SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB/A
[X] QUARTLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003
COMMISSION FILE NUMBER: 017833
GREENLAND CORPORATION
(Exact Name of Registrant as specified in its charter)
NEVADA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87-0439051
(State of other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
17075 Via Del Campo
San Diego, CA 92127
(Address of principal executive offices)
(858) 451-6120
(Issuer's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[X] YES NO
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS A COMMON STOCK $0.001 PAR VALUE
177,441,875 SHARES OUTSTANDING AS OF November 18, 2003
DOCUMENTS INCORPORATED BY REFERENCE
None
Traditional Small Business Disclosure Format (check one): YES NO
Greenland Corporation
(A Subsidiary of Imaging Technologies Corporation)
Report on Form 10-QSB
Quarter Ended September 30, 2003
Table of Contents
Part I. Financial Information
Item 1. Financial Statements (unaudited)
Consolidated balance sheet as of September 30, 2003 (unaudited)
Consolidated statements of operations for the three months ended
September 30, 2003 and 2002
Consolidated statements of operations for the nine months ended
September 30, 2003 and 2002
Consolidated statements of cash flows for the nine months ended
September 30, 2003 and 2002
Notes to consolidated financial statements
Item 2. Management's discussion and analysis of financial condition and
results of operations
Part II. Other Information
Item 1. Legal Matters
Item 6. Exhibits and Reports on Form 8-K
Signatures
GREENLAND CORPORATION
(A Subsidiary of Imaging Technologies Corporation)
CONSOLIDATED BALANCE SHEETS
ASSETS
(in thousands, except share amounts) . . . . . . . . . . . . . . . . . SEPT. 30, 2003
(unaudited)
Current assets
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . $ 399
Account Receivable, Net . . . . . . . . . . . . . . . . . . . . . 229
Receivables from related parties. . . . . . . . . . . . . . . . . 1,314
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . 133
------------------
Total current assets . . . . . . . . . . . . . . . . . . . . 2,075
Property and equipment, net. . . . . . . . . . . . . . . . . . . . . . 91
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . 844
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194
Investment - PEO contracts . . . . . . . . . . . . . . . . . . . . . . 223
------------------
$ 3,427
==================
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . $ 926
PEO payroll taxes and other payroll deductions. . . . . . . . . . 3,414
Client deposit. . . . . . . . . . . . . . . . . . . . . . . . . . 94
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . 679
Notes payable, related parties. . . . . . . . . . . . . . . . . . 245
Current maturities of obligations under capital lease . . . . . . 338
Accrued payroll . . . . . . . . . . . . . . . . . . . . . . . . . 709
Accrued interest. . . . . . . . . . . . . . . . . . . . . . . . . 232
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . 529
------------------
Total current liabilities. . . . . . . . . . . . . . . . . . . 7,166
Obligations under capital lease less current maturities. . . . . . . . 28
------------------
7,194
Stockholders' net capital deficiency
Convertible Preferred Class A stock, $.001 par value;
10,000 shares authorized, no shares issued or outstanding . . . . -
Common stock, $0.001 par value, 500,000,000 shares
authorized, 164,401,875
issued and outstanding,. . . . . . . . . . . . . . . . . . . . . 624
Common stock warrants . . . . . . . . . . . . . . . . . . . . . . . 14
Subscribed shares and receivables . . . . . . . . . . . . . . . . . (1,990)
Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . 31,676
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . . (34,091)
------------------
Total shareholders' net capital deficiency . . . . . . . . . (3,767)
$ 3,427
==================
See accompanying notes to condensed consolidated financial statements
GREENLAND CORPORATION
(A Subsidiary of Imaging Technologies Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SEPTEMBER 30,
Thousands except per share amounts
2003 2002
--------------- ---------------
Revenues
Product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ -
PEO Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,525 -
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . 1,881 101
--------------- ---------------
Gross profit (loss), (gross billings of $9,614,
less worksite employee payroll cost of $8,970 in 2003). . . . . . 644 (101)
Costs and expenses
General and administrative expenses . . . . . . . . . . . . . . . . 1,101 280
Impairment on investment. . . . . . . . . . . . . . . . . . . . . . - -
--------------- ---------------
1,101 280
--------------- ---------------
Loss from operations . . . . . . . . . . . . . . . . . . . . (457) (381)
Other income (expenses):
Gain (loss) on settlement of debts. . . . . . . . . . . . . . . . . - (126)
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . (22) (23)
Other income (expense). . . . . . . . . . . . . . . . . . . . . . . 46 -
--------------- ---------------
Total other income (expense). . . . . . . . . . . . . . . . . 24 (149)
--------------- ---------------
Loss before income tax . . . . . . . . . . . . . . . . . . . . . . . . (433) (530)
Provision for Income tax . . . . . . . . . . . . . . . . . . . . . . . 1 -
--------------- ---------------
Net Loss. . . . . . . . . . . . . . . . . . . . . . . . . . $ (434) $ (530)
=============== ===============
Basic and diluted net loss per share . . . . . . . . . . . . . . . . . (0.003) (0.07)
=============== ===============
Basic and diluted weighted average number of common stock
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155,514,375 7,606,977
=============== ===============
See accompanying notes to condensed consolidated financial statements
GREENLAND CORPORATION
(A Subsidiary of Imaging Technologies Corporation)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30,
Thousands except per share amounts
2003 2002
--------------- -------------
Revenues
Product sales . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - $ --
PEO Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,925 -
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . 1,881 304
--------------- -------------
Gross profit, (gross billings of $20,301, less worksite
employee payroll cost of $19,257 in 2003) . . . . . . . . 1,044 (304)
Costs and expenses
General and administrative expenses. . . . . . . . . . . . . . . . . . 2,877 1,675
Impairment on investment . . . . . . . . . . . . . . . . . . . . . . . - 1,565
--------------- -------------
2,877 3,240
--------------- -------------
Loss from operations. . . . . . . . . . . . . . . . . . . . . (1,833) (3,544)
Other income (expenses):
Loss on sale of assets. . . . . . . . . . . . . . . . . . . . . . . - (3)
Gain on investment disposal . . . . . . . . . . . . . . . . . . . . - 150
Gain (loss) on settlement of debts . . . . . . . . . . . . . . . . 3 (485)
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . . . (158) (95)
Other income (expense). . . . . . . . . . . . . . . . . . . . . . . 133 -0-
--------------- -------------
Total other income (expense). . . . . . . . . . . . . . . . . (22) (433)
--------------- -------------
Loss before income tax . . . . . . . . . . . . . . . . . . . . . . . . (1,855) (3,977)
Provision for Income tax . . . . . . . . . . . . . . . . . . . . . . . 1 --
--------------- -------------
Net Loss. . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,856) $ (3,977)
=============== =============
Basic and diluted net loss per share . . . . . . . . . . . . . . . . . 0.013 (0.69)
=============== =============
Basic and diluted weighted average number of common stock
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137,973,539 5,743,766
=============== =============
See accompanying notes to condensed consolidated financial statements
GREENLAND CORPORATION
(A Subsidiary of Imaging Technologies Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND 2002
(in thousands) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2003 2002
--------------------- ----------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (1,856) $ (3,977)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . 148 367
Allowance for doubtful account . . . . . . . . . . . . . . . . 1 258
Gain on sale of assets & disposal of investments . . . . . . . - (147)
Impairment of goodwill . . . . . . . . . . . . . . . . . . . . - 1,565
Net loss on settlement of debt . . . . . . . . . . . . . . . . - 485
Stock issued for services. . . . . . . . . . . . . . . . . . . - 657
Option issued for services . . . . . . . . . . . . . . . . . . 29 -
Stock issued for salaries & reimbursement. . . . . . . . . . . 98 196
(Increase) / decrease in current assets:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . (1,544) 11
Interest receivable. . . . . . . . . . . . . . . . . . . . . (133) -0-
Prepaid Expense. . . . . . . . . . . . . . . . . . . . . . . - 25
Other assets . . . . . . . . . . . . . . . . . . . . . . . . (176) 4
Increase in current liabilities:
Account payable and accrued expense. . . . . . . . . . . . . 3,664 497
--------------------- ----------------------
Total Adjustments . . . . . . . . . . . . . . . . . . . . 2,087 3,918
--------------------- ----------------------
Net cash provided by (used in) operating activities . . . . . . . . 231 (59)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment. . . . . . . . . . . . . . . . . . . . . . . (41) --
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital leases . . . . . . . . . . . . . . . . - (104)
Principal payments on line of credit . . . . . . . . . . . . . . . . (59) (39)
Principal payment on note payable. . . . . . . . . . . . . . . . . . (32) --
Proceeds from the exercise of warrants & options . . . . . . . . . . 100 --
Proceeds from note payable . . . . . . . . . . . . . . . . . . . . . 196 196
--------------------- ----------------------
Net cash provided by (used in) financing activities. . . . . . . . . 205 53
NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS . . . . . . . . . . 395 (6)
CASH & CASH EQUIVALENTS , BEGINNING BALANCE. . . . . . . . . . . . . . 4 7
--------------------- ----------------------
CASH & CASH EQUIVALENTS , ENDING BALANCE . . . . . . . . . . . . . . . $ 399 $ 1
--------------------- ----------------------
SUPPLEMENTAL INFORMATION:
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . $ 27 $ 19
--------------------- ----------------------
Cash paid for income tax . . . . . . . . . . . . . . . . . . . . . . $ -- --
--------------------- ----------------------
See accompanying notes to condensed consolidated financial statements
GREENLAND CORPORATION
(A Subsidiary of Imaging Technologies Corporation)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated interim financial statements
have been prepared in accordance with the rules and regulations of the
Securities and Exchange Commission for the presentation of interim financial
information, but do not include all the information and footnotes required by
generally accepted accounting principles for complete financial statements. The
audited consolidated financial statements for the two years ended December 31,
2002 was filed on April 7, 2003 with the Securities and Exchange Commission and
is hereby referenced. In the opinion of management, all adjustments considered
necessary for a fair presentation have been included. Operating results for the
nine months period ended September 30, 2003 are not necessarily indicative of
the results that may be expected for the year ended December 31, 2003.
NOTE 2. GOING CONCERN UNCERTAINTY
As shown in the accompanying consolidated financial statements, the Company has
suffered recurring losses from operations, has a net working capital deficiency
of approximately $5.1 million and an accumulated deficit of $34 million as of
September 30, 2003. These factors, among others, raise substantial doubt about
the Company's ability to continue as a going concern. The Company's need for
working capital is a key issue for management and necessary for the Company to
meet its goals and objectives. The Company continues to meet its obligations and
pursue additional capitalization opportunities. There is no assurance, however,
that the Company will be successful in meeting its goals and objectives in the
future.
In the regular course of business, there are inter-company transfers of funds
between the Company and ITEC. To date, an approximate net amount of $1.3 million
have been transferred from the Company and/or its subsidiaries to ITEC and/or
its other subsidiaries. Should these inter-company transfers be left unpaid, in
whole or in part, the cash position of the Company and its ExpertHR subsidiary
could be inadequate to meet current and/or future operating requirements. There
can be no assurance that the existing inter-company liabilities will be repaid
in the near future, or at all. Furthermore, there can be no assurance that there
will not be additional inter-company transfers in the future.
In view of the matters described in the preceding paragraphs, recoverability of
a major portion of the recorded asset amounts shown in the accompanying balance
sheet is dependent upon continued operations of the Company, which in turn is
dependent upon the Company's ability to raise additional capital, obtain
financing, and to succeed in its future operations. The financial statements do
not include any adjustments relating to the recoverability and classification of
recorded asset amounts or amounts and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
NOTE 3. RECENT PRONOUNCEMENTS
On April 30, 2003, the FASB issued FASB Statement No. 149 (FAS 149), Amendment
of Statement 133 on Derivative Instruments and Hedging Activities. FAS 149
amends and clarifies the accounting guidance on (1) derivative instruments
(including certain derivative instruments embedded in other contracts) and (2)
hedging activities that fall within the scope of FASB Statement No. 133 (FAS
133), Accounting for Derivative Instruments and Hedging Activities. FAS 149 also
amends certain other existing pronouncements, which will result in more
consistent reporting of contracts that are derivatives in their entirety or that
contain embedded derivatives that warrant separate accounting. FAS 149 is
effective (1) for contracts entered into or modified after June 30, 2003, with
certain exceptions, and (2) for hedging relationships designated after June 30,
2003. The guidance is to be applied prospectively. The adoption of SFAS No. 149
does not have a material impact on the Company's financial position or results
of operations or cash flows.
On May 15, 2003, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 150 (FAS 150), Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. FAS 150 changes the accounting
for certain financial instruments that, under previous guidance, could be
classified as equity or "mezzanine" equity, by now requiring those instruments
to be classified as liabilities (or assets in some circumstances) in the
statement of financial position. Further, FAS 150 requires disclosure regarding
the terms of those instruments and settlement alternatives. FAS 150 affects an
entity's classification of the following freestanding instruments: a)
Mandatorily redeemable instruments b) Financial instruments to repurchase an
entity's own equity instruments c) Financial instruments embodying obligations
that the issuer must or could choose to settle by issuing a variable number of
its shares or other equity instruments based solely on (i) a fixed monetary
amount known at inception or (ii) something other than changes in its own equity
instruments d) FAS 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety. The guidance in FAS 150 is
generally effective for all financial instruments entered into or modified after
May 31, 2003, and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. For private companies, mandatorily
redeemable financial instruments are subject to the provisions of FAS 150 for
the fiscal period beginning after December 15, 2003. The adoption of SFAS No.
150 does not have a material impact on the Company's financial position or
results of operations or cash flows..
NOTE 4. REVENUE RECOGNITION - PEO SEGMENT
The Company recognizes its revenues associated with its PEO business pursuant to
EITF 99-19 "Reporting Revenue Gross as a Principal versus Net as an Agent."
Previously, the Company reported its worksite employees as a component of direct
costs. After discussions with the Securities and Exchange Commission staff, the
Company has changed its presentation of revenues from the gross method to an
approach that presents its revenues net of worksite employee payroll costs (net
method) primarily because the Company is not generally responsible for the
output and quality of work performed by the worksite employees.
In determining the pricing of the markup component of the gross billings, the
Company takes into consideration its estimates of the costs directly associated
with its worksite employees, including payroll taxes, benefits and workers'
compensation costs, plus an acceptable gross profit margin. As a result, the
Company's operating results are significantly impacted by the Company's ability
to accurately estimate, control and manage its direct costs relative to the
revenues derived from the markup component of the Company's gross billings.
To conform to the net method, the Company reclassified worksite employee payroll
costs of $17.3 million for the nine months period ended September 30, 2003, from
direct costs to revenues. This reclassification had no effect on gross profit,
operating income (loss), or net income (loss).
Consistent with its revenue recognition policy, the Company's direct costs do
not include the payroll cost of its worksite employees. The Company's direct
costs associated with its revenue generating activities are comprised of all
other costs related to its worksite employees, such as the employer portion of
payroll-related taxes, employee benefit plan premiums and workers' compensation
insurance premiums.
NOTE 5. PROPERTY AND EQUIPMENT
Net property and equipment at September 30, 2003 was as follows:
(In thousands)
Computers and equipment. . . . . . . . . . $ 362
Furniture & fixtures . . . . . . . . . . . 122
Demonstration equipment. . . . . . . . . . 127
------
611
Accumulated depreciation & amortization
(Including accumulated amortization of
$505,860 on leased assets). . . . . . . (520)
------
$ 91
======
Depreciation expenses, including amortization of capital lease assets, for the
nine months ended September 30, 2003 and 2002 were $40 thousand and $114
thousand, respectively.
NOTE 6a. INTANGIBLES
On March 18, 2003, the Company entered into a purchase agreement with ExpertHR
Oklahoma, Inc. to acquire all the issued and outstanding stock of ExpertHR
Oklahoma effective April 1, 2003. The number of shares of Preferred Stock and
the face value of each share shall reflect the purchase price paid by the
Company, which shall be an amount equal to one and one-half times gross profit
of ExpertHR Oklahoma Inc.'s operations for the quarter ending June 30, 2003
multiplied by four as stated in an audit report to be performed (the "Purchase
Price"). From this purchase, the Company received covenants not to compete for
five years valued at $920,613. The amortization expense for the nine month
ended September 30, 2003 was $76,717.
NOTE 6b. customer contract
On March 1,2003, the Company entered into an Agreement and Assignment of Rights
to acquire all right title and interest in and to the rights and benefits
arising under or out of personal staffing agreements (the "Accounts") with the
existing clients of Staff Pro Leasing, Inc and Staff Pro Leasing 2, both
Michigan corporations ("Staff Pro"). The purchase price is $254,709 payable as
follows: (i) Payment of $22,457.50 March 18, 2003 (the "First Payment"); (ii)
payment of $22,457.50 within 30 days of the First Payment (the "Second
Payment"); (iii) monthly payments of $8,940.37 per month commencing 30 days
after the Second Payment and continuing for 24 months; (iv) one million
restricted shares of ITEC. The Purchase Price is based on representations by
Staff Pro that the Accounts constitute a revenue base of $11,065,832 (the
"Revenue Base"). In the event, either prior to or during the 24 month payment
period, there is a reduction in the Revenue Base, the Purchase price will be
reduced proportionately to said reduction of the Revenue Base. Provided,
however, if during the first 90 days after the effective date of the Agreement,
Staff Pro causes any existing client to execute a new client agreement with the
Company on terms and conditions satisfactory to the Company, then that client
shall be excluded from the revenue base calculation. The Company is amortizing
the contracts over a 60 month period. The accumulated amortization at September
30, 2003 and amortization expense for the nine month ended September 30, 2003
amounted to $31,439.
NOTE 7. NOTES PAYABLE TO RELATED PARTIES
Notes payable to related parties at September 30, 2003 were as follows:
(in thousands)
Note payable to a stockholder of the Company.
Interest at 8%. Principal due at various dates through September 2003.
Interest expense as of September 30, 2003 is $8,135. . . . . . . . . . $ 109
Notes payable to a stockholder and officer of the Company.
Interest at 8%. Principal due at various dates through April 2003.
Interest expense as of September 30, 2003 is $6,885. . . . . . . . . . 111
Other notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
---------------
$ 245
===============
NOTE 8. NOTES PAYABLE
Notes payable at September 30, 2003 were as follows:
(in thousands)
Note payable to an unrelated party, with interest at 10%. Due through
the payment of commissions earned through March 9, 2001.. . . . . . . . $ 320
Note payable to an unrelated party, with interest at 5.75%. Due through
the principal and interest payment March 31, 2004. . . . . . . . . . . 91
Note payable to an unrelated party, with interest at 7.5%. Due through
the principal and interest payment February 29, 2004.. . . . . . . . . 98
Note payable related to acquisition of client services contracts from
A third party with interest at 6%, payable through May 2005.. . . . . . 170
---------------
$ 679
NOTE 9. STOCKHOLDERS' EQUITY
Convertible Preferred Stock
The Company is authorized to issue 10,000 shares of Class A convertible
preferred stock with a face value of ten thousand Dollars ($10,000) and a par
value of $.001 per share. The Company is authorized to issue 10,000 shares of
Class B convertible preferred stock with a face value and with a par value to be
determined at the discretion of the Board of directors. The Company has no
convertible preferred stock outstanding through September 30, 2003.
Common Stock Issued During the Period
The Company issued 115.1 million shares to Imaging Technologies Corporation
(ITEC) pursuant to a share purchase agreement for a convertible promissory note,
payable in two years, in the amount of $2.25 million.
The Company issued 5.4 million and 160 thousand shares to related parties to
retire notes payable in the amount of $33 thousand and $8 thousand for the nine
months ended September 30, 2003 and 2002, respectively.
The Company issued 10.3 million and 4 million shares for services for the nine
months ended September 30, 2003 and 2002, respectively. The Company has
recognized expenses for such services in the amount of $98 thousand and $657
thousand in 2003 and 2002, respectively.
The Company issued 1.6 million shares of common stock for salaries totaling $196
thousand in the period ended September 30, 2002.
NOTE 10. BASIC AND DILUTED NET LOSS PER SHARE
Basic and diluted net loss per share for the nine month periods ended September
30, 2003 and 2002 were determined by dividing net loss for the periods by the
weighted average number of both basic and diluted shares of common stock. The
basic and diluted net income (loss) per share has been restated to retroactively
effect a reverse stock split of 50:1. The weighted average number of shares used
to compute basic and diluted loss per share is the same since the effect of
dilutive securities is anti-dilutive.
NOTE 11. SUPPLEMENTAL DISCLOSURE OF CASH FLOWS
The Company prepares its statements of cash flows using the indirect method as
defined under the Financial Accounting Standard No. 95.
The cash flow statements do not include following non-cash investing and
financing activities:
The Company paid for services in the amount of $98 thousand and $657 thousand
for the nine months ended September 30, 2003 and 2002, respectively, by issuing
its common stock.
The Company paid for salaries in the amount of $196 thousand for the nine months
period ended September 30, 2002 by issuing common stock. No such transactions
were made in the nine month period ended September 30, 2003.
The Company repaid notes payable to related parties of $27 thousand and $8
thousand in the nine months period ended September 30, 2003, by the issuance of
common stock.
The Company issued 115.1 million shares to Imaging Technologies Corporation
(ITEC) pursuant to a share purchase agreement for a convertible promissory note,
payable in two years, in the amount of $2.25 million.
The Company issued non-qualified options to stockholder and a creditor of the
company to purchase 4.0 million shares and recorded $29 thousand as loan payment
for the nine months ended September 30, 2003.
NOTE 12. SEGMENTS AND MAJOR CUSTOMERS
The Company has two reportable segments consisting of (1) the sale and
distribution of automatic check cashing machines (ABM) and (2) PEO services. The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. The Company evaluates performance
based on sales, gross profit margins and operating profit before income taxes.
The following is information for the Company's reportable segments for the nine
month ended September 30, 2003:
ABM PEO
(in thousands). . . . . . . . . . . . . . . Segment Segment Unallocated Total
-------- --------- ------------- --------
Revenue . . . . . . . . . . . . . . . . . . $ - $ 2,925 $ - $ 2,925
Depreciation and amortization . . . . . . . - - 148 148
Operating expenses. . . . . . . . . . . . . - (1,833) - (1,833)
Interest, net . . . . . . . . . . . . . . . - - 158 158
Loss from continuing operations before tax. - 1,044 (2,899) (1,855)
Identifiable assets . . . . . . . . . . . . - 2,579 848 3,427
Capital expenditures. . . . . . . . . . . . - 41 - 41
The following is information for the Company's reportable segments for the nine
month ended September 30, 2002. The data relate to the automated check cashing
business only as the Company did not enter the PEO business until January 2003.
Sales Processing
In thousands . . . . . . . . . . . . . . . . Segment Segment Unallocated Total
-------- ------------ ------------- --------
Revenue. . . . . . . . . . . . . . . . . . . $ -0- $ -0- $ -0- $ -0-
Gross margin, before selling, general and
administrative expense. . . . . . . . . -0- (304) -0- (304)
Depreciation and amortization. . . . . . . . -0- 304 63 367
Interest expense . . . . . . . . . . . . . . -0- -0- 95 95
Other, net . . . . . . . . . . . . . . . . . -0- -0- (3,093) (3,093)
Loss from continuing operations before taxes -0- (304) (3,188) (3,492)
Identifiable assets. . . . . . . . . . . . . 146 733 467 1,346
Capital expenditures . . . . . . . . . . . . -0- -0- -0- -0-
The above negative gross margins include fixed overhead costs for expenses such
as supervision, labor, amortization and depreciation, communications, and
facilities, as well as the direct costs to manufacture and service the automated
banking machines.
NOTE 13. LEGAL PROCEEDINGS
The Company, along with Seren Systems ("Seren"), its then current and primary
software developer and supplier for its own ABM terminals, was in the process of
completing development of the check cashing service interface to the Mosaic
Software host system being implemented to support a large network of V.com
terminals. In September 2000, Seren unilaterally halted testing and effectively
shut-down any further check cashing development for the V.com project. The
parties participating in this project may have been financially damaged, related
to the delay in performance by the Company and Seren. None of the parties have
brought suit against the Company and/or Seren at this time. There is no
assurance, however, that such suit(s) will not be brought in the future.
On May 23, 2001 the Company filed a Complaint in San Diego County naming Michael
Armani as the defendant. The Complaint alleges breach of contract by Michael
Armani in connection with two separate stock purchase agreements. The Company
seeks damages in the amount of $474,595. On August 7, 2001 the Company filed a
request for Entry of Default against Mr. Armani in the amount of $474,595 and
the court granted entry of default. Subsequently Mr. Armani filed a motion to
set aside the entry of default and on October 26, 2001 the court granted said
motion and the entry of default was set aside. The Company and Mr. Armani
participated in mediation and as a result entered into a settlement agreement
whereby Mr. Armani agreed to make certain cash payments to the Company and the
parties entered into mutual release of all claims. Mr. Armani defaulted in his
obligation to make the first cash payment and consequently, the Company obtained
a judgment against Mr. Armani for $100,000. The Company is continuing its
efforts to collect on the judgment.
On May 23, 2001 Arthur Kazarian, Trustee for the General Wood Investment Trust
(the "Landlord") filed a Complaint in San Diego County naming Greenland
Corporation as a defendant. The Complaint alleges breach of contract pursuant to
the terms of the lease agreement between the Company and the Landlord for the
real property located at 1935 Avenida Del Oro, Oceanside, California and
previously occupied by the Company. The Complaint seeks damages in the amount of
approximately $500,000. Although the Company remains liable for the payments
remaining for the term of the lease, the Landlord has a duty to mitigate said
damages. The Company recorded a lease termination liability of $275 thousand
during the year ended December 31, 2001. The Company entered into a settlement
agreement with Arthur Kazarian, Trustee for the General Wood Investment Trust
(the "Landlord") where by the Company agreed to pay the sum of $220,000 to the
Landlord in installments payments of $20,000 in May 2002, $50,000 in October
2002 and the remaining balance in December 2002. In the event Greenland defaults
in any or all scheduled payments, the Landlord is entitled to a stipulated
judgment of approximately $275,000. The Company was unable to make the
scheduled payments and as a result, on July 8, 2002, the Landlord has entered a
judgment lien against the Company in the amount of $279,654.
The Company entered into an agreement with Intellicorp, Inc. ("Intellicorp")
whereby Intellicorp agreed to invest $3,000,000 in exchange for seats on the
board of directors and restricted shares of common stock of the Company. After
making the initial payment of $500,000, Intellicorp defaulted on the balance.
The Company is seeking a recovery of the unpaid $2,500,000. The defendant's
ability to pay is unknown. The Company had issued 46,153,848 shares of common
stock for the investment. The shares were returned back to the Company and were
cancelled. A default judgment was entered against defendant IntelliCorp,
IntelliGroup, and Isaac Chang. On May 16, 2003 the Court held a prove-up hearing
for proof of damages. On July 17, 2003, the court entered Judgment By Default By
Court and awarded the Company damages against IntelliCorp, IntelliGroup and
Isaac Chang in the amount of $3,900,000 including $1,000,000 in punitive
damages. Defendants time to appeal said damage award expired s on September 17,
2003. The Company is pursuing collection actions of said amount. There is no
assurance that the Company will be successful in its collection efforts.
On July 5, 2001 Max Farrow, a formal officer of the Company, filed a Complaint
in San Diego County naming Greenland Corporation, Thomas J. Beener,
Intelli-Group, Inc., Intelli-Group LLC and Intelli-Corp, Inc. as defendants. The
Complaint alleges breach of contract in connection with Mr. Farrow's resignation
as an officer and director of the Company in January 2001. The Company and Mr.
Thomas Beener, entered into a settlement agreement with Max Farrow whereby Mr.
Farrow agreed to release Mr. Beener from all claims, obligations etc., in
exchange for the issuance of 8 million restricted shares of Greenland
Corporation common stock. The good faith settlement was approved by the court
and the agreed upon consideration was delivered to Mr. Farrow. The Company
entered into a settlement with Farrow whereby the Company agreed to a judgment
of $125,000. However, the judgment will not be enforced until such time as
efforts to collect against IntelliCorp et al, have been exhausted. In the event
funds are collected from IntelliCorp. Mr. Farrow will receive the first $125,000
plus 50% of the next $200,000 collected. The Company will retain all amounts
collected thereafter.
Fund Recovery, a temporary staffing services filed a complaint against Greenland
Corporation alleging breach of contract. A summary judgment motion is pending.
The Company recorded the liability amount of $14 thousand in the consolidated
financial statements.
John Ellis has filed a demand for arbitration in San Diego County against the
Company seeking damages of approximately $70,000 for an alleged breach of
contract action. Mr. Ellis appeared to have abandoned this action. John Ellis
also filed an action in San Diego County against the Company seeking damages of
approximately $60,000 for an alleged breach of contract action . In response to
the action filed in San Diego County, the Company filed a motion to quash
service and to compel arbitrationThe court granted the request of the Company
and directed Mr. Ellis to pursue his claims in arbitration. The Company and Mr.
Ellis have agreed to resolve this matter in mediation and a hearing is set for
November 25, 2003.The Company believes it has valid defenses to the allegations.
The amount at issue was recorded as a liability in the consolidated financial
statements.
NKS Enterprises, Inc. commenced a legal action against the Company in San Diego
Superior Court in Vista California seeking damages in connection with the
purchase and operation of a MaxCash ABM. The case was settled in December 2002.
The maximum amount to be paid under the settlement is $100,000. In exchange,
Greenland will receive the MaxCash ABM sold to NKS Enterprises. The Company was
unable to comply with terms of settlement and NKS has entered a judgment against
the Company for $100,000. This amount was recorded as a liability in the
consolidated financial statements.
On July 30, 2003, the Company commenced a legal action against CardPlus
International, Inc., in Superior Court in San Diego California seeking damages
in connection with the sale of five MaxCash ABM's and the licensing of the
Company's CCBO back office processing software. The Company is requesting
$500,000 in damages. The Company has filed a motion with the Court for a default
judgment against CardPlus.
The Company's officers and directors are aware of no other threatened or pending
litigation, which would have a material, adverse effect on the Company. From
time to time the Company is a defendant (actual or threatened) in certain
lawsuits encountered in the ordinary course of its business, the resolution of
which, in the opinion of management, should not have a material adverse effect
on the Company's financial position results of operations, or cash flows.
NOTE 14. SUBSEQUENT EVENTS
Subsequent to September 30, 2003, 13,040,000 shares of Greenland common stock
were issued through exercise of options and warrants and in settlement of debt.
Subsequent to September 30, 2003 the Company entered into an transaction with
Alpha Capital Aktiengesellschaft and Gamma Opportunity Capital Partners, LP
(the "Investors") whereby the Investors subscribed to purchase $750,000 (the
'Purchase price") of principal amount of an 8% secured promissory note(s) of the
Company, convertible into shares of the Company's common stock at a per share
conversion price equal to the lesser of $.025 or sixty-five percent of the
average of the three lowest closing bid process of the common stock for the 30
trading days preceding but not including conversion date as defined in the
Agreement; and share purchase warrants to purchase shares of common stock. Two
Hundred Thousand Dollars of the Purchase price shall be payable at execution of
the Agreement and up to $550,000 of the Purchase price will be payable within 5
business days after the actual effectiveness of the registration Statement as
defined in the Agreement. On or about October 20, the Company received
$147,000 as the initial payment after payment of legal fees and expenses of
approximately $30,000. The Company in is the process of preparing the Form SB-2
Registration Statement and expects to file the on or about November 17, 2003.
NOTE 15. ITEC ACQUISITION AGREEMENT
On January 14, 2003, Greenland Corporation ("Greenland" or the "Company")
completed its sale of 19,183,390 shares of Greenland common stock, which
represent sixty percent (60%) of the issued and outstanding shares of the
Company,. to Imaging Technologies Corporation ("ITEC"), Accordingly, there has
been a change of control.
Additionally, the Company sold warrants to purchase 95,319,510 shares of
Greenland common stock to ITEC, which will represent an additional thirty
percent (30%) of the issued and outstanding shares of the Company.
The sale price for the shares and the exercise of the warrants was $2,250,000 in
the form of a promissory note convertible into shares of common stock of ITEC,
the number of which will be determined by a formula applied to the market price
of the shares at the time that the promissory note is converted.
The warrants have been exercised. 115.1 million Greenland common shares were
issued to ITEC and delivered pursuant to the terms of the Closing Agreement. The
conditions of the exercise of warrants pursuant to the Closing Agreement have
been met. Accordingly, ITEC holds voting rights to 115.1 million shares of
Greenland common stock, representing 83% of the total outstanding Greenland
common shares at May 16, 2003.
Also on January 14, 2003, four new directors were elected to serve on
Greenland's Board of Directors as nominees of ITEC. As of the date of this
report, ITEC holds four seats of seven. Greenland's Chief Executive Officer
remains in his position. ITEC's CEO serves as Chairman of Greenland's Board of
Directors.
NOTE 16 RESTATEMENT
Subsequent to the issuance of financial statements for the period ended
September 30, 2003, the Company determined that certain transactions and
presentation had not been accounted properly in the Company's financial
statements. The Company's June 2003 and September 2003 financial statements have
been restated to correct the error as follows:
The Company had booked certain interest expense and penalties in September
financial statements while the expense actually pertained to the period ended
June 30, 2003.
The effect of the correction of this error is as follows:
PERIOD ENDED JUNE 30, 2003 . . . . . . . . . . AS PREVIOUSLY REPORTED AS RESTATED
BALANCE SHEET:
PEO payroll taxes and other payroll deductions $ 2,331,191 $ 2,837,735
Notes payable. . . . . . . . . . . . . . . . . $ 661,457 $ 664,147
Accumulated deficit. . . . . . . . . . . . . . $ (33,147,552) $(33,656,786)
STATEMENT OF OPERATIONS:
General and administrative expenses. . . . . . $ 1,188,270 $ 1,602,061
Interest expense . . . . . . . . . . . . . . . $ 40,306 $ 135,749
THREE MONTH PERIOD ENDED SEPT. 30, 2003
STATEMENT OF OPERATIONS:
General and administrative expenses. . . . . . $ 1,514,750 $ 1,100,959
Interest expense . . . . . . . . . . . . . . . $ 117,706 $ 22,263
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Quarterly Report contains forward-looking statements that involve risk and
uncertainties. Forward-looking statements include, without limitation, any
statement that may predict, indicate or imply future results, performance or
achievements and may contain the words "believe," "expect," "anticipate,"
"estimate," "project," "will be," "will continue" or words or phrases of similar
meaning. Forward-looking statements involve risks and uncertainties, which may
cause actual results to differ materially from the forward-looking statements.
Such risks and uncertainties include, but are not limited to, risks associated
with completing product development; commercial use of check-cashing machines;
product repairs; consumer acceptance; need for additional financing;
manufacturing risks; dependence on suppliers; dependence on distributors; rapid
technological changes; dependence on key personnel; compliance with state laws;
risks of technical problems or product defects; dependence on proprietary
technology and other factors detailed in our reports filed with the Securities
and Exchange Commission.
INTRODUCTION
The following discussion pertains to our operations and financial condition
as of September 30, 2003, and should be read in conjunction with our financial
statements and notes thereto, and other financial information included elsewhere
in this report.
Our current strategy is: (1) to expand our PEO business; (2) to
commercialize our MAXcash ABM products and technology.
To successfully execute our current strategy, we will need to improve our
working capital position. The report of the Company's independent auditors
accompanying our December 31, 2002 financial statements includes an explanatory
paragraph indicating there is a substantial doubt about our ability to continue
as a going concern, due primarily to the decreases in our working capital and
net worth. We plan to overcome the circumstances that impact our ability to
remain a going concern through a combination of achieving profitability, raising
additional and financing, and renegotiating existing obligations.
There can be no assurance, however, that we will be able to complete any
additional financings on favorable terms or at all, or that any such financings,
if completed, will be adequate to meet our capital requirements. Any additional
equity or convertible debt financings could result in substantial dilution to
our shareholders. If adequate funds are not available, we may be required to
delay, reduce or eliminate some or all of our planned activities, including any
potential mergers or acquisitions. Our inability to fund our capital
requirements would have a material adverse effect on the Company.
On or about October 2003 the operational structure of Imaging Technologies
Corporation and its subsidiaries, including the Company and its subsidiary,
ExpertHr, Inc. was changed through the creation of the office of the chairman
("OFC"). The OFC will serve as an advisory office with its own professional
staff and be available to assist the respective CEO's and provide expertize in
certain areas, including human resources, finance, marketing and administration
as well as be responsible for certain financial consolidation functions Under
the revised structure, the Chief Executive Officer of each subsidiary continues
to report the respective Board of Directors, however, each Chief Executive
Officer will operate independently through use of separate staff and
professional personel will be charged with the duties associated with Chief
Executive Officer of his respective company. This structure is consistent with
the over all stragety of operating the companies as separate PEO operations with
a different type client base and different type risk assessments. As a result
of this change, the Company has taken steps to implement formal control over
certain matters including banking, finance, insurance and sales.
Professional Employer Organization
We provide, through our wholly-owned ExpertHR subsidiary, comprehensive
personnel management services. We provide a broad range of services, including
benefits and payroll administration, health and workers' compensation insurance
programs, personnel records management, and employer liability management to
small and medium-sized businesses.
Administrative Functions. We perform a wide variety of processing and
record keeping tasks, mostly related to payroll administration and government
compliance. Specific examples include payroll processing, payroll tax deposits,
quarterly payroll tax reporting, employee file maintenance, unemployment claims
processing and workers' compensation claims reporting.
Benefit Plans Administration. We sponsor benefit plans including group
health coverage. We are responsible for the costs and premiums associated with
these plans, act as plan sponsor and administrator of the plans, negotiate the
terms and costs of the plans, maintain the plans in accordance with applicable
federal and state regulations, and serve as liaison for the delivery of such
benefits to worksite employees.
Personnel Management. We provide a variety of personnel management
services, which provide our client companies access to resources normally found
in the human resources departments of larger companies. Our client companies
will have access to a personnel guide, which will set forth a systematic
approach to administering personnel policies and practices.
Employer Liability Management. Under our Client Services Agreement ("CSA"),
we assume many employment-related responsibilities associated with
administrative functions and benefit plans administration. Upon request, we can
also provide our clients guidance on avoiding liability for discrimination,
sexual harassment, and civil rights violations. We employ counsel specializing
in employment law.
Client Service Agreement. All clients enter into our CSA, which establishes
our service fee. The CSA is subject to periodic adjustments to account for
changes in the composition of the client's workforce and statutory changes that
affect our costs. The CSA also establishes the division of responsibilities
between our Company and the client as co-employers. Pursuant to the CSA, we are
responsible for personnel administration and are liable for certain
employment-related government regulation. In addition, we assume liability for
payment of salaries, wages (including payroll taxes), and employee benefits of
worksite employees. The client retains the employees' services and remains
liable for the purposes of certain government regulations.
The PEO business is growing rapidly, but profit margins are small.
Consequently, profitability depends on (1) economies of scale leading to greater
operating efficiencies; and (2) value-added services such as training,
education, Internet support, and other services that may be used by employers
and employees.
The income model for this business includes fees charged per employee.
While gross profit is low, revenues are generally substantial. To this end, we
have pursued acquisitions of small PEO firms. Each acquisition is expected to
include retention of some existing management and staff in order to assure
continuity of operations.
In April 2003, we entered into a Stock Purchase Agreement along with ITEC,
to acquire an Oklahoma-based PEO company, which we have organized as
ExpertHR-OK, a wholly-owned subsidiary of Greenland. The Oklahoma facilities and
personnel provide a substantial amount of the administration duties associated
with our PEO business, including the implementation of system software.
Also in March 2003, we entered into an Agreement and Assignment of Rights
to acquire all right title and interest in and to the rights and benefits
arising under or out of personal staffing agreements with the existing clients
of Staff Pro Leasing, Inc and Staff Pro Leasing 2, both Michigan corporations
In February 2003, we entered into an Agreement and Assignment of Rights to
acquire all right, title, and interest in and to the rights and benefits arising
under or out of PEO service agreements with certain existing clients of Accord
Human Resources, Inc, an Oklahoma corporation
The PEO business is highly competitive, with approximately 900 firms
operating in the U.S. There are several firms that operate on a nationwide basis
with revenues and resources far greater than ours. Some large PEO companies are
owned by insurance carriers; and some are public companies whose shares trade on
Nasdaq, including Administaff, Inc., Team Staff, Inc., Barrett Business
Services, and Staff Leasing, Inc.
Government Regulation
We are subject to regulation in several jurisdictions in which we operate,
including jurisdictions that regulate check cashing fees and payday advance
fees. We are subject to federal and state regulations relating to the reporting
and recording of certain currency transactions. There can be no assurance that
additional state or federal statutes or regulations will not be enacted at some
future date which could inhibit the ability of us to expand, significantly
decrease the service charges for check cashing and/or other services, or
prohibit or more stringently regulate the sale of certain goods which could
cause a significant adverse effect on our future prospects. States have
different licensing requirements. Some states require that the owner of a
check-cashing machine obtain the license; others require that the provider of
the cash in the machine ("vault cash") obtain a license or the possessor of the
machine obtain the license or that we, jointly with the owner, possessor, or
vault cash provider obtain a license. Certain states require that the entity to
be licensed maintain certain levels of liquid assets for each location at which
a machine is placed.
Under the bank Secrecy Act regulations of the U.S. Department of the Treasury
(the "Treasury Department"), transactions involving currency in an amount
greater than $10,000 or the purchase of monetary instruments for cash in amounts
from $3,000 to $10,000 must be recorded. In general, every financial
institution, including Greenland, must report each deposit, withdrawal, exchange
of currency or other payment or transfer, whether by, through or to the
financial institution, that involves currency in an amount greater than $10,000.
In addition, multiple currency transactions must be treated as single
transactions if the financial institution has knowledge that the transactions
are by, or on behalf of any person and result in either cash in or cash out
totaling more than $10,000 during any one business day.
There can be no assurance that additional local, state or federal legislation
will not be enacted or that existing laws and regulations will not be amended
which could have a material adverse effect on our operations and financial
condition. (Also see "Risks and Uncertainties.")
Client Services Agreement
All clients enter into ExpertHR's Client Service Agreement ("CSA"). The CSA
generally provides for an on-going relationship, subject to termination by us or
the client upon written notice.
The CSA establishes our comprehensive service fee, which is subject to
periodic adjustments to account for changes in the composition of the client's
workforce and statutory changes that affect our costs. The CSA also establishes
the division of responsibilities between us and our client as co-employers.
Pursuant to the CSA, we are responsible for personnel administration and are
liable for certain employment-related government regulation. In addition, we
assume liability for payment of salaries and wages (including payroll taxes) of
our worksite employees and responsibility for providing employee benefits to
such persons, regardless of whether our client company makes timely payment of
the associated service fee. Our client retains the employees' services and
remains liable for the purposes of certain government regulations, compliance
which requires control of the worksite or daily supervisory responsibility or is
otherwise beyond our ability to assume. A third group of responsibilities and
liabilities are shared by us and our client where such joint responsibility is
appropriate.
We are responsible for: payment of wages and related tax reporting and
remittance (state and federal withholding, FICA, FUTA, state unemployment);
workers'compensation compliance, procurement, management and reporting;
compliance with COBRA, IRCA, HIPAA and ERISA (for employee benefit plans
sponsored by ExpertHR only), as well as monitoring changes in other governmental
regulations governing the employer/employee relationship and updating the client
when necessary; and employee benefits administration.
Our clients are responsible for: payment, through ExpertHR, of commissions,
bonuses, paid leaves of absence and severance payments; payment and related tax
reporting and remittance of non-qualified deferred compensation and equity-based
compensation; assignment to, and ownership of, all intellectual property rights;
compliance with Section-414(o) of the Internal Revenue Code regarding benefit
discrimination; compliance with OSHA regulations, EPA regulations, FLSA, WARN
and state and local equivalents and compliance with government contracting
provisions; compliance with NLRA, including all organizing efforts and expenses
related to a collective bargaining agreement and related benefits; professional
licensing requirements, fidelity bonding and professional liability insurance;
and products produced and/or services provided.
We are jointly responsible, with our clients, for: implementation of
policies and practices relating to the employee/employer relationship; and
compliance with all federal, state and local employment laws, including, but not
limited to Title VII of the Civil Rights Act of 1964, ADEA, Title I of ADA,
FMLA, the Consumer Credit Protection Act, and immigration laws and regulations.
Because we are a co-employer with our client companies for some purposes,
it is possible that we could incur liability for violations of such laws even if
it is not responsible for the conduct giving rise to such liability. The CSA
addresses this issue by providing that the client will indemnify us for
liability incurred to the extent the liability is attributable to conduct by the
client. Notwithstanding this contractual right to indemnification, it is
possible that we could be unable to collect on a claim for indemnification and
may therefore be ultimately responsible for satisfying the liability in
question.
Clients are required to remit their comprehensive service fees no later
than one day prior to the applicable payroll date by wire transfer or automated
clearinghouse transaction. Although are ultimately liable, as the employer for
payroll purposes, to pay employees for work previously performed, we retain the
ability to terminate the CSA and associated worksite employees or to require
prepayment, letters of credit, or other collateral upon deterioration in a
client's financial condition or upon non-payment by a client.
Check Cashing
We have developed proprietary software that is capable of providing support for
delivery to consumers of a range of on-line financial services including check
cashing, ATM, money orders and phone card dispensing services. We have
developed, manufactured and has delivered limited numbers of freestanding
kiosks, under the trademarked brand name MAXcash ABM. The unit is similar in
appearance to an ATM machine. We acquired our base technology in May 1998, when
Check Central was incorporated into Greenland as a wholly-owned subsidiary.
We have invested capital, time, and effort in the development and evolution of
our back-office, risk management and transaction support software systems. Due
to shortages of working capital and litigation with a key supplier, we altered
our plans for ongoing development, production, and marketing of the MAXcash ABM
system. However, we believe that there is further opportunity to market the
MAXcash ABM kiosk through PEO customers of our ExpertHR subsidiary; and to
clients of other PEO companies in order to provide check cashing and other
automated banking services to employees.
In the past, our strategy has been oriented around two revenue streams: (1)
sales of the MAXcash ABM and (2) fees earned in connection with the various
banking services provided on each of the machines in operation. However, without
sufficient numbers of machines in the field, this revenue stream has not produce
material results.
While we are optimistic that we can successfully produce and sell MAXcash ABM
kiosks to PEO clients (ours and others), there can be no assurance that we will
achieve our goals in this regard.
The markets for our check cashing products and services are highly
competitive. Our ability to compete in our markets depends on a number of
factors, including selling prices, product performance, product distribution,
marketing ability, and customer support. A key element of our strategy is to
provide competitively priced, quality products and services.
RESULTS OF OPERATIONS
Gross Billing
We had total gross billing of $9.6 million and $20.3 million, from our PEO
business, for the three and nine months ended September 30, 2003 respectively.
We had no revenues in the prior year period. The Company's sales operations
related to check cashing was temporarily suspended primarily due to a legal
dispute with its software provider and the associated financial risks to the
Company represented by the dispute. Management is currently working to
re-establish these operations, especially as they relate to value-added products
and services to the Company's PEO clientele.
Worksite Employee Payroll Cost
The Company incurred total costs of PEO services of $8.9 million and $19.2
million for the three and nine months period ended September 30, 2003. Cost of
goods sold in the prior year periods, associated with check cashing operations,
was $101 thousand and $304 thousand, which were associated with the
since-suspended operations related to transaction processing.
Operating Expenses
Selling, general and administrative expenses for the three months ended
September 30, 2003 and 2002 were $1.1 million and $280 thousand, respectively.
Selling, general and administrative expenses for the nine months ended September
30, 2003 and 2002 were $2.9 million and $1.7 million, respectively.
Other Expense
Net other income was $24 thousand and $(149) thousand for the three months
period ended September 30, 2003 and 2002. Net other income was $(22) thousand
and net other expenses were $(433) thousand for nine months ended September 30,
2003 and 2002. The difference is due primarily to loss on settlement of debts
in the period ended September 30, 2002.
Net Loss
The net loss for the three months ended September 30, 2003 was $434
thousand compared to a net loss of $530 thousands for comparative period in
2002. The net loss for the nine months ended September 30, 2003 was $1.9 million
compared to a net loss of $4 million for comparative period in 2002 a decrease
of $2.1 million, or 53%. Losses were reduced due primarily to reduced costs and
expenses associated with suspension of our check cashing operations.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have financed our operations through cash generated from
the sale of equity securities and debt financing. At September 30, 2003, we
had a working capital deficit of $5.1 million compared with a working capital
deficit of $3.2 million at December 31, 2002. The increase in working capital of
$1.9 million, or 59% resulted primarily from an increase in notes payable and
increased accounts payable and accrued expenses.
Stockholders' deficit increased for the nine months ended September 30,
2003 from the previous fiscal year by $649 thousand, due primarily to our $1.9
million net loss.
The Company's officers and directors are aware of no other threatened or
pending litigation, not otherwise discussed in Item 1, Legal Matters, which
would have a material, adverse effect on the Company. From time to time the
Company is a defendant (actual or threatened) in certain lawsuits encountered in
the ordinary course of its business, the resolution of which, in the opinion of
management, should not have a material adverse effect on the Company's financial
position results of operations, or cash flows.
The Company's auditors have expressed their uncertainty as to the Company's
ability to continue as a going concern. They cite recurring losses from
operations, the Company's working capital deficiency, and limited cash
resources.
In order to address this uncertainty, the Company has taken steps to raise
additional funds to finance its operations and to continue to grow its PEO
business.
Greenland is a subsidiary of Imaging Technologies Corporation (ITEC). In the
regular course of business, there are inter-company transfers of funds between
Greenland and ITEC. To date, an approximate net amount of $1.3 million have been
transferred from Greenland and/or its subsidiaries to ITEC and/or its other
subsidiaries. Should these inter-company transfers be left unpaid, in whole or
in part, the cash position of Greenland and its ExpertHR subsidiary could be
inadequate to meet current and/or future operating requirements. There can be no
assurance that the existing inter-company liabilities will be repaid in the near
future, or at all. Furthermore, there can be no assurance that there will not be
additional inter-company transfers in the future. (Also see: "Risks and
Uncertainties.")
RISKS AND UNCERTAINTIES
LIMITED OPERATING HISTORY:
We began our check cashing operations in 1998 and has been inactive for the
past two years. Additionally, we entered the PEO business in January 2003.
Accordingly, we have a limited operating history and our business and prospects
must be considered in light of the risks and uncertainties to which early stage
companies in rapidly evolving industries such as automated check cashing and
professional employment services are exposed. We cannot provide assurances that
its business strategy will be successful or that we will successfully address
these risks and the risks described herein.
IF WE ARE UNABLE TO SECURE FUTURE CAPITAL, WE WILL BE UNABLE TO CONTINUE OUR
OPERATIONS.
Our business has not been profitable in the past and it may not be
profitable in the future. We may incur losses on a quarterly or annual basis for
a number of reasons, some within and others outside our control. (See "Potential
Fluctuation in Our Quarterly Performance.") The growth of our business will
require the commitment of substantial capital resources. If funds are not
available from operations, we will need additional funds. We may seek such
additional funding through public and private financing, including debt or
equity financing. Adequate funds for these purposes, whether through financial
markets or from other sources, may not be available when we need them. Even if
funds are available, the terms under which the funds are available to us may not
be acceptable to us. Insufficient funds may require us to delay, reduce or
eliminate some or all of our planned activities.
To successfully execute our current strategy, we will need to improve our
working capital position. The report of our independent auditors accompanying
our December 31, 2002 financial statements includes an explanatory paragraph
indicating there is a substantial doubt about the Company's ability to continue
as a going concern, due primarily to the decreases in our working capital and
net worth. We plan to overcome the circumstances that impact our ability to
remain a going concern through a combination of increased revenues and decreased
costs, with interim cash flow deficiencies being addressed through additional
equity financing.
POTENTIAL FLUCTUATION IN QUARTERLY PERFORMANCE:
Quarterly operating results can fluctuate significantly depending on a
number of factors, any one of which could have a material adverse effect on our
results of operations. The factors include: the timing of product/services
announcements and subsequent introductions of new or enhanced products and/or
services by us and by our competitors, the availability and cost of inventories,
the market acceptance of products and services, changes in our prices and in our
competitors' prices, the timing of expenditures for staffing and related support
costs, the extent and success of advertising, research and development
expenditures, and changes in general economic conditions.
We may experience significant quarterly fluctuations in revenues and
operating expenses as we introduce new products and services; especially as we
enter the PEO business. Furthermore, quarterly results are not necessarily
indicative of future performance for any particular period.
RISK OF TECHNICAL PROBLEMS OR PRODUCT DEFECTS:
There can be no assurances that, despite testing and quality assurance
efforts that may be performed by us and/or our manufacturers and subcontractors,
that technical problems or product defects will not be found. These problems or
product defects could result in the loss or delay in market acceptance and
sales, diversion of development resources, injury to our reputation, and/or
increased service and support costs, any one of which could have material
adverse effects on our business, financial condition, and results of operations.
GOVERNMENT REGULATION:
We are subject to regulation in several jurisdictions in which we operate,
including jurisdictions that regulate check cashing fees and payday advance
fees. We could also become subject to federal and state regulations relating to
the reporting and recording of certain currency transactions. There can be no
assurance that additional state or federal statutes or regulations will not be
enacted at some future date which could inhibit our ability to expand,
significantly decrease the service charges for check cashing, payday advances
and/or other services, or prohibit or more stringently regulate the sale of
certain goods and services, which could cause a significant adverse effect on
our future prospects.
SINCE OUR COMPETITORS HAVE GREATER FINANCIAL AND MARKETING RESOURCES THAN WE DO,
WE MAY EXPERIENCE A REDUCTION IN MARKET SHARE AND REVENUES.
The markets for our products and services are highly competitive and
rapidly changing. Some of our current and prospective competitors have
significantly greater financial, technical, manufacturing and marketing
resources than we do. Our ability to compete in our markets depends on a number
of factors, some within and others outside our control. These factors include:
the frequency and success of product and services introductions by us and by our
competitors, the selling prices of our products and services and of our
competitors' products and services, the performance of our products and of our
competitors' products, product distribution by us and by our competitors, our
marketing ability and the marketing ability of our competitors, and the quality
of customer support offered by us and by our competitors.
The PEO industry is highly fragmented. While many of our competitors have
limited operations, there are several PEO companies equal or substantially
greater in size than ours. We also encounter competition from "fee-for-service"
companies such as payroll processing firms, insurance companies, and human
resources consultants. The large PEO companies have substantially more resources
than us and provide a broader range of resources than we do.
IF WE ACQUIRE COMPLEMENTARY BUSINESSES, WE MAY NOT BE ABLE TO EFFECTIVELY
INTEGRATE THEM INTO OUR CURRENT OPERATIONS, WHICH WOULD ADVERSELY AFFECT OUR
OVERALL FINANCIAL PERFORMANCE.
In order to grow our business, we may acquire businesses that we believe
are complementary. To successfully implement this strategy, we must identify
suitable acquisition candidates, acquire these candidates on acceptable terms,
integrate their operations and technology successfully with ours, retain
existing customers and maintain the goodwill of the acquired business. We may
fail in our efforts to implement one or more of these tasks. Moreover, in
pursuing acquisition opportunities, we may compete for acquisition targets with
other companies with similar growth strategies. Some of these competitors may be
larger and have greater financial and other resources than we do. Competition
for these acquisition targets likely could also result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition. Our overall financial performance will be materially and adversely
affected if we are unable to manage internal or acquisition-based growth
effectively. Acquisitions involve a number of risks, including: integrating
acquired products and technologies in a timely manner, integrating businesses
and employees with our business, managing geographically-dispersed operations,
reductions in our reported operating results from acquisition-related charges
and amortization of goodwill, potential increases in stock compensation expense
and increased compensation expense resulting from newly-hired employees, the
diversion of management attention, the assumption of unknown liabilities,
potential disputes with the sellers of one or more acquired entities, our
inability to maintain customers or goodwill of an acquired business, the need to
divest unwanted assets or products, and the possible failure to retain key
acquired personnel.
Client satisfaction or performance problems with an acquired business could
also have a material adverse effect on our reputation, and any acquired business
could significantly under perform relative to our expectations. We cannot be
certain that we will be able to integrate acquired businesses, products or
technologies successfully or in a timely manner in accordance with our strategic
objectives, which could have a material adverse effect on our overall financial
performance.
In addition, if we issue equity securities as consideration for any future
acquisitions, existing stockholders will experience ownership dilution and these
equity securities may have rights, preferences or privileges superior to those
of our common stock.
DEVELOPING MARKETS AND APPLICATIONS:
The markets for our products and services are relatively new and are still
developing. We believe that there has been growing market acceptance for check
cashing services. We cannot be certain, however, that these markets will
continue to grow. Other technologies are constantly evolving and improving. We
cannot be certain that products and services based on these other technologies
will not have a material adverse effect on the demand for our products and
services.
DEPENDENCE UPON SUPPLIERS:
We depend on acquiring products and software from outside suppliers. We
rely heavily on these suppliers for upgrades and support. We cannot be certain
that all of our suppliers will continue to make their products and technologies
available to us, or that these suppliers will not provide their products and
technologies to other companies simultaneously.
COMPONENT AVAILABILITY AND COST; DEPENDENCE ON SINGLE SOURCES:
We presently outsource the production of some of our manufactured products
through a number of vendors. These vendors assemble products, using components
we purchase from other sources or from their own inventory. The terms of supply
contracts are negotiated separately in each instance. Although we have not
experienced any difficulty in the past in engaging contractors or in purchasing
components, present vendors may not have sufficient capacity to meet projected
market demand for our products and alternative production sources may not be
available without undue disruption.
While most components are available locally from multiple vendors, certain
components used in our products are only available from single sources. Although
alternative suppliers are readily available for many components, for some
components the process of qualifying replacement suppliers, replacing tooling or
ordering and receiving replacement components could take several months and
cause substantial disruption to operations. Any significant increase in
component prices or decrease in component availability could have a material
adverse effect on our business and overall financial performance.
DEPENDENCE ON KEY PERSONNEL:
Our success is dependent, in part, upon our ability to attract and retain
qualified management and technical personnel. Competition for these personnel is
intense, and we will be adversely affected if it is unable to attract additional
key employees or if it loses one or more key employees. We may not be able to
retain our key personnel.
POSSIBILITY OF CHALLENGE TO PRODUCTS OR INTELLECTUAL PROPERTY RIGHTS:
We intend to protect our technology by filing copyright and patent
applications for the patentable technologies that we consider important to the
development of our business. We also intend to rely upon trade secrets, know-how
and continuing technological innovations to develop and maintain competitive
advantage.
We have filed a copyright application with the U. S. Patent and Trademark
Office with respect to our server technology. We may file patent applications
with respect to our kiosk system and any other technology we have developed for
use with the MAXcash ABM. There can be no assurance that any U.S. Patent
application, if and when filed, will be granted or, if obtained, will
sufficiently protect our proprietary rights.
Even if the patents we apply for are granted, they do not confer on us the
right to manufacture and market products if such products infringe patents held
by others. We have not undertaken or conducted any comprehensive patent
infringement searches or studies. If any such third parties hold any such
conflicting rights, we may be required in the future to stop making, using or
selling its products or to obtain licenses from and pay royalties to others,
which could have a significant and material adverse effect on the Company.
Further, in such event, there can be no assurance that we would be able to
obtain or maintain any such licenses on acceptable terms or at all.
Additionally, competitors may assert that we infringe on their patent
rights. If we fail to establish that we have not violated the asserted rights,
we could be prohibited from marketing the products that incorporate the
technology and we could be liable for damages. We could also incur substantial
costs to redesign our products or to defend any legal action taken against us.
RELIANCE ON INDIRECT DISTRIBUTION:
Sales of the MAXcash ABM are principally made through distributors, which
may carry competing product lines. These distributors could reduce or
discontinue sales of our products, which could materially and adversely affect
our future success. These independent distributors may not devote the resources
necessary to provide effective sales and marketing support of our products. In
addition, distributors are not required to carry any inventory of MAXcash ABM
systems. These distributors are substantially dependent on general economic
conditions and other unique factors affecting our markets. We believe that our
growth and success, in the near-term, will depend in part upon our distribution
channels. Our business could be materially and adversely affected if our
distributors fail to provide sales of our products.
INCREASES IN HEALTH INSURANCE PREMIUMS, UNEMPLOYMENT TAXES, AND WORKERS'
COMPENSATION RATES WILL HAVE A SIGNIFICANT EFFECT ON OUR FUTURE FINANCIAL
PERFORMANCE.
Health insurance premiums, state unemployment taxes, and workers'
compensation rates are, in part, determined by our claims experience, and
comprise a significant portion of our direct costs. We employ risk management
procedures in an attempt to control claims incidence and structure our benefits
contracts to provide as much cost stability as possible. However, should we
experience a large increase in claims activity, the unemployment taxes, health
insurance premiums, or workers' compensation insurance rates we pay could
increase. Our ability to incorporate such increases into service fees to clients
is generally constrained by contractual agreements with our clients.
Consequently, we could experience a delay before such increases could be
reflected in the service fees we charge. As a result, such increases could have
a material adverse effect on our financial condition or results of operations.
WE CARRY SUBSTANTIAL LIABILITY FOR WORKSITE EMPLOYEE PAYROLL AND BENEFITS COSTS.
Under our client service agreements, we become a co-employer of worksite
employees and we assume the obligations to pay the salaries, wages, and related
benefits costs and payroll taxes of such worksite employees. We assume such
obligations as a principal, not merely as an agent of the client company. Our
obligations include responsibility for (a) payment of the salaries and wages for
work performed by worksite employees, regardless of whether the client company
makes timely payment to us of the associated service fee; and (2) providing
benefits to worksite employees even if the costs incurred by us to provide such
benefits exceed the fees paid by the client company. If a client company does
not pay us, or if the costs of benefits provided to worksite employees exceed
the fees paid by a client company, our ultimate liability for worksite employee
payroll and benefits costs could have a material adverse effect on the Company's
financial condition or results of operations.
AS A MAJOR EMPLOYER, OUR OPERATIONS ARE AFFECTED BY NUMEROUS FEDERAL, STATE, AND
LOCAL LAWS RELATED TO LABOR, TAX, AND EMPLOYMENT MATTERS.
By entering into a co-employer relationship with employees assigned to work
at client company locations, we assume certain obligations and responsibilities
or an employer under these laws. However, many of these laws (such as the
Employee Retirement Income Security Act ("ERISA") and federal and state
employment tax laws) do not specifically address the obligations and
responsibilities of non-traditional employers such as PEOs; and the definition
of "employer" under these laws is not uniform. Additionally, some of the states
in which we operate have not addressed the PEO relationship for purposes of
compliance with applicable state laws governing the employer/employee
relationship. If these other federal or state laws are ultimately applied to our
PEO relationship with our worksite employees in a manner adverse to the Company,
such an application could have a material adverse effect on the Company's
financial condition or results of operations.
While many states do not explicitly regulate PEOs, 21 states have passed
laws that have licensing or registration requirements for PEOs, and several
other states are considering such regulation. Such laws vary from state to
state, but generally provide for monitoring the fiscal responsibility of PEOs
and, in some cases, codify and clarify the co-employment relationship for
unemployment, workers' compensation, and other purposes under state law. There
can be no assurance that we will be able to satisfy licensing requirements of
other applicable relations for all states. Additionally, there can be no
assurance that we will be able to renew our licenses in all states.
THE MAINTENANCE OF HEALTH AND WORKERS' COMPENSATION INSURANCE PLANS THAT COVER
WORKSITE EMPLOYEES IS A SIGNIFICANT PART OF OUR BUSINESS.
The current health and workers' compensation contracts are provided by
vendors with whom we have an established relationship, and on terms that we
believe to be favorable. While we believe that replacement contracts could be
secured on competitive terms without causing significant disruption to our
business, there can be no assurance in this regard.
OUR STANDARD AGREEMENTS WITH PEO CLIENTS ARE SUBJECT TO CANCELLATION ON 60-DAYS
WRITTEN NOTICE BY EITHER THE COMPANY OR THE CLIENT.
Accordingly, the short-term nature of these agreements make us vulnerable
to potential cancellations by existing clients, which could materially and
adversely affect our financial condition and results of operations.
Additionally, our results of operations are dependent, in part, upon our ability
to retain or replace client companies upon the termination or cancellation of
our agreements.
A NUMBER OF LEGAL ISSUES REMAIN UNRESOLVED WITH RESPECT TO THE CO-EMPLOYMENT
AGREEMENT BETWEEN A PEO AND ITS WORKSITE EMPLOYEES, INCLUDING QUESTIONS
CONCERNING THE ULTIMATE LIABILITY FOR VIOLATIONS OF EMPLOYMENT AND
DISCRIMINATION LAWS.
Our client service agreement establishes a contractual division of
responsibilities between us and our clients for various personnel management
matters, including compliance with and liability under various government
regulations. However, because we act as a co-employer, we may be subject to
liability for violations of these or other laws despite these contractual
provisions, even if we do not participate in such violations. Although our
agreement provides that the client is to indemnify us for any liability
attributable to the conduct of the client, we may not be able to collect on such
a contractual indemnification claim, and thus may be responsible for satisfying
such liabilities. Additionally, worksite employees may be deemed to be agents of
the Company, subjecting us to liability for the actions of such worksite
employees.
VOLATILITY OF STOCK PRICE:
The market price of our common stock historically has fluctuated
significantly. Our stock price could fluctuate significantly in the future based
upon any number of factors such as: general stock market trends; announcements
of developments related to our business; fluctuations in our operating results;
announcements of technological innovations, new products or enhancements by us
or our competitors; general conditions in the markets we serve; general
conditions in the U.S. economy; developments in patents or other intellectual
property rights; and developments in our relationships with our customers and
suppliers.
In addition, in recent years, the stock market in general, and the market
for shares of technology stocks in particular, have experienced extreme price
fluctuations, which have often been unrelated to the operating performance of
affected companies. Similarly, the market price of our common stock may
fluctuate significantly based upon factors unrelated to our operating
performance.
IF OUR OPERATIONS CONTINUE TO RESULT IN A NET LOSS, NEGATIVE WORKING CAPITAL AND
A DECLINE IN NET WORTH, AND WE ARE UNABLE TO OBTAIN NEEDED FUNDING, WE MAY BE
FORCED TO DISCONTINUE OPERATIONS.
For several recent periods, up through the present, we had a net loss,
negative working capital and a decline in net worth, which raise substantial
doubt about our ability to continue as a going concern. Our losses have resulted
primarily from an inability to achieve revenue targets due to insufficient
working capital. Our ability to continue operations will depend on positive cash
flow, if any, from future operations and on our ability to raise additional
funds through equity or debt financing. Although we have reduced our work force
and suspended some of our operations, if we are unable to achieve the necessary
product sales or raise or obtain needed funding, we may be forced to discontinue
operations.
ABSENCE OF DIVIDENDS:
We have not paid any cash dividends on our common stock to date and we do
not anticipate paying cash dividends in the foreseeable future.
INTER-COMPANY TRANSFERS
Greenland is a subsidiary of Imaging Technologies Corporation (ITEC). In
the regular course of business, there are inter-company transfers of funds
between Greenland and ITEC. To date, an approximate net amount of $1.3 million
have been transferred from Greenland and/or its subsidiaries to ITEC and/or its
other subsidiaries. Should these inter-company transfers be left unpaid, in
whole or in part, the cash position of Greenland and its ExpertHR subsidiary
could be inadequate to meet current and/or future operating requirements. There
can be no assurance that the existing inter-company liabilities will be repaid
in the near future, or at all. Furthermore, there can be no assurance that there
will not be additional inter-company transfers in the future.
LIQUIDITY OF COMMON STOCK:
Trading of Greenland common stock is conducted over-the-counter through the
NASD Electronic Bulletin Board and covered by Rule 15g-9 under the Securities
Exchange Act of 1934. Under this rule, broker/dealers who recommend these
securities to persons other than established customers and accredited investors
must make a special written suitability determination for the purchaser and
receive the purchaser's written agreement to a transaction prior to sale.
Securities are exempt from this rule if the market price is at least $5.00 per
share.
The Securities and Exchange Commission adopted regulations that generally
define a "penny stock" as any equity security that has a market price of less
than $5.00 per share. Additionally, if the equity security is not registered or
authorized on a national securities exchange or the Nasdaq and the issuer has
net tangible assets under $2,000,000, the equity security also would constitute
a "penny stock." Greenland common stock does constitute a penny stock because
our common stock has a market price less than $5.00 per share and our common
stock is not quoted on Nasdaq. As Greenland common stock falls within the
definition of penny stock, these regulations require the delivery, prior to any
transaction involving Greenland common stock, of a disclosure schedule
explaining the penny stock market and the risks associated with it. Furthermore,
the ability of broker/dealers to sell Greenland common stock and the ability of
shareholders to sell Greenland common stock in the secondary market may be
limited. As a result, the market liquidity for Greenland common stock is
adversely affected. The Company can provide no assurance that trading in
Greenland common stock will not be subject to these or other regulations in the
future, which may negatively affect the market for Greenland common stock.
Furthermore, this lack of liquidity also may make it more difficult for the
Company to raise capital in the future.
PART II OTHER INFORMATION
ITEM 1. - LEGAL MATTERS
Greenland, along with Seren Systems ("Seren"), its then current and primary
software developer and supplier for its own ABM terminals, was in the process of
completing development of the check cashing service interface to the Mosaic
Software host system being implemented to support a large network of V.com
terminals. In September 2000, Seren unilaterally halted testing and effectively
shut-down any further check cashing development for the V.com project. The
parties participating in this project may have been financially damaged, related
to the delay in performance by Greenland and Seren. None of the parties have
brought suit against us and/or Seren at this time. There is no assurance,
however, that such suit(s) will not be brought in the future.
On May 23, 2001 we filed a Complaint in San Diego County naming Michael
Armani as the defendant. We allege breach of contract by Michael Armani in
connection with two separate stock purchase agreements. We seek damages in the
amount of $474,595. On August 7, 2001 we filed a request for Entry of Default
against Mr. Armani in the amount of $474,595 and the court granted entry of
default. Subsequently Mr. Armani filed a motion to set aside the entry of
default and on October 26, 2001 the court granted said motion and the entry of
default was set aside. Greenland and Mr. Armani participated in mediation and as
a result entered into a settlement agreement whereby Mr. Armani agreed to make
certain cash payments to us and the parties entered into mutual release of all
claims. Mr. Armani defaulted in his obligation to make the first cash payment
and consequently, we obtained a judgment against Mr. Armani for $100,000. We are
continuing our efforts to collect on the judgment.
On May 23, 2001 Arthur Kazarian, Trustee for the General Wood Investment
Trust (the "Landlord") filed a Complaint in San Diego County naming Greenland as
a defendant. The Complaint alleges breach of contract pursuant to the terms of
the lease agreement between Greenland and the Landlord for the real property
located at 1935 Avenida Del Oro, Oceanside, California and previously occupied
by us. The Complaint seeks damages in the amount of approximately $500,000.
Although we remain liable for the payments remaining for the term of the lease,
the Landlord has a duty to mitigate said damages. We recorded a lease
termination liability of $275 thousand during the year ended December 31, 2001.
We entered into a settlement agreement with Arthur Kazarian, Trustee for the
General Wood Investment Trust (the "Landlord") where by we agreed to pay the sum
of $220,000 to the Landlord in installments payments of $20,000 in May 2002,
$50,000 in October 2002 and the remaining balance in December 2002. In the event
we default in any or all scheduled payments, the Landlord is entitled to a
stipulated judgment of approximately $275,000. We were unable to make the
scheduled payments and as a result, on July 8, 2002, the Landlord has entered a
judgment lien against Greenland in the amount of $279,654.
The Company entered into an agreement with Intellicorp, Inc. ("Intellicorp")
whereby Intellicorp agreed to invest $3,000,000 in exchange for seats on the
board of directors and restricted shares of common stock of the Company. After
making the initial payment of $500,000, Intellicorp defaulted on the balance.
The Company is seeking a recovery of the unpaid $2,500,000. The defendant's
ability to pay is unknown. The Company had issued 46,153,848 shares of common
stock for the investment. The shares were returned back to the Company and were
cancelled. A default judgment was entered against defendant IntelliCorp,
IntelliGroup, and Isaac Chang. On May 16, 2003 the Court held a prove-up hearing
for proof of damages. On July 17, 2003, the court entered Judgment By Default By
Court and awarded the Company damages against IntelliCorp, IntelliGroup and
Isaac Chang in the amount of $3,900,000 including $1,000,000 in punitive
damages . Defendants time to appeal said damage award expired on or about,
September 17, 2003. The Company is pursuing collection actions. There is no
assurance that the Company will be successful in its collection efforts.
On July 5, 2001 Max Farrow, a formal officer of the Company, filed a Complaint
in San Diego County naming Greenland Corporation, Thomas J. Beener,
Intelli-Group, Inc., Intelli-Group LLC and Intelli-Corp, Inc. as defendants. The
Complaint alleges breach of contract in connection with Mr. Farrow's resignation
as an officer and director of the Company in January 2001. The Company and Mr.
Thomas Beener, entered into a settlement agreement with Max Farrow whereby Mr.
Farrow agreed to release Mr. Beener from all claims, obligations etc., in
exchange for the issuance of 8 million restricted shares of Greenland
Corporation common stock. The good faith settlement was approved by the court
and the agreed upon consideration was delivered to Mr. Farrow. The Company
entered into a settlement with Farrow whereby the Company agreed to a judgment
of $125,000. However, the judgment will not be enforced until such time as
efforts to collect against IntelliCorp et al, have been exhausted. In the event
funds are collected from IntelliCorp. Mr. Farrow will receive the first $125,000
plus 50% of the next $200,000 collected. The Company will retain all amounts
collected thereafter.
Fund Recovery, a temporary staffing services filed a complaint against us
alleging breach of contract. A summary judgment motion is pending. We recorded
the liability amount of $14 thousand in the consolidated financial statements.
John Ellis has filed an action in San Diego County against the Company
seeking damages of approximately $60,000 for an alleged breach of contract
action. Mr. Ellis appeared to have abandoned this action. John Ellis also filed
an action in San Diego County against the Company seeking damages of
approximately $60,000 for an alleged breach of contract action . In response to
the action filed in San Diego County, the Company filed a motion to quash
service and to compel arbitrationThe court granted the request of the Company
and directed Mr. Ellis to pursue his claims in arbitration. The Company and
Mr. Ellis have agreed to resolve the matter in mediation and a hearing has been
set for November 25, 2003. The Company believes it has valid defenses to the
allegations. The amount at issue was recorded as a liability in the
consolidated financial statements.
NKS Enterprises, Inc. commenced a legal action against us in San Diego
Superior Court in Vista California seeking damages in connection with the
purchase and operation of a MaxCash ABM. The case was settled in December 2002.
The maximum amount to be paid under the settlement is $100,000. In exchange, we
will receive the MaxCash ABM sold to NKS Enterprises. The Company was unable to
comply with terms of settlement and NKS has entered a judgment against the
Company for $100,000. This amount was recorded as a liability in the
consolidated financial statements.
On July 30, 2003, the Company commenced a legal action against CardPlus
International, Inc., in Superior Court in San Diego California seeking damages
in connection with the sale of five MaxCash ABM's and the licensing of the
Company's CCBO back office processing software. The Company is requesting
$500,000 in damages. The Company has filed a motion with the Court for a
default judgment against CardPlus.
There are several vendors and/or trade creditors we owe money to and that
have threatened litigation. We continue to attempt to resolve these matters but
due to the lack of cash we are not certain that suitable arrangements can be
made. These potential actions may, alone or together, have a material adverse
impact on our ability to operate.
Greenland's officers and directors are aware of no other threatened or pending
litigation, which would have a material, adverse effect on us. From time to time
we are a defendant (actual or threatened) in certain lawsuits encountered in the
ordinary course of its business, the resolution of which, in the opinion of
management, should not have a material adverse effect on our financial position
results of operations, or cash flows.
ITEM 2 - CHANGES IN SECURITIES
The Company issued 115.1 million shares to Imaging Technologies Corporation
(ITEC) pursuant to a share purchase agreement for a convertible promissory note,
payable in two years, in the amount of $2.25 million.
The Company issued 5.4 million shares to related parties to retire notes
payable in the amount of $33 thousand.
The Company issued 10.3 million and 4 million shares for services for the
nine months ended September 30, 2003 and 2002, respectively. The Company has
recognized expenses for such services in the amount of $98 thousand and $657
thousand in 2003 and 2002, respectively.
The Company issued 1.6 million shares of common stock for salaries totaling
$196 thousand in the period ended September 30, 2002.
ITEM 3 - DEFAULTS ON SENIOR SECURITIES
None.
ITEM 4 - SUBMISSION OF MATTER TO VOTE OF SECURITY HOLDERS
None.
ITEM 5 - OTHER INFORMATION
None.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 - Certification of the Chief Executive Officer and Acting Chief Financial
Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
99.2 - Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: December 5, 2003 . . . . . By: /s/ Thomas J. Beener
Thomas J. Beener
CEO, President, and
Acting Chief Financial Officer