Forward-Looking Statements
The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are “forward-looking statements” under the Private Securities Litigation Reform Act of 1995 and within Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All forward-looking statements involve various risks and uncertainties. Forward-looking statements contained in this Report include statements regarding the plans of Green Planet Group, Inc. (“Green Planet, “GPG,” “we,” “our,” or “the Company”) to develop, test and deliver new products; market risks, opportunities and acceptance; industry growth; anticipated capital expenditures; the impact of option expensing; our ability to finance operations, refinance current maturities of long-term obligations; and our ability to mee t our cash requirements while maintaining proper liquidity. These statements involve risks and uncertainties and are based on management’s current expectations and estimates; actual results may differ materially. Those risks and uncertainties that could impact these statements include the risks relating to implementation and success of our advertising and marketing plans and sensitivity to general economic conditions, including the current economic environment, consumer spending patterns; our ability to complete long-term financing, our leverage and debt risks; the effect of competition on GPG and our clients; management’s allocation of capital and the timing of capital purchases; and internal factors such as the ability to increase efficiencies, control expenses and successfully execute growth strategies. The effect of market risks could be impacted by future borrowing levels and economic factors such as interest rates. The expected impact of option/warrant expensing is based on certain assumpti ons regarding the number and fair value of options granted, resulting tax benefits and shares outstanding. The actual ultimate impact of option/warrant expensing could vary significantly to the extent actual results vary significantly from current assumptions and market conditions.
Such forward-looking statements encompass our beliefs, expectations, hopes or intentions regarding future events. Words such as “expects,” “believes,” “anticipates,” “should,” and “likely” also identify forward-looking statements. All forward-looking statements included in this Report are made as of the date hereof, based on information available to us as of such date, and we assume no obligation to update any forward-looking statement. It is important to note that such statements may not prove to be accurate and that our actual results and future events could differ materially from those anticipated in such statements. Among the factors that could cause actual results to differ materially from our expectations are those described under “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risks Related to Existing and Proposed Operations.” All subsequent written and oral forward-looking statements attributable to GPG or persons acting on our behalf are expressly qualified in their entirety by this section and other factors included elsewhere in this Report. For a more detailed discussion of these and other factors that could cause actual results to differ from those contained in the forward-looking statements, see the company’s annual report on Form 10-K filed with the Securities and Exchange Commission which includes our financial statements for the year ended March 31, 2010.
Overview
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Green Planet Group, Inc., our operations and our business environment. MD&A is provided as a supplement to (and should be read in conjunction with) our Financial Statements and accompanying notes.
The following table sets forth our results of operations for the three months ended June 30, 2010 and 2009 as a percentage of net sales:
| | | 2010 | | | 2009 | |
| | | | | | | |
| NET SALES | | | 100.0 | % | | | 100.0 | % |
| | | | | | | | | |
| COST OF SALES | | | 84.6 | % | | | 88.2 | % |
| | | | | | | | | |
| GROSS PROFIT | | | 15.4 | % | | | 11.8 | % |
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Selling, general and administrative | | | 24.2 | % | | | 21.4 | % |
| Depreciation and amortization | | | 2.5 | % | | | 1.4 | % |
| Allowance for bad debts | | | 0.0 | % | | | 2.5 | % |
| | | | | | | | | |
| TOTAL OPERATING EXPENSES | | | 26.7 | % | | | 25.4 | % |
| | | | | | | | | |
| INCOME/(LOSS) FROM OPERATIONS | | | (11.3 | )% | | | (13.5 | )% |
| | | | | | | | | |
| Other income (expense) | | | 0.8 | % | | | 0.0 | % |
| Interest expense | | | (9.3 | )% | | | (11.1 | ) % |
| | | | | | | | | |
| LOSS BEFORE INCOME TAXES | | | (19.7 | )% | | | (24.6 | )% |
| Income tax benefit | | | 0.0 | % | | | 0.0 | % |
| | | | | | | | | |
| NET LOSS | | | (19.7 | )% | | | (24.6 | )% |
Three months ended June 30, 2010 as compared to three months ended June 30, 2009
Net Sales: Net Sales decreased from $16,697,904 in 2009 to $10,025,597 in 2010 or a decrease of $6,672,307. This represents a decrease of 40% over the same period a year earlier. This decrease was due to our termination of clients that refused to adhere to safety standards, the economy in general and interference by former employees in the operations of the Company’s business.
Gross Margin: Gross Margin increased from 11.8% to 15.4% an increase of 30.4%. This was due to the termination of non-compliant clients and the economic impact on low margin clients that have been terminated.
Selling, General and Administrative Expenses: The Company decreased its SG&A from $3,580,636 to $2,428,050 or a decrease of 32.2%, reflecting operational measures to reduce overhead, close unprofitable locations and achieve greater efficiency of staff.
Depreciation and Amortization: The increase in the depreciation and amortization was due to the additional staffing acquisitions in 2010 which accounted for all of the increase.
Allowance for Bad Debts: The allowance for bad debts in 2009 was attributable to the staffing segment and the filing of bankruptcy by two of its clients which made the collection of their outstanding amounts uncertain. There were no increases in the allowance for bad debts for the quarter ended June 30, 2010 reflecting an improvement of 2.5% of revenue versus the prior year.
Interest Expense: Interest expense decrease by 50.0% over the interest expense for the prior year in part due to the decrease in derivative valuations and offset by the increase in default interest on certain loans and penalties and interest on the amounts due Federal and state authorities for payroll tax liabilities.
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 generally lowest in the first calendar quarter and largest in the third calendar quarter.
FINANCIAL LIQUIDITY AND CAPITAL RESOURCES
We have experienced net losses for the three months ended June 30, 2010 and 2009 and negative cash flows from operations of $112,809 for the period ended June 30, 2010. The aggregate net losses for the last two fiscal years aggregated $15,687,606 and $2,696,277, respectively. For the three months ended June 30, 2010 the net loss was $1,978,674 with aggregate contributing non-cash factors of depreciation, amortization, bad debts, share based payments and derivation valuation factors of $189,770 for the quarter compared to the prior year quarter of $2,119,105. We have funded our operations to date by borrowings from third parties and investors. In the June 30, 2010 quarter we issued $52,301 of common stock to services and interest. The inability of the Company to raise capital through the pr ivate 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.
As a result, the Company’s independent registered public accounting firm has issued a going concern opinion on the Company’s consolidated financial statements for the year ended March 31, 2010 contained in our Form 10-K filed with the Securities and Exchange Commission.
Substantially all of the Company’s assets are pledged as collateral for our debt obligations at March 31, 2010.
The Company was in default on $1,574,723 under the Purchase Note Payable, litigation has commenced and the parties are in negotiations to settle this obligation for a reduced amount payable over the next several years. The Company has commenced litigation against the sellers of the staffing business to the Company in March, 2009. The litigation seeks to rescind the purchase and other equitable relief and the Company has stopped making scheduled payments on the Purchase note 1 ($4,805,568) and Purchase note 2 ($1,990,738) and does not intend to make future payments on these notes. The Company has included the Purchase note 1 note in the due within one year pursuant to generally accepted accounting principles (GAAP). The Company has received a garnishment from the ACE with respect to the payments on the Purchase note 1 seeking payment of the amounts due under the note for obligations of the seller. 60; The Company has resisted these claims and is pursuing its rights through the courts. Substantially all of Purchase note 2 represents potential payments to third party taxing authorities under the successor liability statutes of various states and the Company may be forced to make these payments thereon to maintain its licenses in those states. The litigation is seeking restitution of any such amounts paid under these obligations. Other notes have been modified during the year changing the maturity date and restructuring the payment structure.
At June 30, 2010, 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 June 30, 2010, 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 June 30, 2010, the Company’s aggregate of accounts payable, accrued liabilities and notes due within one year has increased by $477,676 from $26,526,566 at March 31, 2010. These obligations together with operating 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 and the staffing segment is dependent on the cost of labor in various geographic areas within the United States. 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. 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 carry ing 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 collectability 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 $2,034,760 at June 30, 2010 and March 31, 2010, 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 no 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 31 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 estimate d 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 by Lumea. 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 impairmen t is indicated. ASC 350-10 and ASC 360-10 proscribes the approach for determining the impairment amount, if any. During the year ended March 31, 2010 the Company recognized an impairment loss of $4,355,151 in conjunction with goodwill valuation for the period.
Impairment of Long-Lived Assets – In accordance with ASC 360-10 (formerly the Statement of Financial Accounting Standards No. 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. Impairmen t charges are recorded to the extent that an asset’s carrying value exceeds fair value. Accordingly, actual results could vary significantly from such estimates.
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.
Derivative Financial Instruments – The Company accounts for derivative instruments and debt instruments in accordance with the interpretative guidance of ASC 815 which codified 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.
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 at the completion of each billing cycle to the customer after completion of the work. The billing cycle is generally weekly.
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. The components of cost of sales of the staffing business are primarily the personnel costs of labor, payroll taxes, and other direct costs of maintaining employees.
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. Advertising expenses for the three months ended June 30, 2010 and 2009 were $10,005 and $592, respectively.
Research, Testing and Development – Research, testing and development costs are expensed as incurred. There was no research and development expenses during the three months ended June 30, 2010 and 2009. 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 ASC 740-10 (formerly SFAS No. 109, “Accounting for Income Taxes.”) that 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 June 30, 2010 and 2009.
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 customers located in the United States. The Company extends credit based on an evaluation of the customer’s financial condition, generally without requiri ng collateral. Exposure to losses on receivables is dependent on each customer’s financial condition. At June 30, 2010 and 2009, the amounts due from foreign distributors were $1,363,756 and $1,363,756, which represent 0% and 13.7% of net accounts receivable, respectively, after the Company had recognized prior allowance for doubtful accounts aggregating $1,363,756 and $681,000 at June 30, 2010 and 2009, respectively. The staffing business had two customers that accounted for approximately 13.3% and 12.3% of gross sales for the three months ended June 30, 2010. In the staffing business, customer volume fluctuates with the seasons, the customers’ lines of business and other factors.
Stock-Based Compensation
We account for stock-based awards to employees and non-employees using the accounting provisions of ASC 718-10 (formerly the Statement of Financial Accounting Standards (“SFAS”) No. 123 - Accounting for Stock-Based Compensation and SFAS No. 123(R) which revised SFAS No. 123 which provides for the use of the fair value based method to determine compensation for all arrangements where shares of stock or equity instruments are issued for compensation. Shares of common stock issued in connection with acquisitions are also recorded at their estimated fair values based on the Hull-White enhanced US ASC 718-10 standard. The standard establishes the accounting for transactions in whi ch an entity exchanges its equity instruments for goods or services, particularly transactions in which an entity obtains employee services in share-based payment transactions. The statement also requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which the employee is required to provide service in exchange for the award.
Loss Per Share
Basic loss per share is calculated using the weighted average number of shares outstanding during the year. The Company has adopted ASC 260-10, Earnings per Share - Overall, and uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method, the dilutive effect on loss per share is recognized on the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the period. As the Company has incurred net losses since its inception, the stock options and warrants as disclosed in note 15 were not included in the computation of loss per share as their inclusion would be anti- dilutive.
On April 1, 2010, the Company adopted ASC 260-10-45, Earnings per Share - Overall - Other Presentation Matters, which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and affects entities that accrue cash dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the awards. ASC 260-10-45 states that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The adoption of ASC 260-10-45 does not have a material impact on the Company’s financial statements.
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. During the three months ended June 30, 2010, the states of AZ, CA, FL and IL accounted for 87% of gross sales.
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.
New Accounting Pronouncements:
Transfers of Financial Assets
In June 2009, the FASB amended ASC 860-10 by the codification of SFAS No. 166, “Accounting for Transfers of Financial Assets,” which was codified on December 23, 2009 in ASU No. 2010-16. This requires entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk to the assets. This amendment will improve the relevance, representation faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets. It will also take into account the effects of a transfer on its financial position, financial performance, and cash flows, and a transferor’s continuing involvement. ASC 860-10 is effective for annual periods beginning after November 15, 2009. This statemen t is effective for the Company beginning April 1, 2010 and did not have a material impact on the financial statements.
Amendments to Fair Value Measurement
In August 2009, the FASB issued Accounting Standard Update (“ASU”) No. 2010-05, Fair Value Measure and Disclosure Topic 820 – Measuring Liabilities at Fair Value, which provides amendments to ASC 820-10, Fair Value Measurement and Disclosures – Overall, for the fair measure of liabilities. This update provides clarification that in circumstances in which a quoted price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using one or more of the following techniques: 1. a valuation technique that uses: a. the quoted price of the identical when traded as an asset, b. quoted prices of similar liabilities or similar liabilities when traded as assets, 2. another valuation technique that is consistent with the principles of ASC 820; two examples would be an income approach, such as a present value technique, or a market approach, such as a technique that is based on the amount at the measurement date that the reporting entity would pay to transfer the identical liability or would receive to enter into the identical liability. The amendments in this ASC update also clarify that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of the liability. The amendment also clarifies that both a quoted price in an active market for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required are Level 1 fair value measurements. The Company does not expect the adoption of this update to have a material impact on its consolidated financial position, results of operations or cash flows.
Amendment of Earnings Per Share Computations
In September 2009, the FASB issued ASU No. 2010-08, Earnings Per Share – Amendments to ASC 260-10-S99, which represents technical corrections to ASC 260-10-S99, Earnings per share, based on EITF Topic D-53, Computation of Earnings Per Share for a Period that includes a Redemption or an Induced Conversion of a Portion of a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of Earnings per Share for the Redemption or Induced Conversion of Preferred Stock. The Company’s adoption of this update did not have a material impact on its consolidated financial position, results of operations or cash flows.
Amendment to Investments-Equity Method, Joint Ventures and Accounting for Equity Based Payments
In September 2009, the FASB issued ASU No. 2010-09, Accounting for Investments-Equity Method and Joint Ventures and Accounting for Equity Based Payments to Non-Employees. This Update represents a correction to ASC 323-10-S99-4, Accounting by an Investor for Stock Based Compensation Granted to Employees of an Equity Method Investee. Additionally, it adds observer comment Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees to the Codification. The Company’s adoption of this update did not have a material impact on its consolidated financial position, results of operations or cash flows.
Improving Disclosures About Fair Value Measurements
In January 2010, the FASB issued ASU 2010-06, “Fair Value Measurements and Disclosures (ASC 820): Improving Disclosures about Fair Value Measurements.” This update will require (1) an entity to disclose separately the amounts of significant transfers in and out of Levels 1 and 2 fair value measurements and to describe the reasons for the transfers; and (2) information about purchases, sales, issuances and settlements to be presented separately (i.e., present the activity on a gross basis rather than net) in the reconciliation for fair value measurements using significant unobservable inputs (Level 3 inputs). This guidance clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosures about the valuation techniques and inputs u sed to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs.
The new disclosures and clarifications of existing disclosure are effective for fiscal years beginning after December 15, 2009, except for the disclosure requirements related to the purchases, sales, issuances and settlements in the roll forward activity of Level 3 fair value measurements. Those disclosure requirements are effective for fiscal years ending after December 31, 2010. The Company is still assessing the impact of this guidance but does not believe the adoption of this guidance will have a material impact on our financial statements.
Consolidation
In February 2010, the FASB issued Accounting Standards Update 2010-10 (ASU 2010-10), “Consolidation (ASC 810).” The amendments to the consolidation requirements of ASC 810 resulting from the issuance of Statement 167 are deferred for a reporting entity’s interest in an entity (1) that has all the attributes of an investment company or (2) for which it is industry practice to apply measurement principles for financial reporting purposes that are consistent with those followed by investment companies. An entity that qualifies for the deferral will continue to be assessed under the overall guidance on the consolidation of variable interest entities in Subtopic 810-10 (before the Statement 167 amendments) or other applicable consolidation guidance, such as the guidance for the consolidation of partnerships in Subtopic 810-20. The deferral is effective as of the beginning of a repor ting entity’s first annual period that begins after November 15, 2009, and for interim periods within that first annual reporting period, which coincides with the effective date of Statement 167. Early application is not permitted. The adoption of this update did not have a significant impact on the Company’s consolidated financial statements.
Derivatives and Hedging - Scope Exception Related to Embedded Credit Derivatives
In March 2010, the FASB issued ASU 2010-11, Derivatives and Hedging (ASC 815) – Scope Exception Related to Embedded Credit Derivatives. This ASU removes a scope exception, and an entity that has a beneficial interest in securitized financial assets that includes a credit derivative feature must evaluate that feature for bifurcation from the host financial asset in accordance with the guidance at ASC 815. ASU 2010-11 is effective at the beginning of a reporting entity’s first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of an entity’s first fiscal quarter beginning after March 5, 2010. The adoption of ASU 2010-11 did not have a material impact on the Company’s financial position, results of operations, or cash flows.
Compensation - Stock Compensation
ASU No. 2010-13 was issued in April 2010, and amends and clarifies ASC 718 with respect to the classification of an employee share based payment award with an exercise price denominated in the currency of a market in which the underlying security trades. This ASU will be effective for the first fiscal quarter beginning after December 15, 2010, with early adoption permitted. The adoption of this amendment to ASC 718 did not have a material impact of the Company’s financial position, results of operations, or cash flows.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on the Company’s financial statements upon adoption.
