | | | | | | | | | | | | | |
| Notes payable due after one year | | | 8,955,442 | | | | 106,208 | | | A | | | | 9,061,650 | |
| Total Liabilities | | | 24,058,317 | | | | 3,435,979 | | | | | | | 27,494,296 | |
| Stockholders’ Equity: | | | | | | | | | | | | | | | |
| Preferred Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and outstanding | | | – | | | | – | | | | | | | – | |
| Common Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding 117,440,103 at March 31, 2009 | | | 117,441 | | | | – | | | | | | | 117,441 | |
| Additional paid-in capital | | | 28,201,532 | | | | (13,487,384 | ) | | D | | | | 14,714,148 | |
| Accumulated deficit | | | (30,877,427 | ) | | | 10,316,583 | | | E | | | | (20,560,844 | ) |
| Total Stockholders' Equity/(Deficit) | | | (2,558,454 | ) | | | (3,170,801 | ) | | | | | | (5,729,255 | ) |
| Total Liabilities and Stockholders' Equity/(Deficit) | | $ | 21,499,863 | | | $ | 265,178 | | | | | | $ | 21,765,041 | |
(Continued)
| Consolidated Statements of Operations | |
| | | For the Year Ended March 31, 2009 | |
| | | As Originally | | | | | | | | | After | |
| | | Reported | | | Adjustments | | | | | | Restatement | |
| Revenue: | | | | | | | | | | | | |
| Sales, net of returns and allowances | | $ | 9,170,794 | | | $ | – | | | | | | $ | 9,170,794 | |
| Cost of sales | | | 7,030,015 | | | | – | | | | | | | 7,030,015 | |
| | | | | | | | | | | | | | | | |
| Gross Profit | | | 2,140,779 | | | | – | | | | | | | 2,140,779 | |
| | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 3,798,290 | | | | – | | | | | | | 3,798,290 | |
| Depreciation and amortization | | | 308,833 | | | | – | | | | | | | 308,833 | |
| Allowance for bad debts | | | 970,542 | | | | – | | | | | | | 970,542 | |
| Total Operating Expenses | | | 5,077,665 | | | | – | | | | | | | 5,077,665 | |
| Loss From Operations | | | (2,936,886 | ) | | | – | | | | | | | (2,936,886 | ) |
| | | | | | | | | | | | | | | | |
| Other Income and (Expense): | | | | | | | | | | | | | | | |
| Other income | | | 416 | | | | – | | | | | | | 416 | |
| Interest expense | | | (886,945 | ) | | | 1,151,045 | | | B | | | | 264,100 | |
| Loss before provision for income taxes | | | (3,823,415 | ) | | | 1,151,045 | | | | | | | (2,672,370 | ) |
| | | | | | | | | | | | | | | | |
| Provision for/(Benefit of) income taxes | | | – | | | | – | | | | | | | – | |
| | | | | | | | | | | | | | | | |
| Net Loss | | $ | (3,823,415 | ) | | $ | 1,151,045 | | | | | | $ | (2,672,370 | ) |
| | | | | | | | | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | | | | | | | | |
| Basic and diluted earnings per share | | $ | (0.05 | ) | | $ | 0.01 | | | | | | $ | (0.04 | ) |
| Weighted average shares outstanding | | | 73,612,313 | | | | 73,612,313 | | | | | | | 73,612,313 | |
(Continued)
| Consolidated Balance Sheets | | March 31, 2008 | |
| | | As Originally | | | | | | | | | After | |
| ASSETS | | Reported | | | Adjustments | | | | | | Restatement | |
| Current Assets: | | | | | | | | | | | | |
| Cash | | $ | 59,544 | | | $ | – | | | | | | $ | 59,544 | |
| Accounts receivable | | | 932,125 | | | | – | | | | | | | 932,125 | |
| Notes receivable | | | 137,500 | | | | – | | | | | | | 137,500 | |
| Inventory | | | 416,793 | | | | – | | | | | | | 416,793 | |
| Prepaid expenses | | | 62,849 | | | | 267,440 | | | A | | | | 330,289 | |
| Total Current Assets | | | 1,608,811 | | | | 267,440 | | | | | | | 1,876,251 | |
| Property, plant and equipment, net of accumulated depreciation | | | 1,786,967 | | | | – | | | | | | | 1,786,967 | |
| Other Assets: | | | | | | | | | | | | | | | |
| Other assets | | | 2,351 | | | | 265,178 | | | A | | | | 267,529 | |
| Intangible assets | | | 633,611 | | | | – | | | | | | | 633,611 | |
| Total Other Assets | | | 635,962 | | | | 265,178 | | | | | | | 901,140 | |
| Total Assets | | $ | 4,031,740 | | | $ | 532,618 | | | | | | $ | 4,564,358 | |
| | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 815,936 | | | $ | – | | | | | | $ | 815,936 | |
| Accrued liabilities | | | 1,657,416 | | | | – | | | | | | | 1,657,416 | |
| Cashless warrant liability | | | 257,379 | | | | – | | | | | | | 257,379 | |
| Notes payable and amounts due within one year | | | 1,795,398 | | | | 155,967 | | | A | | | | 1,951,365 | |
| Derivative liability | | | – | | | | 1,794,795 | | | B | | | | 1,794,795 | |
| Total Current Liabilities | | | 4,526,129 | | | | 1,950,762 | | | | | | | 6,476,891 | |
| | | | | | | | | | | | | | | | |
| Notes payable due after one year | | | 874,698 | | | | 212,414 | | | A | | | | 1,087,112 | |
| Convertible Notes Payable | | | 2,362,815 | | | | 2,691,285 | | | C | | | | 5,054,100 | |
| Total Liabilities | | | 7,763,642 | | | | 4,854,461 | | | | | | | 12,618,103 | |
| Stockholders’ Equity: | | | | | | | | | | | | | | | |
| Preferred Stock, $0.001 par value, 1,000,000 authorized; | | | | | | | | | | | | | | | |
| no shares issued and outstanding | | | – | | | | – | | | | | | | – | |
| Common Stock, $0.001 par value, 250,000,000 | | | | | | | | | | | | | | | |
| authorized, issued and outstanding 54,885,103 | | | | | | | | | | | | | | | |
| at March 31, 2008 | | | 54,885 | | | | – | | | | | | | 54,885 | |
| Additional paid-in capital | | | 23,267,228 | | | | (13,487,384 | ) | | D | | | | 9,779,844 | |
| Accumulated deficit | | | (27,054,015 | ) | | | 9,165,541 | | | E | | | | (17,888,474 | ) |
| Total Stockholders’ Equity/(Deficit) | | | (3,731,902 | ) | | | (4,321,843 | ) | | | | | | (8,053,745 | ) |
| Total Liabilities and Stockholders’ Equity/(Deficit) | | $ | 4,031,740 | | | $ | 532,618 | | | | | | $ | 4,564,358 | |
| | | | | | | | | | | | | | | | |
(Continued)
| Consolidated Statements of Operations | | | | | | | | | | | Adjusted | |
| | | March 31, | | | | | | | | | March 31, | |
| | | 2008 | | | Adjustments | | | | | | 2008 | |
| Revenue: | | | | | | | | | | | | |
| Sales, net of returns and allowances | | $ | 2,769,949 | | | $ | – | | | | | | $ | 2,769,949 | |
| Cost of sales | | | 1,305,328 | | | | – | | | | | | | 1,305,328 | |
| | | | | | | | | | | | | | | | |
| Gross Profit | | | 1,464,621 | | | | – | | | | | | | 1,464,621 | |
| | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 2,696,506 | | | | – | | | | | | | 2,696,506 | |
| Depreciation and amortization | | | 247,768 | | | | – | | | | | | | 247,768 | |
| Allowance for bad debts | | | 41 | | | | – | | | | | | | 41 | |
| Research and development | | | 118,546 | | | | – | | | | | | | 118,546 | |
| Total Operating Expenses | | | 3,062,861 | | | | – | | | | | | | 3,062,861 | |
| Loss From Operations | | | (1,598,240 | ) | | | – | | | | | | | (1,598,240 | ) |
| | | | | | | | | | | | | | | | |
| Other Income and (Expense): | | | | | | | | | | | | | | | |
| Interest expense | | | (851,843 | ) | | | (1,272,446 | ) | | B | | | | (2,124,289 | ) |
| Loss before provision for income taxes | | | (2,450,084 | ) | | | (1,272,446 | ) | | | | | | (3,722,529 | ) |
| | | | | | | | | | | | | | | | |
| Provision for/(Benefit of) income taxes | | | – | | | | – | | | | | | | – | |
| | | | | | | | | | | | | | | | |
| Net Loss | | $ | (2,450,084 | ) | | $ | (1,272,446 | ) | | | | | $ | (3,722,529 | ) |
| | | | | | | | | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | | | | | | | | |
| Basic and diluted loss per share | | $ | (0.06 | ) | | | (0.02 | ) | | | | | $ | (0.08 | ) |
| Weighted average shares outstanding | | | 44,490,994 | | | | 44,490,994 | | | | | | | 44,490,994 | |
(Continued)
| Consolidated Balance Sheets | | March 31, 2007 | |
| | | As Originally | | | | | | | | | After | |
| ASSETS | | Reported | | | Adjustments | | | | | | Restatement | |
| Current Assets: | | | | | | | | | | | | |
| Cash | | $ | 101,116 | | | $ | – | | | | | | $ | 101,116 | |
| Accounts receivable | | | 67,571 | | | | – | | | | | | | 67,571 | |
| Inventory | | | 586,453 | | | | – | | | | | | | 586,453 | |
| Prepaid expenses | | | 28,304 | | | | 142,437 | | | A | | | | 170,741 | |
| Total Current Assets | | | 783,444 | | | | 142,437 | | | | | | | 925,881 | |
| Property, plant and equipment, net of accumulated depreciation | | | 2,035,908 | | | | – | | | | | | | 2,035,908 | |
| Other Assets: | | | | | | | | | | | | | | | |
| Other assets | | | 12,156 | | | | 164,235 | | | A | | | | 176,391 | |
| Intangible assets | | | 760,333 | | | | – | | | | | | | 760,333 | |
| Total Other Assets | | | 772,489 | | | | 164,235 | | | | | | | 936,724 | |
| Total Assets | | $ | 3,591,841 | | | $ | 306,672 | | | | | | $ | 3,898,513 | |
| | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 640,852 | | | $ | – | | | | | | $ | 640,852 | |
| Accrued liabilities | | | 1,396,063 | | | | – | | | | | | | 1,396,063 | |
| Cashless warrant liability | | | 58,283 | | | | – | | | | | | | 58,283 | |
| Notes payable and amounts due within one year | | | 1,989,693 | | | | – | | | | | | | 1,989,693 | |
| Derivative liability | | | – | | | | 522,351 | | | A | | | | 522,351 | |
| Total Current Liabilities | | | 4,084,891 | | | | 522,351 | | | | | | | 4,607,242 | |
| | | | | | | | | | | | | | | | |
| Convertible Notes Payable | | | 2,305,999 | | | | 2,933,922 | | | B | | | | 5,239,921 | |
| Total Liabilities | | | 6,390,890 | | | | 3,456,273 | | | | | | | 9,847,163 | |
| Stockholders’ Equity | | | | | | | | | | | | | | | |
| Preferred Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and outstanding | | | – | | | | – | | | | | | | – | |
| Common Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding 40,396,004 at March 31, 2007 | | | 40,396 | | | | – | | | | | | | 40,396 | |
| Additional paid-in capital | | | 21,764,483 | | | | (13,587,584 | ) | | D | | | | 8,176,899 | |
| Accumulated deficit | | | (24,603,928 | ) | | | 10,437,983 | | | E | | | | (14,165,945 | ) |
| Total Stockholders’ Equity/(Deficit) | | | (2,799,049 | ) | | | (3,149,601 | ) | | | | | | (5,948,650 | ) |
| Total Liabilities and Stockholders’ Equity/(Deficit) | | $ | 3,591,841 | | | $ | 306,672 | | | | | | $ | 3,898,513 | |
(Continued)
| Consolidated Statements of Operations | | | | | | | | | | | Adjusted | |
| | | March 31, | | | | | | | | | March 31, | |
| | | 2007 | | | Adjustments | | | | | | 2007 | |
| Revenue: | | | | | | | | | | | | |
| Sales, net of returns and allowances | | $ | 1,053,767 | | | $ | – | | | | | | $ | 1,053,767 | |
| Cost of sales | | | 424,929 | | | | – | | | | | | | 424,929 | |
| | | | | | | | | | | | | | | | |
| Gross Profit | | | 628,838 | | | | – | | | | | | | 628,838 | |
| | | | | | | | | | | | | | | | |
| Operating Expenses: | | | – | | | | – | | | | | | | – | |
| Selling, general and administrative | | | 2,931,090 | | | | – | | | | | | | 2,931,090 | |
| Depreciation and amortization | | | 154,666 | | | | – | | | | | | | 154,666 | |
| Allowance for bad debts | | | (15,476 | ) | | | – | | | | | | | (15,476 | ) |
| Research and development | | | 304,793 | | | | – | | | | | | | 304,793 | |
| Total Operating Expenses | | | 3,375,073 | | | | – | | | | | | | 3,375,073 | |
| Loss From Operations | | | (2,746,235 | ) | | | – | | | | | | | (2,746,235 | ) |
| | | | | | | | | | | | | | | | |
| Other Income and (Expense): | | | | | | | | | | | | | | | |
| Other income | | | 12,608 | | | | – | | | | | | | 12,608 | |
| Gain/(Loss) on disposal of assets | | | 2,850 | | | | – | | | | | | | 2,850 | |
| Interest expense | | | (364,932 | ) | | | (3,522,351 | ) | | B | | | | (3,887,283 | ) |
| Cost of curing loan default | | | (13,960,334 | ) | | | 13,960,334 | | | B | | | | – | |
| Loss before provision for income taxes | | | (17,056,043 | ) | | | 10,437,983 | | | | | | | (6,618,060 | ) |
| | | | | | | | | | | | | | | | |
| Provision for/(Benefit of) income taxes | | | – | | | | – | | | | | | | – | |
| | | | | | | | | | | | | | | | |
| Net Loss | | $ | (17,056,043 | ) | | $ | 10,437,983 | | | | | | $ | (6,618,060 | ) |
| | | | | | | | | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | | | | | | | | |
| Basic and diluted loss per share | | $ | (0.54 | ) | | $ | 0.33 | | | | | | $ | (0.21 | ) |
| Weighted average shares outstanding | | | 31,410,799 | | | | 31,410,799 | | | | | | | 31,410,799 | |
___________________
A – Adjustment to reclassify unamortized loan fees and costs to prepaid expenses and other assets
B – Adjustment to reflect change in derivative value for the period
C – Cumulative effect to reflect loan conversion feature net of conversions in prior periods
D – Cumulative effect of error in reporting cure cost of default and effect of conversions
E – Cumulative effect of prior period adjustments and current period adjustment to accumulated deficit
The following quarterly balance sheets and statements of operations for the periods ended September 30, 2006 through December 31, 2008 are unaudited.
| Consolidated Balance Sheets | |
| | | December 31, 2008 | |
| | | As Originally | | | | | | | | | After | |
| ASSETS | | Reported | | | Adjustments | | | | | | Restatement | |
| Current Assets: | | | | | | | | | | | | |
| Cash | | $ | 69,560 | | | $ | – | | | | | | $ | 69,560 | |
| Accounts receivable | | | 1,787,143 | | | | – | | | | | | | 1,787,143 | |
| Notes receivable | | | – | | | | – | | | | | | | – | |
| Inventory | | | 406,163 | | | | – | | | | | | | 406,163 | |
| Prepaid expenses | | | 161,693 | | | | 201,409 | | | A | | | | 363,102 | |
| Total Current Assets | | | 2,424,559 | | | | 201,409 | | | | | | | 2,625,968 | |
| Property, plant and equipment, net of accumulated depreciation | | | 1,718,543 | | | | – | | | | | | | 1,718,543 | |
| Other Assets: | | | | | | | | | | | | | | | |
| Other assets | | | 59,696 | | | | 125,518 | | | A | | | | 185,214 | |
| Intangible assets | | | 536,569 | | | | – | | | | | | | 536,569 | |
| Total Other Assets | | | 596,265 | | | | 125,518 | | | | | | | 721,783 | |
| Total Assets | | $ | 4,739,367 | | | $ | 326,927 | | | | | | $ | 5,066,294 | |
| | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 891,213 | | | $ | – | | | | | | $ | 891,213 | |
| Accrued liabilities | | | 1,985,460 | | | | – | | | | | | | 1,985,460 | |
| Cashless warrant liability | | | 30,251 | | | | – | | | | | | | 30,251 | |
| Notes payable and amounts due within one year | | | 1,939,541 | | | | 115,863 | | | A | | | | 2,055,404 | |
| Derivative liability | | | – | | | | 554,612 | | | B | | | | 554,612 | |
| Convertible notes payable | | | 2,453,243 | | | | 2,600,857 | | | C | | | | 5,054,100 | |
| Total Current Liabilities | | | 7,299,708 | | | | 3,271,332 | | | | | | | 10,571,040 | |
| | | | | | | | | | | | | | | | |
| Notes payable due after one year | | | 779,918 | | | | 137,255 | | | A | | | | 917,173 | |
| Total Liabilities | | | 8,079,626 | | | | 3,408,587 | | | | | | | 11,488,213 | |
| Stockholders’ Equity: | | | | | | | | | | | | | | | |
Preferred Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and outstanding | | | – | | | | – | | | | | | | – | |
| Common Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding 73,816,103 at December 31, 2008 | | | 73,816 | | | | – | | | | | | | 73,816 | |
| Additional paid-in capital | | | 25,219,058 | | | | (13,487,384 | ) | | D | | | | 11,731,674 | |
| Accumulated deficit | | | (28,633,133 | ) | | | 10,405,724 | | | E | | | | (18,227,409 | ) |
| Total Stockholders’ Equity/(Deficit) | | | (3,340,259 | ) | | | (3,081,660 | ) | | | | | | (6,421,919 | ) |
| Total Liabilities and Stockholders’ Equity/(Deficit) | | $ | 4,739,367 | | | $ | 326,927 | | | | | | $ | 5,066,294 | |
(Continued)
| Consolidated Statements of Operations |
| | | For the three months ended December 31, 2008 | | | For the nine months ended December 31, 2008 | |
| | | As Originally | | | | | | After | | | As Originally | | | | | | After | |
| | | Reported | | Adjustments | | | | Restatement | | | Reported | | Adjustments | | | | Restatement | |
| Revenue: | | | | | | | | | | | | | | | | | | |
| Sales, net of returns and allowances | | $ | 674,657 | | $ | – | | | | $ | 674,657 | | | $ | 3,040,728 | | $ | – | | | | $ | 3,040,728 | |
| Cost of sales | | | 368,255 | | | – | | | | | 368,255 | | | | 1,419,514 | | | – | | | | | 1,419,514 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | 306,402 | | | – | | | | | 306,402 | | | | 1,621,214 | | | – | | | | | 1,621,214 | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 699,356 | | | – | | | | | 699,356 | | | | 2,631,776 | | | – | | | | | 2,631,776 | |
| Depreciation and amortization | | | 62,695 | | | – | | | | | 62,695 | | | | 186,628 | | | – | | | | | 186,628 | |
| Research and development | | | (250 | ) | | – | | | | | (250 | ) | | | – | | | – | | | | | – | |
| Total Operating Expenses | | | 761,801 | | | – | | | | | 761,801 | | | | 2,818,404 | | | – | | | | | 2,818,404 | |
| Loss From Operations | | | (455,399 | ) | | – | | | | | (455,399 | ) | | | (1,197,190 | ) | | – | | | | | (1,197,190 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Other Income and (Expense): | | | | | | | | | | | | | | | | | | | | | | | | |
| Other income | | | – | | | – | | | | | – | | | | 416 | | | – | | | | | 416 | |
| Interest expense | | | (156,482 | ) | | 399,189 | | B | | | 242,707 | | | | (382,347 | ) | | 1,240,182 | | B | | | 857,835 | |
| Loss before provision for income taxes | | | (611,881 | ) | | 399,189 | | | | | (212,692 | ) | | | (1,579,121 | ) | | 1,240,182 | | | | | (338,939 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Provision for/(Benefit of) income taxes | | | – | | | – | | | | | – | | | | – | | | – | | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income/(Loss) | | $ | (611,881 | ) | $ | 399,189 | | | | $ | (212,692 | ) | | $ | (1,579,121 | ) | $ | 1,240,182 | | | | $ | (338,939 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share | | $ | (0.01 | ) | $ | 0.01 | | | | $ | (0.00 | ) | | $ | (0.02 | ) | $ | 0.02 | | | | $ | (0.00 | ) |
| Weighted average shares outstanding | | | 70,897,625 | | | 70,897,625 | | | | | 70,897,625 | | | | 68,345,747 | | | 68,345,747 | | | | | 68,345,747 | |
(Continued)
| Consolidated Balance Sheets | | | | | | | | | | | |
| | | September 30, 2008 | |
| | | As Originally | | | | | | | | After | |
| ASSETS | | Reported | | | Adjustments | | | | | Restatement | |
| Current Assets: | | | | | | | | | | | |
| Cash | | $ | 47,298 | | | $ | – | | | | | $ | 7,298 | |
| Accounts receivable | | | 1,880,130 | | | | – | | | | | | 1,880,130 | |
| Notes receivable | | | 52,500 | | | | – | | | | | | 52,500 | |
| Inventory | | | 476,750 | | | | – | | | | | | 476,750 | |
| Prepaid expenses | | | 835,117 | | | | 225,897 | | | A | | | 1,061,014 | |
| Total Current Assets | | | 3,291,795 | | | | 225,897 | | | | | | 3,517,692 | |
| Property, plant and equipment, net of accumulated depreciation | | | 1,749,639 | | | | – | | | | | | 1,749,639 | |
| Other Assets: | | | | | | | | | | | | | | |
| Other assets | | | 2,351 | | | | 161,176 | | | A | | | 163,527 | |
| Intangible assets | | | 570,250 | | | | – | | | | | | 570,250 | |
| Total Other Assets | | | 572,601 | | | | 161,176 | | | | | | 733,777 | |
| Total Assets | | $ | 5,614,035 | | | $ | 387,073 | | | | | $ | 6,001,108 | |
| | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | |
| Accounts payable | | $ | 951,404 | | | $ | – | | | | | $ | 951,404 | |
| Accrued liabilities | | | 1,812,959 | | | | – | | | | | | 1,812,959 | |
| Cashless warrant liability | | | 91,028 | | | | – | | | | | | 91,028 | |
| Notes payable and amounts due within one year | | | 1,985,530 | | | | 115,863 | | | A | | | 2,101,393 | |
| Derivative liability | | | – | | | | 953,801 | | | B | | | 953,801 | |
| Convertible notes payable | | | 990,679 | | | | 1,063,421 | | | C | | | 2,054,100 | |
| Total Current Liabilities | | | 5,831,600 | | | | 2,133,085 | | | | | | 7,964,685 | |
| | | | | | | | | | | | | | | |
| Notes payable due after one year | | | 706,779 | | | | 169,332 | | | A | | | 876,111 | |
| Convertible notes payable | | | 1,434,495 | | | | 1,565,505 | | | C | | | 3,000,000 | |
| Total Liabilities | | | 7,972,874 | | | | 3,867,922 | | | | | | 11,840,796 | |
| Stockholders’ Equity: | | | | | | | | | | | | | | |
| Preferred Stock, $0.001 par value, 1,000,000 authorized; no shares issued and outstanding | | | – | | | | – | | | | | | – | |
| Common Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding 66,616,103 at September 30, 2008 | | | 66,616 | | | | – | | | | | | 66,616 | |
| Additional paid-in capital | | | 25,595,797 | | | | (13,487,384 | ) | | D | | | 12,108,413 | |
| Accumulated deficit | | | (28,021,252 | ) | | | 10,006,535 | | | E | | | (18,014,717 | ) |
| Total Stockholders’ Equity/(Deficit) | | | (2,358,839 | ) | | | (3,480,849 | ) | | | | | (5,839,688 | ) |
| Total Liabilities and Stockholders’ Equity/(Deficit) | | $ | 5,614,035 | | | $ | (387,073 | ) | | | | $ | 6,001,108 | |
(Continued)
| Consolidated Statements of Operations |
| | | For the three months ended September 30, 2008 | | | For the six months ended September 30, 2008 | |
| | | As Originally | | | | | | | After | | | As Originally | | | | | | | After | |
| | | Reported | | | Adjustments | | | | Restatement | | | Reported | | | Adjustments | | | | Restatement | |
| Revenue: | | | | | | | | | | | | | | | | | | | | |
| Sales, net of returns and allowances | | $ | 529,650 | | | $ | – | | | | $ | 529,650 | | | $ | 2,366,071 | | | $ | – | | | | $ | 2,366,071 | |
| Cost of sales | | | 324,483 | | | | – | | | | | 324,483 | | | | 1,051,259 | | | | – | | | | | 1,051,259 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | 205,167 | | | | – | | | | | 205,167 | | | | 1,314,812 | | | | – | | | | | 1,314,812 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 1,250,717 | | | | – | | | | | 1,250,717 | | | | 1,932,420 | | | | – | | | | | 1,932,420 | |
| Depreciation and amortization | | | 61,967 | | | | – | | | | | 61,967 | | | | 123,933 | | | | – | | | | | 123,933 | |
| Research and development | | | 250 | | | | – | | | | | 250 | | | | 250 | | | | – | | | | | 250 | |
| Total Operating Expenses | | | 1,312,934 | | | | – | | | | | 1,312,934 | | | | 2,056,603 | | | | – | | | | | 2,056,603 | |
| Loss From Operations | | | (1,107,767 | ) | | | – | | | | | (1,107,767 | ) | | | (741,791 | ) | | | – | | | | | (741,791 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other Income and (Expense): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other income | | | 41 | | | | – | | | | | 41 | | | | 416 | | | | – | | | | | 416 | |
| Interest expense | | | (27,031 | ) | | | 1,911,542 | | B | | | 1,884,511 | | | | (225,865 | ) | | | 840,993 | | B | | | 615,128 | |
| Loss before provision for income taxes | | | (1,134,757 | ) | | | 1,911,542 | | | | | 776,785 | | | | (967,240 | ) | | | 840,993 | | | | | (126,247 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Provision for/(Benefit of) income taxes | | | – | | | | – | | | | | – | | | | – | | | | – | | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income/(Loss) | | $ | (1,134,757 | ) | | $ | 1,911,542 | | | | $ | 776,785 | | | $ | (967,240 | ) | | $ | 840,993 | | | | $ | (126,247 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted earnings/(loss) per share | | $ | (0.02 | ) | | $ | 0.03 | | | | $ | 0.01 | | | $ | (0.02 | ) | | $ | 0.02 | | | | $ | (0.00 | ) |
| Weighted average shares outstanding | | | 66,066,375 | | | | 66,066,375 | | | | | 66,066,375 | | | | 63,962,835 | | | | 63,962,835 | | | | | 63,962,835 | |
(Continued)
| Consolidated Balance Sheets | | |
| | | June 30, 2008 | |
| | | As originally | | | | | | | | | After | |
| ASSETS | | Reported | | | Adjustments | | | | | | Restatement | |
| Current Assets: | | | | | | | | | | | | |
| Cash | | $ | 25,082 | | | $ | – | | | | | | $ | 25,082 | |
| Accounts receivable | | | 2,007,651 | | | | – | | | | | | | 2,007,651 | |
| Notes receivable | | | 112,500 | | | | – | | | | | | | 112,500 | |
| Inventory | | | 592,732 | | | | – | | | | | | | 592,732 | |
| Prepaid expenses | | | 563,944 | | | | 142,951 | | | A | | | | 706,895 | |
| Total Current Assets | | | 3,301,909 | | | | 142,951 | | | | | | | 3,444,860 | |
| Property, plant and equipment, net of accumulated depreciation | | | 1,763,029 | | | | – | | | | | | | 1,763,029 | |
| Other Assets: | | | | | | | | | | | | | | | |
| Other assets | | | 324,768 | | | | 304,267 | | | A | | | | 629,035 | |
| Intangible assets | | | 601,931 | | | | – | | | | | | | 601,931 | |
| Total Other Assets | | | 926,699 | | | | 304,267 | | | | | | | 1,230,966 | |
| Total Assets | | $ | 5,991,637 | | | $ | 447,218 | | | | | | $ | 6,438,855 | |
| | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 670,094 | | | $ | – | | | | | | $ | 670,094 | |
| Accrued liabilities | | | 1,482,047 | | | | – | | | | | | | 1,482,047 | |
| Cashless warrant liability | | | 295,194 | | | | – | | | | | | | 295,194 | |
| Notes payable and amounts due within one year | | | 1,774,930 | | | | 22,133 | | | A | | | | 1,797,063 | |
| Derivative liability | | | – | | | | 2,865,343 | | | B | | | | 2,865,343 | |
| Convertible notes payable | | | 315,514 | | | | 338,586 | | | C | | | | 654,100 | |
| Total Current Liabilities | | | 4,537,779 | | | | 3,226,062 | | | | | | | 7,763,841 | |
| | | | | | | | | | | | | | | | |
| Notes payable due after one year | | | 929,446 | | | | 292,028 | | | A | | | | 1,221,474 | |
| Convertible notes payable | | | 2,078,481 | | | | 2,321,519 | | | C | | | | 4,400,000 | |
| Total Liabilities | | | 7,545,706 | | | | 5,839,609 | | | | | | | 13,385,315 | |
| Stockholders’ Equity: | | | | | | | | | | | | | | | |
Preferred Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and outstanding | | | – | | | | – | | | | | | | – | |
Common Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding 64,791,103 at June 30, 2008 | | | 64,791 | | | | – | | | | | | | 64,791 | |
| Additional paid-in capital | | | 25,267,635 | | | | (13,487,384 | ) | | D | | | | 11,780,251 | |
| Accumulated deficit | | | (26,886,495 | ) | | | 8,094,993 | | | E | | | | (18,791,502 | ) |
| Total Stockholders’ Equity/(Deficit) | | | (1,554,069 | ) | | | (5,392,391 | ) | | | | | | (6,946,460 | ) |
| Total Liabilities and Stockholders’ Equity/(Deficit) | | $ | 5,991,637 | | | $ | 447,218 | | | | | | $ | 6,438,855 | |
(Continued)
| Consolidated Statements of Operations |
| | | For the Three Months Ended June 30, 2008 | |
| | | As Originally | | | | | | | | | After | |
| | | Reported | | | Adjustments | | | | | | Restatement | |
| Revenue: | | | | | | | | | | | | |
| Sales, net of returns and allowances | | $ | 1,836,421 | | | $ | – | | | | | | $ | 1,836,421 | |
| Cost of sales | | | 726,776 | | | | – | | | | | | | 726,776 | |
| | | | | | | | | | | | | | | | |
| Gross Profit | | | 1,109,645 | | | | – | | | | | | | 1,109,645 | |
| | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 681,703 | | | | – | | | | | | | 681,703 | |
| Depreciation and amortization | | | 61,966 | | | | – | | | | | | | 61,966 | |
| Total Operating Expenses | | | 743,669 | | | | – | | | | | | | 743,669 | |
| Loss From Operations | | | 365,976 | | | | – | | | | | | | 365,976 | |
| | | | | | | | | | | | | | | | |
| Other Income and (Expense): | | | | | | | | | | | | | | | |
| Other income | | | 375 | | | | – | | | | | | | 375 | |
| Interest expense | | | (198,834 | ) | | | (1,070,548 | ) | | B | | | | (1,269,382 | ) |
| Loss before provision for income taxes | | | 167,517 | | | | (1,070,548 | ) | | | | | | (903,031 | ) |
| | | | | | | | | | | | | | | | |
| Provision for/(Benefit of) income taxes | | | – | | | | – | | | | | | | – | |
| | | | | | | | | | | | | | | | |
| Net Income/(Loss) | | $ | 167,517 | | | $ | (1,070,548 | ) | | | | | $ | (903,031 | ) |
| | | | | | | | | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | | | | | | | | |
| Basic and diluted earnings/(loss) per share | | $ | 0.00 | | | $ | (0.01 | ) | | | | | $ | (0.01 | ) |
| Weighted average shares outstanding | | | 61,913,414 | | | | 61,913,414 | | | | | | | 61,913,414 | |
(Continued)
| Consolidated Balance Sheets | | |
| | | December 31, 2007 | |
| | | As Originally | | | | | | | | | After | |
| ASSETS | | Reported | | | Adjustments | | | | | | Restatement | |
| Current Assets: | | | | | | | | | | | | |
| Cash | | $ | 9,457 | | | $ | – | | | | | | $ | 9,457 | |
| Accounts receivable | | | 61,897 | | | | – | | | | | | | 61,897 | |
| Inventory | | | 535,811 | | | | – | | | | | | | 535,811 | |
| Prepaid expenses | | | 27,898 | | | | 325,217 | | | A | | | | 353,115 | |
| Total Current Assets | | | 635,063 | | | | 325,217 | | | | | | | 960,280 | |
| Property, plant and equipment, net of accumulated depreciation | | | 1,958,862 | | | | – | | | | | | | 1,958,862 | |
| Other Assets: | | | | | | | | | | | | | | | |
| Other assets | | | 12,456 | | | | 322,504 | | | A | | | | 334,960 | |
| Intangible assets | | | 665,291 | | | | – | | | | | | | 665,291 | |
| Total Other Assets | | | 677,747 | | | | 322,504 | | | | | | | 1,000,251 | |
| Total Assets | | $ | 3,271,672 | | | $ | 647,721 | | | | | | $ | 3,919,393 | |
| | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 740,134 | | | $ | – | | | | | | $ | 740,134 | |
| Accrued liabilities | | | 708,719 | | | | – | | | | | | | 1,708,719 | |
| Cashless warrant liability | | | 258,569 | | | | – | | | | | | | 258,569 | |
| Notes payable and amounts due within one year | | | 2,619,279 | | | | 200,499 | | | A | | | | 2,819,778 | |
| Derivative liability | | | – | | | | 1,840,204 | | | B | | | | 1,840,204 | |
| Total Current Liabilities | | | 5,326,701 | | | | 2,040,703 | | | | | | | 7,367,404 | |
| | | | | | | | | | | | | | | | |
| Notes payable due after one year | | | 456,551 | | | | 237,228 | | | A | | | | 693,779 | |
| Convertible notes payable | | | 2,317,056 | | | | 2,737,044 | | | C | | | | 5,054,100 | |
| Total Liabilities | | | 8,100,308 | | | | 5,014,975 | | | | | | | 13,115,283 | |
| Stockholders’ Equity: | | | | | | | | | | | | | | | |
Preferred Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and outstanding | | | – | | | | – | | | | | | | – | |
Common Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding 46,121,770 at December 31, 2007 | | | 46,122 | | | | – | | | | | | | 46,122 | |
| Additional paid-in capital | | | 22,285,799 | | | | (13,487,384 | ) | | D | | | | 8,798,415 | |
| Accumulated deficit | | | (27,160,557 | ) | | | 9,120,130 | | | E | | | | (18,040,427 | ) |
| Total Stockholders’ Equity/(Deficit) | | | (4,828,636 | ) | | | (4,367,254 | ) | | | | | | (9,195,890 | ) |
| Total Liabilities and Stockholders’ Equity/(Deficit) | | $ | 3,271,672 | | | $ | 647,721 | | | | | | $ | 3,919,393 | |
(Continued)
| Consolidated Statements of Operations |
| | | For the Three Months Ended December 31, 2007 | | | For the nine months ended December 31, 2007 | |
| | | As originally | | | | | | | | After | | | As originally | | | | | | | | After | |
| | | Reported | | | Adjustments | | | | | Restatement | | | Reported | | | Adjustments | | | | | Restatement | |
| Revenue: | | | | | | | | | | | | | | | | | | | | | | |
| Sales, net of returns and allowances | | $ | 310,102 | | | $ | – | | | | | $ | 310,102 | | | $ | 1,554,637 | | | $ | – | | | | | $ | 1,554,637 | |
| Cost of sales | | | 25,074 | | | | – | | | | | | 25,074 | | | | 687,486 | | | | – | | | | | | 687,486 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | 285,028 | | | | – | | | | | | 285,028 | | | | 867,151 | | | | – | | | | | | 867,151 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 992,635 | | | | – | | | | | | 992,635 | | | | 2,376,357 | | | | – | | | | | | 2,376,357 | |
| Depreciation and amortization | | | 58,368 | | | | – | | | | | | 58,368 | | | | 174,433 | | | | – | | | | | | 174,433 | |
| Research and development | | | 5,637 | | | | – | | | | | | 5,637 | | | | 110,764 | | | | – | | | | | | 110,764 | |
| Total Operating Expenses | | | 1,056,640 | | | | – | | | | | | 1,056,640 | | | | 2,661,554 | | | | – | | | | | | 2,661,554 | |
| Loss From Operations | | | (771,612 | ) | | | – | | | | | | (771,612 | ) | | | (1,794,403 | ) | | | – | | | | | | (1,794,403 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other Income and (Expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | (536,382 | ) | | | (1,429,609 | ) | | B | | | (1,965,991 | ) | | | (762,226 | ) | | | (1,317,857 | ) | | B | | | (2,080,083 | ) |
| Loss before provision for income taxes | | | (1,307,994 | ) | | | (1,429,609 | ) | | | | | (2,737,603 | ) | | | (2,556,629 | ) | | | (1,317,857 | ) | | | | | (3,874,486 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Provision for/(Benefit of) income taxes | | | – | | | | – | | | | | | – | | | | – | | | | – | | | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Loss | | $ | (1,307,994 | ) | | | (1,429,609 | ) | | | | $ | (2,737,603 | ) | | $ | (2,556,629 | ) | | $ | (1,317,857 | ) | | | | $ | (3,874,486 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted loss per share | | $ | (0.03 | ) | | $ | (0.03 | ) | | | | $ | (0.06 | ) | | $ | (0.06 | ) | | $ | (0.03 | ) | | | | $ | (0.09 | ) |
| Weighted average shares outstanding | | | 44,123,259 | | | | 44,123,259 | | | | | | 44,123,259 | | | | 42,358,834 | | | | 42,358,834 | | | | | | 42,358,834 | |
(Continued)
| Consolidated Balance Sheets | | | | | | | | | | | | |
| | | September 30, 2007 | |
| | | As Originally | | | | | | | | | After | |
| ASSETS | | Reported | | | Adjustments | | | | | | Restatement | |
| Current Assets: | | | | | | | | | | | | |
| Cash | | $ | 54,116 | | | $ | – | | | | | | $ | 54,116 | |
| Accounts receivable | | | 139,393 | | | | – | | | | | | | 139,393 | |
| Inventory | | | 578,558 | | | | – | | | | | | | 578,558 | |
| Prepaid expenses | | | 29,154 | | | | 319,203 | | | A | | | | 348,357 | |
| Total Current Assets | | | 801,221 | | | | 319,203 | | | | | | | 1,120,424 | |
| Property, plant and equipment, net of accumulated depreciation | | | 1,965,179 | | | | – | | | | | | | 1,965,179 | |
| Other Assets: | | | | | | | | | | | | | | | |
| Other assets | | | 12,156 | | | | 289,822 | | | A | | | | 301,978 | |
| Intangible assets | | | 697,116 | | | | – | | | | | | | 697,116 | |
| Total Other Assets | | | 709,272 | | | | 289,822 | | | | | | | 999,094 | |
| Total Assets | | $ | 3,475,672 | | | $ | 609,025 | | | | | | $ | 4,084,697 | |
| | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 560,987 | | | $ | – | | | | | | $ | 560,987 | |
| Accrued liabilities | | | 1,532,741 | | | | – | | | | | | | 1,532,741 | |
| Cashless warrant liability | | | 27,157 | | | | – | | | | | | | 27,157 | |
| Notes payable and amounts due within one year | | | 2,244,071 | | | | 200,499 | | | A | | | | 2,444,570 | |
| Derivative liability | | | – | | | | 410,595 | | | B | | | | 410,595 | |
| Total Current Liabilities | | | 4,364,956 | | | | 611,094 | | | | | | | 4,976,050 | |
| | | | | | | | | | | | | | | | |
| Notes payable due after one year | | | 746,782 | | | | 167,352 | | | A | | | | 914,134 | |
| Convertible notes payable | | | 2,285,876 | | | | 2,768,224 | | | C | | | | 5,054,100 | |
| Total Liabilities | | | 7,397,614 | | | | 3,546,670 | | | | | | | 10,944,284 | |
| Stockholders’ Equity: | | | | | | | | | | | | | | | |
Preferred Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and outstanding | | | – | | | | – | | | | | | | – | |
Common Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding 42,017,770 at September 30, 2006 | | | 42,018 | | | | – | | | | | | | 42,018 | |
| Additional paid-in capital | | | 21,888,603 | | | | (13,487,384 | ) | | D | | | | 8,401,219 | |
| Accumulated deficit | | | (25,852,563 | ) | | | 10,549,739 | | | E | | | | (15,302,824 | ) |
| Total Stockholders’ Equity/(Deficit) | | | (3,921,942 | ) | | | (2,937,645 | ) | | | | | | (6,859,587 | ) |
| Total Liabilities and Stockholders’ Equity/(Deficit) | | $ | 3,475,672 | | | $ | 609,025 | | | | | | $ | 4,084,697 | |
(Continued)
| Consolidated Statements of Operations | |
| | | For the three months ended September 30, 2007 | | | For the six months ended September 30, 2007 | |
| | | As Originally | | | | | | | After | | | As Originally | | | | | | | After | |
| | | Reported | | | Adjustments | | | | Restatement | | | Reported | | | Adjustments | | | | Restatement | |
| Revenue: | | | | | | | | | | | | | | | | | | | | |
| Sales, net of returns and allowances | | $ | 577,811 | | | $ | – | | | | $ | 577,811 | | | $ | 1,244,535 | | | $ | – | | | | $ | 1,244,535 | |
| Cost of sales | | | 369,235 | | | | – | | | | | 369,235 | | | | 662,412 | | | | – | | | | | 662,412 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | 208,576 | | | | – | | | | | 208,576 | | | | 582,123 | | | | – | | | | | 582,123 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 654,852 | | | | – | | | | | 654,852 | | | | 1,383,722 | | | | – | | | | | 1,383,722 | |
| Depreciation and amortization | | | 57,883 | | | | – | | | | | 57,883 | | | | 116,065 | | | | – | | | | | 116,065 | |
| Research and development | | | 52,646 | | | | – | | | | | 52,646 | | | | 105,127 | | | | – | | | | | 105,127 | |
| Total Operating Expenses | | | 765, 381 | | | | – | | | | | 765,381 | | | | 1,604,914 | | | | – | | | | | 1,604,914 | |
| Loss From Operations | | | (556,805 | ) | | | – | | | | | (556,805 | ) | | | (1,022,791 | ) | | | – | | | | | (1,022,791 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other Income and (Expense): | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest expense | | | 40,978 | | | | 1,143,062 | | B | | | 1,184,040 | | | | (225,844 | ) | | | 111,752 | | B | | | (114,092 | ) |
| Loss before provision for income taxes | | | (515,827 | ) | | | 1,143,062 | | | | | 627,235 | | | | (1,248,635 | ) | | | 111,752 | | | | | (1,136,883 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Provision for/(Benefit of) income taxes | | | – | | | | – | | | | | – | | | | – | | | | – | | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income/(Loss) | | $ | (515,827 | ) | | $ | 1,143,062 | | | | $ | 627,235 | | | $ | (1,248,635 | ) | | $ | 111,752 | | | | $ | (1,136,883 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted earnings/(loss) per share | | $ | (0.01 | ) | | $ | 0.01 | | | | $ | 0.02 | | | $ | (0.03 | ) | | $ | 0.00 | | | | $ | (0.03 | ) |
| Weighted average shares outstanding | | | 41,573,386 | | | | 41,573,386 | | | | | 41,573,386 | | | | 41,116,883 | | | | 41,116,883 | | | | | 41,116,883 | |
| Consolidated Balance Sheets | |
| | | June 30, 2007 | |
| | | As originally | | | | | | | | | After | |
| ASSETS | | Reported | | | Adjustments | | | | | | Restatement | |
| Current Assets: | | (Unaudited) | | | | | | | | | | |
| Cash | | $ | 12,985 | | | $ | – | | | | | | $ | 12,985 | |
| Accounts receivable | | | 98,883 | | | | – | | | | | | | 98,883 | |
| Inventory | | | 645,290 | | | | – | | | | | | | 645,290 | |
| Prepaid expenses | | | 35,404 | | | | 133,300 | | | A | | | | 168,704 | |
| Total Current Assets | | | 792,562 | | | | 133,300 | | | | | | | 925,862 | |
| Property, plant and equipment, net of accumulated depreciation | | | 2,011,679 | | | | – | | | | | | | 2,011,679 | |
| Other Assets: | | | | | | | | | | | | | | | |
| Other assets | | | 12,156 | | | | 145,053 | | | A | | | | 157,209 | |
| Intangible assets | | | 728,724 | | | | – | | | | | | | 728,724 | |
| Total Other Assets | | | 740,880 | | | | 145,053 | | | | | | | 885,933 | |
| Total Assets | | $ | 3,545,121 | | | $ | 278,353 | | | | | | $ | 3,823,474 | |
| | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 763,826 | | | $ | – | | | | | | $ | 763,826 | |
| Accrued liabilities | | | 1,463,272 | | | | – | | | | | | | 1,463,272 | |
| Cashless warrant liability | | | 203,353 | | | | – | | | | | | | 203,353 | |
| Notes payable and amounts due within one year | | | 2,297,630 | | | | – | | | | | | | 2,297,630 | |
| Derivative liability | | | – | | | | 1,553,657 | | | B | | | | 1,553,657 | |
| Total Current Liabilities | | | 4,728,081 | | | | 1,553,657 | | | | | | | 6,281,738 | |
| | | | | | | | | | | | | | | | |
| Convertible notes payable | | | 2,282,297 | | | | 2,839,003 | | | C | | | | 5,121,300 | |
| Total Liabilities | | | 7,010,378 | | | | 4,392,660 | | | | | | | 11,403,038 | |
| Stockholders’ Equity: | | | | | | | | | | | | | | | |
| Preferred Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and outstanding | | | – | | | | – | | | | | | | – | |
| Common Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding 41,146,004 at June 30, 2007 March 2007, respectively | | | 41,146 | | | | – | | | | | | | 41,146 | |
| Additional paid-in capital | | | 21,830,333 | | | | (13,520,984 | ) | | | | | | 8,309,349 | |
| Accumulated deficit | | | (25,336,736 | ) | | | 9,406,677 | | | | | | | (15,930,059 | ) |
| Total Stockholders’ Equity/(Deficit) | | | (3,465,257 | ) | | | (4,114,307 | ) | | | | | | (7,579,564 | ) |
| Total Liabilities and Stockholders’ Equity/Deficit) | | $ | 3,545,121 | | | $ | 278,353 | | | | | | $ | 3,823,474 | |
(Continued)
| Consolidated Statements of Operations | |
| | | For the Three Months Ended June 30, 2007 | |
| | | As originally | | | | | | | | | After | |
| | | Reported | | | Adjustments | | | | | | Restatement | |
| Revenue: | | | | | | | | | | | | |
| Sales, net of returns and allowances | | $ | 666,724 | | | $ | – | | | | | | $ | 666,724 | |
| Cost of sales | | | 293,176 | | | | – | | | | | | | 293,176 | |
| | | | | | | | | | | | | | | | |
| Gross Profit | | | 373,548 | | | | – | | | | | | | 373,548 | |
| | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 728,871 | | | | – | | | | | | | 728,871 | |
| Depreciation and amortization | | | 58,183 | | | | – | | | | | | | 58,183 | |
| Allowance for bad debts | | | – | | | | – | | | | | | | – | |
| Research and development | | | 52,481 | | | | – | | | | | | | 52,481 | |
| Total Operating Expenses | | | 839,535 | | | | – | | | | | | | 839,535 | |
| Loss From Operations | | | (465,986 | ) | | | – | | | | | | | (465,986 | ) |
| | | | | | | | | | | | | | | | |
| Other Income and (Expense): | | | | | | | | | | | | | | | |
| Interest expense | | | (266,822 | ) | | | (1,031,310 | ) | | B | | | | (1,298,132 | ) |
| | | | | | | | | | | | | | | | |
| Loss before provision for income taxes | | | (732,808 | ) | | | (1,031,310 | ) | | | | | | (1,764,118 | ) |
| | | | | | | | | | | | | | | | |
| Provision for/(Benefit of) income taxes | | | – | | | | – | | | | | | | – | |
| | | | | | | | | | | | | | | | |
| Net Loss | | $ | (732,808 | ) | | $ | (1,031,310 | ) | | | | | $ | (1,764,118 | ) |
| | | | | | | | | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | | | | | | | | |
| Basic and diluted loss per share | | $ | (0.02 | ) | | $ | (0.02 | ) | | | | | $ | (0.03 | ) |
| Weighted average shares outstanding | | | 40,587,213 | | | | 40,587,213 | | | | | | | 61,913,414 | |
(Continued)
| Consolidated Balance Sheets | |
| | | December 31, 2006 | |
| | | As Originally | | | | | | | | | After | |
| ASSETS | | Reported | | | Adjustments | | | | | | Restatement | |
| Current Assets: | | | | | | | | | | | | |
| Cash | | $ | 445,652 | | | $ | – | | | | | | | 445,652 | |
| Accounts receivable | | | 92,893 | | | | – | | | | | | | 92,893 | |
| Inventory | | | 348,307 | | | | – | | | | | | | 348,307 | |
| Prepaid expenses | | | 155,963 | | | | 136,650 | | | A | | | | 292,613 | |
| Total Current Assets | | | 1,042,815 | | | | 136,650 | | | | | | | 1,179,465 | |
| Property, plant and equipment, net of accumulated depreciation | | | 40,601 | | | | – | | | | | | | 40,601 | |
| Other Assets: | | | | | | | | | | | | | | | |
| Other assets | | | 8,183 | | | | 225,620 | | | A | | | | 233,803 | |
| Intangible assets | | | 792,013 | | | | – | | | | | | | 792,013 | |
| Total Other Assets | | | 800,196 | | | | 225,620 | | | | | | | 1,025,816 | |
| Total Assets | | $ | 1,883,612 | | | $ | 362,270 | | | | | | $ | 2,245,882 | |
| | | | | | | | | | | | | | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 216,412 | | | $ | – | | | | | | $ | 216,412 | |
| Accrued liabilities | | | 501,559 | | | | – | | | | | | | 501,559 | |
| Cashless warrant liability | | | 390,160 | | | | – | | | | | | | 390,160 | |
| Derivative liability | | | – | | | | 9,857,878 | | | B | | | | 9,857,878 | |
| Convertible notes payable | | | – | | | | – | | | | | | | – | |
| Total Current Liabilities | | | 1,108,131 | | | | 9,857,878 | | | | | | | 10,966,009 | |
| | | | | | | | | | | | | | | | |
| Convertible notes payable | | | 2,307,730 | | | | 3,032,270 | | | C | | | | 5,340,000 | |
| Accrued liabilities - long term | | | 878,151 | | | | – | | | | | | | 878,151 | |
| Total Liabilities | | | 4,294,012 | | | | 3,032,270 | | | | | | | 17,184,160 | |
| Stockholders’ Equity: | | | | | | | | | | | | | | | |
| Preferred Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and outstanding | | | – | | | | – | | | | | | | – | |
| Common Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding 31,367,004 at December 31, 2006 | | | 31,367 | | | | – | | | | | | | 31,367 | |
| Additional paid-in capital | | | 21,032,762 | | | | (13,630,334 | ) | | | | | | 7,402,428 | |
| Accumulated deficit | | | (23,474,529 | ) | | | 1,102,456 | | | | | | | (22,372,073 | ) |
| Total Stockholders’ Equity/(Deficit) | | | (2,410,400 | ) | | | (12,527,878 | ) | | | | | | (14,938,278 | ) |
| Total Liabilities and Stockholders’ Equity/Deficit) | | $ | 1,883,612 | | | $ | (9,495,608 | ) | | | | | $ | 2,245,882 | |
(Continued)
| Consolidated Statements of Operation | |
| | | For the three months ended December 31, 2006 | | | For the six months ended December 31, 2006 | |
| | | As Originally | | | | | | | | | After | | | As Originally | | | | | | | | | After | |
| | | Reported | | | Adjustments | | | | | | Restatement | | | Reported | | | Adjustments | | | | | | Restatement | |
| Revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales, net of returns and allowances | | $ | 48,232 | | | $ | – | | | | | | $ | 48,232 | | | $ | 670,577 | | | $ | – | | | | | | $ | 670,577 | |
| Cost of sales | | | 49,301 | | | | – | | | | | | | 49,301 | | | | 238,409 | | | | – | | | | | | | 238,409 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | (1,069 | ) | | | – | | | | | | | (1,069 | ) | | | 432,168 | | | | – | | | | | | | 432,168 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 509,469 | | | | – | | | | | | | 509,469 | | | | 1,550,303 | | | | – | | | | | | | 1,550,303 | |
| Depreciation and amortization | | | 33,489 | | | | – | | | | | | | 33,489 | | | | 99,970 | | | | – | | | | | | | 99,970 | |
| Allowance for bad debts | | | – | | | | – | | | | | | | – | | | | – | | | | – | | | | | | | – | |
| Research and development | | | 32,046 | | | | – | | | | | | | 32,046 | | | | 178,190 | | | | – | | | | | | | 178,190 | |
| Total Operating Expenses | | | 575,004 | | | | – | | | | | | | – | | | | 1,828,463 | | | | – | | | | | | | 1,828,463 | |
| Loss From Operations | | | (576,073 | ) | | | – | | | | | | | – | | | | (1,396,295 | ) | | | – | | | | | | | (1,396,295 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other Income and (Expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other income | | | 3,374 | | | | – | | | | | | | 3,374 | | | | 5,809 | | | | | | | | | | | 5,809 | |
| Gain/(Loss) on disposal of assets | | | – | | | | – | | | | | | | – | | | | 2,850 | | | | | | | | | | | 2,850 | |
| Interest expense | | | (312,488 | ) | | | 22,455,188 | | | B | | | | 22,142,700 | | | | (578,674 | ) | | | (12,857,878 | ) | | B | | | | (13,436,552 | ) |
| Cost of curing loan default | | | – | | | | – | | | | | | | – | | | | (13,960,334 | ) | | | 13,960,334 | | | B | | | | – | |
| Loss before provision for income taxes | | | (885,187 | ) | | | | | | | | | | (885,187 | ) | | | (15,926,644 | ) | | | 1,102,456 | | | | | | | (14,824,188 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Provision for/(Benefit of) income taxes | | | – | | | | – | | | | | | | – | | | | – | | | | – | | | | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Income/(Loss) | | $ | (885,187 | ) | | $ | – | | | | | | | (885,187 | ) | | | (15,926,644 | ) | | | 1,102,456 | | | | | | | (14,824,188 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted earnings/(loss) per share | | $ | (0.03 | ) | | $ | – | | | | | | $ | (0.03 | ) | | $ | (0.51 | ) | | $ | 0.04 | | | | | | $ | (0.47 | ) |
| Weighted average shares outstanding | | | 31,245,368 | | | | 31,245,368 | | | | | | | 31,245,368 | | | | 31,245,368 | | | | 31,245,368 | | | | | | | 31,245,368 | |
(Continued)
| Consolidated Balance Sheets | |
| | | September 30, 2006 | |
| | | As Originally | | | | | | | | | After | |
| ASSETS | | Reported | | | Adjustments | | | | | | Restatement | |
| Current Assets: | | | | | | | | | | | | |
| Cash | | $ | 5,545 | | | $ | – | | | | | | $ | 5,545 | |
| Accounts receivable | | | 200,407 | | | | – | | | | | | | 200,407 | |
| Notes receivable | | | – | | | | – | | | | | | | – | |
| Inventory | | | 345,803 | | | | | | | | | | | 345,803 | |
| Prepaid expenses | | | 119,633 | | | | 100,000 | | | A | | | | 219,633 | |
| Total Current Assets | | | 671,388 | | | | 100,000 | | | | | | | 771,388 | |
| Property, plant and equipment, net of accumulated depreciation | | | 42,409 | | | | – | | | | | | | 42,409 | |
| Other Assets: | | | | | | | | | | | | | | | |
| Other assets | | | 34,055 | | | | 168,804 | | | A | | | | 202,859 | |
| Intangible assets | | | 823,694 | | | | – | | | | | | | 823,694 | |
| Total Other Assets | | | 857,749 | | | | 168,804 | | | | | | | 1,026,554 | |
| Total Assets | | $ | 1,571,546 | | | $ | 268,804 | | | | | | $ | 1,840,350 | |
| | | | | | | | | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) | | | | | | | | | | | | | | | |
| Current Liabilities: | | | | | | | | | | | | | | | |
| Accounts payable | | $ | 649,082 | | | $ | – | | | | | | $ | 649,082 | |
| Accrued liabilities | | | 461,007 | | | | – | | | | | | | 461,007 | |
| Cashless warrant liability | | | 207,322 | | | | – | | | | | | | 207,322 | |
| Derivative liability | | | – | | | | 32,313,066 | | | B | | | | 32,313,066 | |
| Total Current Liabilities | | | 1,317,411 | | | | 32,313,066 | | | | | | | 33,630,477 | |
| | | | | | | | | | | | | | | | |
| Convertible notes payable | | | 1,231,196 | | | | 1,768,804 | | | C | | | | 3,000,000 | |
| Accrued liabilities - long term | | | 878,151 | | | | – | | | | | | | 878,151 | |
| Total Liabilities | | | 3,426,758 | | | | 34,081,870 | | | | | | | 37,508,628 | |
| Stockholders’ Equity: | | | | | | | | | | | | | | | |
| Preferred Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and outstanding | | | – | | | | – | | | | | | | – | |
| Common Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding 54,885,103 and 40,396,004 at March 31, 2008 and 2007, respectively | | | 31,217 | | | | – | | | | | | | 31,217 | |
| Additional paid-in capital | | | 20,702,912 | | | | (13,960,334 | ) | | | | | | 6,742,578 | |
| Accumulated deficit | | | (22,589,341 | ) | | | (19,852,732 | ) | | | | | | (42,442,073 | ) |
| Total Stockholders’ Equity/(Deficit) | | | (1,855,212 | ) | | | (33,813,066 | ) | | | | | | (35,668,278 | ) |
| Total Liabilities and Stockholders’ Equity/(Deficit) | | $ | 1,571,546 | | | $ | 268,804 | | | | | | $ | 1,840,350 | |
(Continued)
| Consolidated Statements of Operations | |
| | | For the three months ended September 30, 2006 | | | For the six months ended September 30, 2006 | |
| | | As Originally | | | | | | | | | After | | | As Originally | | | | | | | | | After | |
| | | Reported | | | Adjustments | | | | | | Restatement | | | Reported | | | Adjustments | | | | | | Restatement | |
| Revenue: | | | | | | | | | | | | | | | | | | | | | | | | |
| Sales, net of returns and allowances | | $ | 105,093 | | | $ | – | | | | | | $ | 105,093 | | | $ | 622,346 | | | $ | – | | | | | | $ | 622,346 | |
| Cost of sales | | | 69,489 | | | | – | | | | | | | 69,489 | | | | 189,108 | | | | – | | | | | | | 189,108 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Gross Profit | | | 35,604 | | | | – | | | | | | | 35,604 | | | | 433,238 | | | | – | | | | | | | 433,238 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Selling, general and administrative | | | 697,130 | | | | – | | | | | | | 697,130 | | | | 1,040,834 | | | | – | | | | | | | 1,040,834 | |
| Depreciation and amortization | | | 33,566 | | | | – | | | | | | | 33,566 | | | | 66,481 | | | | – | | | | | | | 66,481 | |
| Allowance for bad debts | | | – | | | | – | | | | | | | – | | | | – | | | | – | | | | | | | – | |
| Research and development | | | 64,369 | | | | – | | | | | | | 64,369 | | | | 146,144 | | | | – | | | | | | | 146,144 | |
| Total Operating Expenses | | | 795,065 | | | | – | | | | | | | 795,065 | | | | 1,253,459 | | | | – | | | | | | | 1,253,459 | |
| Loss From Operations | | | (759,461 | ) | | | – | | | | | | | (759,461 | ) | | | (820,221 | ) | | | – | | | | | | | (820,221 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other Income and (Expense): | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Other income | | | 391 | | | | – | | | | | | | 391 | | | | 2,434 | | | | – | | | | | | | 2,434 | |
| Gain/(Loss) on disposal of assets | | | – | | | | – | | | | | | | – | | | | 2,850 | | | | – | | | | | | | 2,850 | |
| Interest expense | | | 1,095 | | | | (763,590 | ) | | B | | | | (762,495 | ) | | | (266,185 | ) | | | (33,813,066 | ) | | B | | | | (34,079,251 | ) |
| Cost of curing loan default | | | – | | | | – | | | | | | | – | | | | (13,960,334 | ) | | | 13,960,334 | | | B | | | | – | |
| Loss before provision for income taxes | | | (757,975 | ) | | | (763,590 | ) | | | | | | (1,521,565 | ) | | | (15,041,456 | ) | | | (19,852,732 | ) | | | | | | (34,894,188 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Provision for/(Benefit of) income taxes | | | – | | | | – | | | | | | | – | | | | – | | | | – | | | | | | | – | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Loss | | $ | (757,975 | ) | | $ | (763,590 | ) | | | | | $ | (1,521,565 | ) | | $ | (15,041,456 | ) | | $ | (19,852,732 | ) | | | | | $ | (34,894,188 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Earnings (Loss) per share: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Basic and diluted earnings/(loss) per share | | $ | (0.02 | ) | | $ | (0.03 | ) | | | | | $ | (0.05 | ) | | $ | (0.48 | ) | | $ | (0.64 | ) | | | | | $ | (1.12 | ) |
| Weighted average shares outstanding | | | 31,217,004 | | | | 31,217,004 | | | | | | | 31,217,004 | | | | 31,217,004 | | | | 31,217,004 | | | | | | | 31,217,004 | |
___________________
A – Adjustment to reclassify unamortized loan fees and costs to prepaids and other assets
B – Adjustment to reflect change in derivative value for the period
C – Cumulative effect to reflect loan conversion feature net of conversions in prior periods
D – Cumulative effect of error in reporting cure cost of default and effect of conversions
E – Cumulative effect of prior period adjustments and current period adjustment to accumulated deficit
Exhibit 21.1
LIST OF SUBSIDIARIES
EMTA Corp.
White Sands, L.L.C.
EMTA Production Holdings, Inc.
XenTx Lubricants, Inc.
Lumea, Inc.
Lumea Staffing of CA, Inc.
Lumea Staffing, Inc.
Lumea Staffing of IL, Inc.
Arizona National Insurance Agency, Inc.
Exhibit 31.1
OFFICER’S CERTIFICATE
PURSUANT TO SECTION 302*
I, Edmond L. Lonergan, certify that:
1. I have reviewed this Form 10-K/A for the year ended March 31, 2009 of Green Planet Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and
5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.
| | Date: August 31, 2009 | |
| | | |
| | By: | /s/ Edmond L. Lonergan | |
| | | Name: Edmond, L. Lonergan | |
| | | Title: Chief Executive Officer | |
| * | The introductory portion of paragraph 4 of the Section 302 certification that refers to the certifying officers’ responsibility for establishing and maintaining internal control over financial reporting for the company, as well as paragraph 4(b), have been omitted in accordance with Release No. 33-8934 (June 26, 2008) because the compliance period has been extended for small business issuers until the first fiscal year ending on or after June 30, 2010. |
OFFICER’S CERTIFICATE
PURSUANT TO SECTION 302*
I, James C. Marshall, certify that:
1. I have reviewed this Form 10-K/A for the year ended March 31, 2009 of Green Planet Group, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report;
4. The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15 (e)) for the small business issuer and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and
5. The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.
| | Date: August 31, 2009 | |
| | | |
| | By: | /s/ James C. Marshall | |
| | | Name: James C. Marshall | |
| | | Title: Chief Financial Officer | |
| * | The introductory portion of paragraph 4 of the Section 302 certification that refers to the certifying officers’ responsibility for establishing and maintaining internal control over financial reporting for the company, as well as paragraph 4(b), have been omitted in accordance with Release No. 33-8934 (June 26, 2008) because the compliance period has been extended for small business issuers until the first fiscal year ending on or after June 30, 2010. |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Green Planet Group, Inc. (the “Company”) on Form 10-K/A for the year ended March 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| | Date: August 31, 2009 | |
| | | |
| | By: | /s/ Edmond, L. Lonergan | |
| | | Name: Edmond, L. Lonergan | |
| | | Title: Chief Executive Officer | |
A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Green Planet Group, Inc. and will be retained by Green Planet Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Green Planet Group, Inc. (the “Company”) on Form 10-K/A for the year ended March 31, 2009 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacities and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
| | Date: August 31, 2009 | |
| | | |
| | By: | /s/ James C. Marshall | |
| | | Name: James C. Marshall | |
| | | Title: Chief Financial Officer | |
A signed original of this written statement required by Section 906, or other document authentications, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Green Planet Group, Inc. and will be retained by Green Planet Group, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
