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 our 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.”
Nature of the Business – We operate in two industry segments: 1) a specialty energy conservation chemical company that produces and supplies technologies to the global transportation, industrial and consumer markets and 2) an employee staffing business which primarily provides staffing to the light industrial market. The energy technologies include gasoline, oil and diesel additives for engines and other transportation-related fluids and industrial lubricants.
Presentation of Interim Statements – The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q for smaller reporting companies. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Form 10-K for the years ended March 31, 2010 and 2009. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation, have been included in the accompanying unaudited consolidated finan cial statements. The results of operations for the periods presented are not necessarily indicative of results that may be expected for any other interim period or for the full fiscal year.
Going Concern Uncertainty
The Company’s continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis.
The Company anticipates that future sales of equity and debt securities to fully implement its business objectives and to raise working capital to support and preserve the integrity of the corporate entity will be necessary. There is no assurance that the Company will be able to obtain additional funding through the sales of additional equity or debt securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company.
If no additional capital is received to successfully implement the Company’s business plan, the Company will be forced to rely on existing cash in the bank and upon additional funds which may or may not be loaned by management and/or significant stockholders to preserve the integrity of the corporate entity at this time. In the event the Company is unable to acquire sufficient capital, the Company’s ongoing operations would be negatively impacted.
As a result, the Company’s independent registered public accounting firm’s audit opinion for the year ended March 31, 2010 included an explanatory paragraph expressing the substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
It is the intent of management and significant stockholders to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. However, no formal commitments or arrangements to advance or loan funds to the Company or repay any such advances or loans exist. There is no legal obligation for either management or significant stockholders to provide additional future funding.
While the Company is of the opinion that good faith estimates of the Company’s ability to secure additional capital in the future to reach our goals have been made, there is no guarantee that the Company will receive sufficient funding to sustain operations or implement its objectives.
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. 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 significan tly 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 initial 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 $2,018,760 and $2,034,760 at December 31, 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 an Environmental Protection Agency (“EPA”) license 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 five years for the customer relationships. Costs incurred by the Company in connection with patent, trademark applications and approvals from governmental agencies such as the EPA, including legal fees, patent and trademark fees and specific testing costs, are expensed as incurred. Purchased intangible costs of completed developments a re 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 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 impairment is indicated. ASC 350-10 and ASC 360-10 prescribe the approach for determining the impairment amount, if any. At the March 31, 2010 year end, 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, the Company reviews long-lived assets, including, but not limited to, property and equipment, patents and other assets, for impairment 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.
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. 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 receivable and the accounts receivable are generally unsecured.
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 and 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 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 and nine months ended December 31, 2010 and 2009 were $26,077 and $55,431, and $5,130 and $14,742, respectively.
Research and Development – Research and development costs are expensed as incurred. There were $389 and $13,483 of research and development expenses during the three and nine months ended December 31, 2009, respectively. There were $9,492 of research and development expenses during the three months and nine months ended December 31, 2010. The Company determined that the reserve for contingent research and development costs from 2005 was no longer needed and reversed the accrual for that amount, $978,151, in the quarter ended December 31, 2010. 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 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 December 31, 2010 and March 31, 2010.
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 requiring collateral. Exposure to losses on receivables is dependent on each customer’s financial condi tion. At December 31, 2010 and 2009, the amounts due from foreign distributors were $1,347,756 and $1,363,756, which represent 0% and 0% of net accounts receivable, respectively, after the Company had recognized prior allowance for doubtful accounts aggregating $1,347,756, after recovery of $16,000 during the current quarter, and $1,363,756 at December 31, 2010 and 2009, respectively. At December 31, 2010, the staffing business had two customers that accounted for approximately 12.0% and 10.6% and 13.1% and 11.9% of gross sales for the three and nine months then ended and for the same periods in 2009 had three customers that contributed greater than 10% of sales. The percentages were 13.2%, 12.6%, 10.1%, 13.7%, 13.1% and 11.7%, for the same periods in 2009, respectively. In the staffing business, customer volume fluctuates with the seasons, the customers’ lines of business and other factors.
We account for stock-based awards to employees and non-employees using the accounting provisions of ASC 718-10 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 which 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 t he employee is required to provide service in exchange for the award.
Earnings/(Loss) Per Share
Basic earnings/(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, 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. 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. None of the warrants, options and convertible preferred stock were in the money at December 31, 2010.
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 did 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 and Canada . 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 and nine months ended December 31, 2010, the states of AZ, CA, FL and IL accounted for 84.6% and 84.8% of gross sales, respectively. During the three and nine months ended December 31, 2009, the same states accounted for 81.1% and 80.1% of gross sales, respectively.
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:
No new accounting pronouncements issued during the current period are expected to have a material impact on the Company’s results of operations, cash flows or financial condition.
Note 3 – Inventories
Inventory consists of finished goods and raw material as follows:
| | | December 31, 2010 | | | March 31, 2010 |
| | | (Unaudited) | | | |
| | | | | | |
| Finished goods | | $ | 67,611 | | | $ | 68,257 |
| Raw material | | | 203,020 | | | | 211,865 |
| | | $ | 270,631 | | | $ | 280,122 |
Note 4 – Property, Plant and Equipment
At December 31, 2010 and March 31, 2010 property, plant and equipment and computers consisted of the following:
| | | December 31, 2010 | | | March 31, 2010 | |
| | | (Unaudited) | | | | |
| | | | | | | |
| Property and plant | | $ | 1,452,146 | | | $ | 1,452,146 | |
| Equipment and computers | | | 855,110 | | | | 858,328 | |
| Less accumulated depreciation | | | (690,404 | ) | | | (562,829 | ) |
| Net property, plant and equipment | | $ | 1,616,852 | | | $ | 1,747,645 | |
During the three and nine months ended December 31, 2010 and 2009, depreciation expense was $49,563 and $43,034 for the three month periods and $134,128 and $129,544 for the nine month periods, respectively.
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 is amortizing this asset over its estimated useful life of seven years on a straight-line basis. For the three and nine months ended December 31, 2010 and 2009, amortization of the EPA licenses was $31,681 in each three month period and $95,041 for each nine month period. The customer relationships are primarily 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 period of this intangible is five years. For the three and nine month s ended December 31, 2010 and 2009, the amortization expense of the customer relationships was $178,821 and $164,650 for the three month periods ended December 31, 2010 and 2009, and $536,460 and $493,952 for the nine month periods ended December 31, 2010 and 2009.
Intangible assets subject to amortization:
| | Weighted | | December 31, 2010 |
| | Average | | Gross Carrying | | | Accumulated | | | Net Carrying |
| | Useful Life | | Amount | | | Amortization | | | Amount |
| | | | | | | | | | |
| Intangible assets subject to amortization: | | | | | | | | | |
| EPA licenses | 7 years | | $ | 887,055 | | | $ | 601,930 | | | $ | 285,125 |
| Customer relationships | 5 years | | | 3,661,876 | | | | 1,268,493 | | | | 2,393,383 |
| | | | $ | 4,548,931 | | | $ | 1,870,423 | | | $ | 2,678,508 |
| | | | | | | | | | | | | |
| Goodwill not subject to amortization: | | | | | | | | | | | | |
| Goodwill: | | | | | | | | | | | | |
| Goodwill | | | $ | 4,522,616 | | | $ | – | | | $ | 4,522,616 |
| | | | $ | 4,522,616 | | | $ | – | | | $ | 4,522,616 |
| | | | | | | | | | | | | |
(Continued)
| | Weighted | | March 31, 2010 |
| | Average | | Gross Carrying | | | Accumulated | | | Net Carrying |
| | Useful Life | | Amount | | | Amortization | | | Amount |
| | | | | | | | | | |
| Intangible assets subject to amortization: | | | | | | | | | | | | |
| EPA licenses | 7 years | | $ | 887,055 | | | $ | 506,889 | | | $ | 380,166 |
| Customer Relationships | 5 years | | | 3,576,391 | | | | 732,033 | | | | 2,844,358 |
| | | | $ | 4,463,446 | | | $ | 1,238,922 | | | $ | 3,224,524 |
| | | | | | | | | | | | | |
| Goodwill not subject to amortization: | | | | | | | | | | | | |
| Goodwill: | | | | | | | | | | | | |
| Goodwill | | | $ | 8,979,822 | | | $ | 4,355,151 | (1) | | $ | 4,624,671 |
| | | | $ | 8,979,822 | | | $ | 4,355,151 | | | $ | 4,624,671 |
_______________
| (1) | Impairment valuation. |
The scheduled amortization to be recognized over the next four years is as follows:
| December 31, 2011 | | $ | 859,097 |
| December 31, 2012 | | $ | |
| December 31, 2013 | | $ | 764,056 |
| December 31, 2014 | | $ | 196,258 |
Note 6 – Accrued Liabilities
Accrued liabilities consist of the following as of December 31, 2010 and March 31, 2010:
| | | December 31, 2010 | | | March 31, 2010 |
| | | | | | | | |
| Accrued contingent liabilities | | $ | 306,379 | | | $ | 1,278,151 |
| Accrued interest and penalties | | | 1,951,514 | | | | 2,629,271 |
| Other accrued expenses and workmen’s compensation claims | | | 1,879,237 | | | | 955,515 |
| | | $ | 4,137,130 | | | $ | 4,862,937 |
Note 7 – Accrued Payroll, Taxes and Benefits and Long-Term Tax Contracts
Accrued payroll, taxes and benefits was $1,588,258 and $9,400,058 at December 31, 2010 and March 31, 2010, respectively.
Subsidiaries of the Company are delinquent in the payment of their payroll tax liabilities with the Internal Revenue Service and various states. As of December 31, 2010, unpaid payroll taxes and related interest and penalties total $11,821,266. The estimated payroll tax penalties and interest liability could be subject to material revision in the future. The Company has entered into installment agreements with the Internal Revenue Service which require installment payments of $100,000 per month until paid. The Company has also entered into certain payment contracts with various states requiring monthly payments until paid. At De cember 31, 2010, these contract payments due after one year were $11,439,809. The current portion of $485,029, together with obligations for which the Company does not have long-term agreements, are included in accrued payroll, taxes and benefits.
Note 8 – Notes and Contracts Payable
As of December 31, 2010 and March 31, 2010 notes and contracts payable consist of the following:
| | | December 31, | | | March 31, | |
| | | 2010 | | | 2010 | |
| | | | | | | | | |
| Revolving line of credit against factored Lumea receivables (1) | | $ | 1,769,546 | | | $ | 2,011,018 | |
| Bank loans, payable in installments | | | 230,145 | | | | 340,657 | |
| Mortgage loan payable, monthly payments of principal and interest at 3 month LIBOR plus 4.7% (2) | | | 782,683 | | | | 790,683 | |
| Payments due seller of XenTx Lubricants | | | 254,240 | | | | 254,240 | |
| Loan from Dyson | | | 60,000 | | | | 60,000 | |
| Notes payable | | | 1,254,709 | | | | 1,336,692 | |
| Loans from individuals, due within one year | | | 740,645 | | | | 778,656 | |
| Purchase note payable | | | – | | | | 1,574,555 | |
| Purchase note 1 | | | 4,805,568 | | | | 4,805,568 | |
| Purchase note 2 | | | 1,277,553 | | | | 2,025,367 | |
| Total | | | 11,175,089 | | | | 13,977,436 | |
| Less current portion | | | 5,442,565 | | | | 11,014,332 | |
| Long-term debt | | $ | 5,732,524 | | | $ | 2,963,104 | |
____________
| (1) | The Company maintains a $5 million line of credit relating to its factored accounts receivable. |
| (2) | 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. |
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 loan had been extended through December, 2010. The Company is working to replace these loans and to arrange 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 is attempting to negotiate a replacement loan or a modification of the current mortgage. Interest is reset quarterly at Libor plus 4.7% and the Company is currently making payments of $8,000 per month on this obligation.
During the quarter ended December 31, 2010, the Company entered into an agreement with the holder of the Purchase note payable to convert the outstanding debt to Series A Preferred Stock, abate $191,699, $0.00 per weighted average common share outstanding, of interest accrued and pay preferred dividends of $8,000 per month. The preferred stock is convertible to common stock at any time the common stock price is in excess of $0.32 per share.
The amounts due sellers bear interest at a rate of 8.0% and are due June 30, 2011.
Certain notes are in default and have been included as current at December 31, 2010. Notes payable in default includes the loan from Shelter Island Opportunity Fund with interest at 12.25%, or a default rate, per annum and secured by the plant and equipment in Durant, Oklahoma.
Substantially all of the staffing receivables are pledged as collateral for the revolving line of credit. At December 31, 2010 and March 31, 2010, the Company had pledged receivables of $2,084,768 and $2,488,760, respectively. In addition, Purchase Notes 1 and 2 are secured by all of the business assets of Lumea.
The balance of the notes payable consist of commercial loans of vehicles and equipment in the normal course of business.
The Loans from individuals include four loans which are all due within one year and bear interest from 9% to 12%.
Notes payable include amounts due after one year consists of the loan from Purchase Notes 1 and 2, all of which are secured by all of the business assets of Lumea. Maturities for the remainder of the loans are as follows:
| 2012 | | $ | 1,276,884 |
| 2013 | | $ | 1,268,544 |
| 2014 | | $ | 2,520,310 |
| 2015 | | $ | 33,473 |
| Thereafter | | $ | 633,313 |
Substantially all of the Company’s assets are pledged as collateral for our debt obligations at December 31, 2010.
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 ($1,277,553) and does not intend to make future payments on these notes. The Company has received a garnishment against Lumea, Inc., a wholly-owned subsidiary, from the ACE American Insurance Company with respect to the payments on the Purchase Note 1 seeking payment of the amounts due under the note for obligations of the seller, Easy Staffing Services, Inc. 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 f orced 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.
Note 9 – Income Taxes
Provision/benefit for income taxes for the periods ended December 31, 2010 and 2009 consisted of the follows:
| | | For the nine months ended December 31, | |
| | | 2010 | | | 2009 | |
| | | (Unaudited) | | | (Unaudited) | |
| | | | | | | | | |
| Federal income taxes/(benefit) | | $ | (867,601 | ) | | $ | (2,278,158 | ) |
| State income taxes | | | (177,807 | ) | | | (501,858 | ) |
| Total | | | (1,045,408 | ) | | | (2,780,016 | ) |
| Valuation allowance | | | 1,045,408 | | | | 2,780,016 | |
| Net tax provision/benefit | | $ | | | | $ | – | |
Through December 31, 2010, we recorded a valuation allowance of $12,281,875 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. For the nine months ended December 31, 2010 and 2009 we recognized $1,045,408 and $2,780,016, respectively, of valuation allowance to offset the tax benefit of the losses for the periods.
We have estimated net operating loss carryforwards of approximately $29,225,000. Our net operating loss carryforwards will expire between 2025 and 2031.
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 Federal net operating losses expire as follows:
| Expiration | | Amount |
| | | | |
| 2025 | | $ | 1,525,000 |
| 2026 | | | 5,132,000 |
| 2027 | | | 3,053,000 |
| 2028 | | | 2,251,000 |
| 2029 | | | 2,295,000 |
| 2030 | | | 12,417,000 |
| 2031 | | | 2,552,000 |
| Total | | $ | 29,225,000 |
The Company is subject to various state income tax laws. The carryover of net operating losses in the various states range from five (5) years to fifteen (15) years based on the actual business activities within each state.
Note 10 – Fair Value Measurements
The Company adopted ASC 820-10 as of April 1, 2010. ASC 820-10 applies to certain assets and liabilities that are being measured and reported on a fair value basis. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosure about fair value measurements. This ASC 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. ASC 820-10 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 derivative liability (See Note 12 – Derivative Financial Instruments) and the cashless warrant liability, both consisting of warrants and options outstanding, at their fair market values as provided by ASC 820-10.
The following table provides fair market measurements of the derivative liability and cashless warrant liability as of December 31, 2010:
| | | Fair Value Measurements at Reporting Date Using Significant Unobservable Inputs (Level 3) |
| | | | |
| Warrant liabilities | | $ | 84,971 |
| Cashless warrant liability | | | 1,972 |
| | | $ | 86,943 |
The change in fair market value of the derivative liability and cashless warrant liability 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 derivative liability and cashless warrant liability as of December 31, 2010:
| | | Warrant Liability | | | Cashless Warrant Liability | | | Total | |
| | | | | | | | | | | | | |
| Beginning balance April 1, 2010 | | $ | 251,715 | | | $ | 10,496 | | | $ | 262,211 | |
| Change in fair market value of derivative liability and cashless warrant liability | | | (166,744 | ) | | | (8,524 | ) | | | (175,268 | ) |
| Ending balance December 31, 2010 | | $ | 84,971 | | | | 1,972 | | | | 86,943 | |
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, deposits, prepaid expenses, accounts payable and accrued expenses and other short-term liabilities.
Note 11 – 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 December 31, 2010, the value of the 6% Convertible Notes, with interest quarterly, was as follows:
| Maturity | | Face Amount | | | Conversion Derivative | | | Balance |
| | | | | | | | | |
| April 28, 2009 (Matured) | | $ | 327,050 | | | $ | 327,050 | | | $ | 654,100 |
| August 17, 2009 (Matured) | | | 700,000 | | | | 700,000 | | | | 1,400,000 |
| October 28, 2009 (Matured) | | | 300,000 | | | | 300,000 | | | | 600,000 |
| November 10, 2009 (Matured) | | | 1,200,000 | | | | 1,200,000 | | | | 2,400,000 |
| Total | | $ | 2,527,050 | | | $ | 2,527,050 | | | $ | 5,054,100 |
Interest expense for the three and nine months ended December 31, 2010 and 2009 was $93,439 and $86,139 for the three month periods and $280,319 and $177,655 for the nine month periods, respectively.
The notes have matured and although the Company is in default for non-payment, the conversion features have expired. These loans are subordinate to the Shelter Island Opportunity Fund (“SIOF”) loan, which prevents collection or enforcement without either the full payment of the SIOF loans or the consent of that loan holder. The Company is attempting to negotiate an agreeable settlement with the convertible note holders for a loan extension and fixed payment terms over several years.
Note 12 – 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. These warrants expire if not exercised at various dates in 2013 through November 10, 2013. At December 31, 2010, 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, ASC 815-10, “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 addition, 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 5,775,000 shares of the Company’s common stock at an exercise price of $0.75 per share. No warrants have been exercised.
At December 31, 2010, there were 17,775,000 shares subject to warrants at a weighted average exercise price of $1.93.
| Exercise Price | | Number of Shares Subject to Outstanding Warrants and Options and Exercisable | | Weighted Average Remaining Contractual Life (years) |
| | | | | |
| $ 0.75 | | 5,775,000 | | 1.50 |
| $ 2.50 | | 12,000,000 | | 2.51 |
| | | 17,775,000 | | |
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 December 31, 2010 were the volatility of 232.2%, risk free rate of between 0.47% and 2.69% and a dividend rate of $0 per period.
Note 13 – Commitments and Contingencies
Concentration of Credit Risk
In addition to the concentration of credit risks in Note 2 - Significant Accounting Policies, we also have credit risks from 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 10 offices throughout the United States. The remaining lease commitment for the two Scottsdale offices are three and five years and the other offices are year-to-year or month-to-month. The following table sets forth the aggregate minimum future annual lease commitments at December 31, 2010 under all non-cancelable leases for the twelve months ended December 31:
| 2011 | | $ | 206,272 |
| 2012 | | | 148,513 |
| 2013 | | | 81,172 |
| 2014 | | | 74,538 |
| 2015 | | | 60,000 |
| | | $ | 570,495 |
Lease expense for the three months ended December 31, 2010 and 2009 was $96,645 and $217,547, respectively. Lease expense for the nine months ended December 31, 2010 and 2009 was $300,295 and $481,448, respectively. The total of all scheduled lease payments, assuming all locations are continued at the same rates, is $323,811 per year.
Workmens’ Compensation Claims
In conjunction with our staffing business, in states other than those that require participation in state funded programs, we maintain a workmens’ compensation policy to cover claims by employees. The Company retains the first portion of each such claims and the funds the amount to the insurance carrier on a current basis. Should our claims experience increase in frequency and/or severity our claims losses would increase substantially.
General Liabilities
The Company is subject to normal recurring litigation as a result of its normal business lines. The Company attempts to provide for all losses as known. There may be losses or claims that the Company is not currently aware of or has not been provided information as to the claims or the nature of the claim as of the financial statement review date.
Note 14 – Company Stock
Preferred Stock
At December 31, 2010, the Company had 1,000,000 shares of $0.001 par value preferred stock authorized and issued 100,000 of its Convertible Series A Preferred Stock in exchange for an outstanding debt of the Company. The shares have a dividend rate of 6%, or $8,000 per month commencing in April 2011, are convertible by the holder at any time that the quoted stock price of the common stock is equal to or greater than $0.32 per share. The shares are convertible at a rate of 49.24 shares of common stock for each share of preferred stock.
Common Stock
At December 31, 2010, the Company had 250,000,000 shares of $0.001 par value common stock authorized of which issued and outstanding shares were 158,174,239.
During the nine months ended December 31, 2010, the Company issued an aggregate of 5,343,947 common shares for services of consultants and others, and for interest payments and 5,500,000 shares to affiliates for the payment of accounts payable obligations recognizing an aggregate addition to stockholders’ equity/(deficit) of $192,300 based on the market price of the stock at the date of the agreements for services and interest payments and twice the market price for shares issued to affiliates at the date of issuance.
Warrants
No warrants have been exercised.
At December 31, 2010, the status of the outstanding warrants is as follows:
| Issue Date | | Shares Exercisable | | Weighted Average Exercise Price | | Expiration Date |
| | | | | | | | |
| April 29, 2006 | | 1,866,667 | | $ | 2.50 | | April 28, 2013 |
| September 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 |
| July 1, 2007 | | 5,775,000 | | $ | .75 | | December 31, 2012 |
| Cashless April 20 – November 10, 2006 | | 700,000 | | $ | 2.50 | | April 29 – November 10, 2015 |
| Cashless July 1, 2007 | | 519,750 | | $ | .75 | | December 31, 2012 |
The warrants have no intrinsic value at December 31, 2010.
Stock Options
At December 31, 2010, 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, 2008, 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. At December 31, 2010, there are no non-vested options outstanding.
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 vested 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 valued these options at their fair value on the date of grant using the Hull-White enhanced option-pricing model.
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 intends to continue to consistently use this method until sufficient market acceptance of its stock 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.
ASC 718-10 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 ASC 718-10. 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.
Note 15 – Earnings (Loss) Per Share
Basic earnings (loss) per common share is computed by dividing the net earnings (loss) by the weighted average number of shares outstanding during the period. For purposes of 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 earnings (loss) 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 December 31, 2010 or 2009. The diluted income (loss) per common share excludes the dilutive effect of approximately 24,409,750 warrants and options and the equivalent of 4,924,134 of common shares available for the exercise of the conversion of preferred shares issued at December 31, 2010 and 26,259,750 of warrants and options at December 31, 2009, since such warrants and options have an exercise price in excess of the average market value and the conversion price of the preferred stock is in excess of the market price 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.
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 three months and nine months ended December 31, 2010 and December 31, 2009 are presented below.
| For the three months ended | | Additives & | | | | | | Corporate | | | | |
| December 31, 2010 | | Green Energy | | | Staffing | | | & Eliminations | | | Consolidated | |
| | | | | | | | | | | | | |
| Income statement information: | | | | | | | | | | | | |
| Sales | | $ | 205,451 | | | $ | 9,049,627 | | | $ | | | | $ | 9,255,078 | |
| Depreciation and amortization | | | 81,245 | | | | 178,819 | | | | | | | | 260,064 | |
| Interest expense | | | 15,944 | | | | (325,149 | ) | | | 235,103 | | | | (74,102 | ) |
| Income/(loss) before income taxes | | | 855,626 | | | | (203,450 | ) | | | (484,362 | ) | | | 167,814 | |
| Net income/(loss) | | | | | | | (203,450 | ) | | | (484,362 | ) | | | | |
| | | | | | | | | | | | | | | | | |
| For the three months ended | | Additives & | | | | | | Corporate | | | | |
| December 31, 2009 | | Green Energy | | | Staffing | | | & Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | | | |
| Income statement information: | | | | | | | | | | | | | | | | |
| Sales | | $ | 229,478 | | | $ | 15,491,731 | | | $ | – | | | $ | 15,721,209 | |
| Depreciation and amortization | | | 64,351 | | | | 172,314 | | | | 2,701 | | | | 239,365 | |
| Interest expense | | | 20,312 | | | | 376,058 | | | | 500,736 | | | | 897,106 | |
| Loss before income taxes | | | (539,449 | ) | | | (896,131 | ) | | | (1,286,822 | ) | | | (2,722,402 | ) |
| Net loss | | | (539,449 | ) | | | (896,131 | ) | | | (1,286,822 | ) | | | (2,722,402 | ) |
| For the nine months ended | | Additives & | | | | | | Corporate | | | | |
| December 31, 2010 | | Green Energy | | | Staffing | | | & Eliminations | | | Consolidated | |
| | | | | | | | | | | | | |
| Income statement information: | | | | | | | | | | | | |
| Sales | | $ | 861,613 | | | $ | 28,729,512 | | | $ | | | | $ | 29,591,125 | |
| Depreciation and amortization | | | 209,945 | | | | 555,684 | | | | | | | | 765,629 | |
| Interest expense | | | 49,837 | | | | 2,874,328 | | | | 467,866 | | | | 3,392,031 | |
| Income/(loss) before income taxes | | | 718,462 | | | | (4,016,845 | ) | | | (1,387,394 | ) | | | (4,685,777 | ) |
| Net income/(loss) | | | | | | | (4,016,845 | ) | | | (1,387,394 | ) | | | (4,685,777 | ) |
| | | | | | | | | | | | | | | | | |
| Balance sheet information: | | | | | | | | | | | | | | | | |
| Total assets | | | 1,748,583 | | | | 10,269,093 | | | | 492,552 | | | | 12,510,228 | |
| | | | | | | | | | | | | | | | | |
| For the nine months ended | | Additives & | | | | | | Corporate | | | | |
| December 31, 2009 | | Green Energy | | | Staffing | | | & Eliminations | | | Consolidated | |
| | | | | | | | | | | | | | | | | |
| Income statement information: | | | | | | | | | | | | | | | | |
| Sales | | $ | 916,783 | | | $ | 47,909,140 | | | $ | – | | | $ | 48,825,923 | |
| Depreciation and amortization | | | 193,050 | | | | 517,387 | | | | 8,101 | | | | 718,538 | |
| Interest expense | | | 369,782 | | | | 1,097,346 | | | | 752,336 | | | | 2,219,464 | |
| Loss before income taxes | | | (836,765 | ) | | | (3,744,467 | ) | | | (3,802,735 | ) | | | (8,383,967 | ) |
| Net loss | | | (836,765 | ) | | | (3,744,467 | ) | | | (3,802,735 | ) | | | (8,383,967 | ) |
| | | | | | | | | | | | | | | | | |
| Balance sheet information: | | | | | | | | | | | | | | | | |
| Total assets | | $ | 2,855,800 | | | $ | 16,769,024 | | | $ | 589,635 | | | $ | 20,214,459 | |
