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EX-32 - 906 CERTIFICATION - GREEN PLANET GROUP, INC. | p1108_ex32.htm |
EX-31.1 - 302 CERTIFICATION OF CEO - GREEN PLANET GROUP, INC. | p1108_ex31-1.htm |
EX-31.2 - 302 CERTIFICATION OF CFO - GREEN PLANET GROUP, INC. | p1108_ex31-2.htm |
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
Washington,
D.C. 20549
FORM 10-Q
|
þ
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF
1934
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For the
quarterly period ended September 30,
2009
OR
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o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF
1934
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For the
transition period from ______________ to ______________
Commission File Number
333-136583
GREEN PLANET GROUP,
INC.
(Exact
name of registrant as specified in its charter)
Nevada
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41-2145716
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification Number)
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|
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7430 E. Butherus, Suite D,
Scottsdale, AZ
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85260
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(Address
of principal executive offices)
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(Zip
Code)
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|
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Registrant’s telephone
number, including area code:
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(480)
222-6222
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(Not
applicable)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes þ No
o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ |
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No
þ
The
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date, November 13, 2009: $0.001 par value common
stock 135,598,942 shares outstanding.
INDEX
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Page
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PART I – Financial
Information
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3
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Item
1. Financial Statements
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3
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Three
and Six Months Ended September 30, 2009
and 2008
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Consolidated
Balance Sheets as of September 30, 2009 (Unaudited) and March 31,
2009
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3
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Consolidated
Statements of Operations for the Three and Six Months Ended September 30,
2009 and 2008 (Unaudited)
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4
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Consolidated
Statements of Stockholders’ Equity/(Deficit) for
the Six Months Ended September 30, 2009 and 2008
(Unaudited)
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5
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Consolidated
Statements of Cash Flows for the Six Months Ended September 30, 2009
and 2008 (Unaudited)
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6
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Notes
to Consolidated Financial Statements as of September 30, 2009
and 2008 (Unaudited)
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7–33
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Item
2. Management’s Discussion and Analysis of Financial Condition and
Results of Operations
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34
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Item
3. Quantitative and Qualitative Disclosure About Market
Risk
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44
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Item
4. Controls and Procedures
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44
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PART II – Other
Information
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45
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Item
1. Legal Proceedings
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45
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Item
1A. Risk Factors
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45
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Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
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45
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Item
3. Defaults Upon Senior Securities
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45
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Item
4. Submission of Matters to a Vote of Security
Holders
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45
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Item
5. Other Information
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45
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Item
6. Exhibits
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45
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Signatures
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46
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2
PART I – FINANCIAL
INFORMATION
Item 1. Financial
Statements
Green Planet Group, Inc. and
Subsidiaries
Consolidated Balance
Sheets
September
30,
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March
31,
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|||||||
2009
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2009
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|||||||
(Unaudited)
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(Restated)
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|||||||
ASSETS
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||||||||
Current
Assets:
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||||||||
Cash
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$ | 1,184,843 | $ | 470,288 | ||||
Accounts
receivable
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5,363,933 | 4,349,866 | ||||||
Inventory
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388,564 | 369,403 | ||||||
Prepaid
expenses
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1,425,437 | 1,654,431 | ||||||
Total
Current Assets
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8,362,777 | 6,843,988 | ||||||
Equipment
and computers, net of accumulated depreciation
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1,815,544 | 1,900,834 | ||||||
Other
Assets:
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||||||||
Other
assets
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306,495 | 295,372 | ||||||
Intangible
assets
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3,352,361 | 3,745,025 | ||||||
Goodwill
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8,979,822 | 8,979,822 | ||||||
Total
Other Assets
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12,638,678 | 13,020,219 | ||||||
Total
Assets
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$ | 22,816,999 | $ | 21,765,041 | ||||
LIABILITIES
AND STOCKHOLDERS’
EQUITY/(DEFICIT)
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||||||||
Current
Liabilities:
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||||||||
Accounts
payable
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$ | 1,434,918 | $ | 1,210,127 | ||||
Accounts
payable - Affiliates
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54,988 | 165,565 | ||||||
Accrued
liabilities
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3,858,703 | 2,318,097 | ||||||
Accrued payroll,
taxes and benefits
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7,350,736 | 2,446,929 | ||||||
Cashless
warrant liability
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47,578 | 57,876 | ||||||
Notes
payable and amounts due within one year
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6,915,549 | 6,536,202 | ||||||
Convertible
loans payable
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4,027,050 | 5,054,100 | ||||||
Derivative
warrant liability
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763,876 | 643,750 | ||||||
Total
Current Liabilities
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24,453,398 | 18,432,646 | ||||||
Notes
payable due after one year
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7,840,204 | 9,061,650 | ||||||
Total
Liabilities
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32,293,602 | 27,494,296 | ||||||
Stockholders’
Equity/(Deficit)
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||||||||
Preferred
Stock, $0.001 par value, 1,000,000 authorized; no
shares issued and outstanding
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– | – | ||||||
Common
Stock, $0.001 par value, 250,000,000 authorized,
issued and outstanding 131,487,944 and
117,440,764 at September 30, 2009 and March 31, 2009, respectively
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131,488 | 117,441 | ||||||
Additional
paid-in capital
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15,628,128 | 14,714,148 | ||||||
Accumulated
deficit
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(25,236,219 | ) | (20,560,844 | ) | ||||
Total
Stockholders’ Equity/(Deficit)
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(9,476,603 | ) | (5,729,255 | ) | ||||
Total
Liabilities and Stockholders’ Equity/(Deficit)
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$ | 22,816,999 | $ | 21,765,041 |
3
Green Planet Group, Inc. and
Subsidiaries
Consolidated Statements of
Operations
For
the three months ended
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For
the six months ended
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|||||||||||||||
September
30,
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September
30,
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|||||||||||||||
2009
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2008
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2009
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2008
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(Unaudited)
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(Unaudited/Restated)
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(Unaudited)
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(Unaudited/Restated)
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Revenue:
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||||||||||||||||
Sales,
net of returns and allowances
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$ | 16,406,810 | $ | 529,650 | $ | 33,104,714 | $ | 2,366,071 | ||||||||
Cost
of sales
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14,280,181 | 324,483 | 29,001,700 | 1,051,259 | ||||||||||||
Gross
Profit
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2,126,629 | 205,167 | 4,103,014 | 1,314,812 | ||||||||||||
Operating
Expenses:
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||||||||||||||||
Selling,
general and administrative
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3,900,241 | 1,250,717 | 7,480,876 | 1,932,420 | ||||||||||||
Depreciation
and amortization
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239,455 | 61,967 | 479,173 | 123,933 | ||||||||||||
Allowance
for bad debts
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56,500 | – | 470,570 | – | ||||||||||||
Research
and development
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13,094 | 250 | 13,094 | 250 | ||||||||||||
Total
Operating Expenses
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4,209,290 | 1,312,934 | 8,443,713 | 2,056,603 | ||||||||||||
Loss
From Operations
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(2,082,661 | ) | (1,107,767 | ) | (4,340,699 | ) | (741,791 | ) | ||||||||
Other
Income and (Expense):
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Other
income
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(17 | ) | 41 | 1,492 | 416 | |||||||||||
Interest
expense
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1,091,066 | 1,884,511 | (336,168 | ) | 615,128 | |||||||||||
Income/(Loss)
before provision for income taxes
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(991,612 | ) | 776,785 | (4,675,375 | ) | (126,247 | ) | |||||||||
Provision
for/(Benefit of) income taxes
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– | – | – | – | ||||||||||||
Net
Income/(Loss)
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$ | (991,612 | ) | $ | 776,785 | $ | (4,675,375 | ) | $ | (126,247 | ) | |||||
Earning/(Loss)
per share:
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||||||||||||||||
Basic
earnings per share
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$ | (0.01 | ) | $ | 0.01 | $ | (0.04 | ) | $ | (0.00 | ) | |||||
Weighted
average shares outstanding
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128,046,715 | 66,066,375 | 124,867,997 | 63,962,835 |
See
accompanying notes to these consolidated financial statements.
4
Green Planet Group, Inc. and
Subsidiaries
Consolidated Statements of
Stockholders’ Equity/(Deficit)
(Unaudited)
Additional
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Paid-in |
Accumulated
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Shares
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Common
Stock
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Capital
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Deficit
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Total
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||||||||||||||||
Balance
March 31, 2008
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54,885,103 | $ | 54,885 | $ | 9,779,844 | $ | (17,888,470 | ) | $ | (8,053,741 | ) | |||||||||
Shares
issued for cash
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6,431,000 | 6,431 | 1,090,499 | 1,096,930 | ||||||||||||||||
Shares
issued services for consultants and others
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5,300,000 | 5,300 | 1,067,700 | 1,073,000 | ||||||||||||||||
Stock
option valuation
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170,370 | 170,370 | ||||||||||||||||||
Net
loss for the six months ended September 30, 2008
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(126,247 | ) | (126,247 | ) | ||||||||||||||||
Balance
September 30, 2008
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66,616,103 | $ | 66,616 | $ | 12,108,413 | $ | (18,014,717 | ) | $ | (5,839,688 | ) | |||||||||
Balance
March 31, 2009
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117,440,764 | $ | 117,441 | $ | 14,714,148 | $ | (20,560,844 | ) | $ | (5,729,255 | ) | |||||||||
Shares
issued for cash
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4,380,000 | 4,380 | 115,620 | 120,000 | ||||||||||||||||
Shares
issued for acquisition and payables
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2,846,234 | 2,846 | 148,262 | 151,108 | ||||||||||||||||
Shares
issued for services of consultants and others
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6,656,182 | 6,656 | 415,294 | 421,950 | ||||||||||||||||
Shares
issued for interest expense
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164,764 | 165 | 15,835 | 16,000 | ||||||||||||||||
Stock
option expense
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218,969 | 218,969 | ||||||||||||||||||
Net
loss for the six months ended September 30, 2009
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(4,675,375 | ) | (4,675,375 | ) | ||||||||||||||||
Balance
September 30, 2009
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131,487,944 | $ | 131,488 | $ | 15,628,128 | $ | (25,236,219 | ) | $ | (9,476,603 | ) |
See
accompanying notes to these consolidated financial
statements.
5
Green Planet Group, Inc. and
Subsidiaries
Consolidated Statements of Cash
Flows
For
the six months ended
September
30,
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||||||||
2009
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2008
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(Unaudited)
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(Unaudited/Restated)
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Cash
Flows from Operating Activities:
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||||||||
Net
Loss
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$ | (4,675,375 | ) | $ | (126,247 | ) | ||
Adjustments
to reconcile net loss to net cash
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||||||||
provided
(used) by operating activities:
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||||||||
Depreciation
and amortization
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479,173 | 123,933 | ||||||
Bad
debt provision
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470,570 | – | ||||||
Amortization
of debt discount
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99,175 | 206,916 | ||||||
Shares
issued for services and interest
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437,950 | 269,833 | ||||||
Stock
option costs
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218,969 | 170,370 | ||||||
Change
in derivative valuation
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(906,924 | ) | (840,993 | ) | ||||
Cashless
warrant conversion
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(10,298 | ) | (166,351 | ) | ||||
Changes
in assets and liabilities, excluding
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||||||||
effects
of acquisitions:
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||||||||
Receivables
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(1,484,637 | ) | (948,004 | ) | ||||
Inventory
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(19,161 | ) | (59,957 | ) | ||||
Prepaid
expenses
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129,819 | 18,518 | ||||||
Other
assets
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(11,123 | ) | – | |||||
Accounts
payable
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194,792 | 135,471 | ||||||
Accounts
payable - affiliates
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(110,577 | ) | – | |||||
Accrued
liabilities
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6,625,521 | 155,543 | ||||||
Cash
provided (used) by operating activities
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1,437,874 | (1,060,968 | ) | |||||
Investing
Activities:
|
||||||||
Proceeds
from note receivable
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– | 85,000 | ||||||
Capital
expenditures
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(1,220 | ) | (7,383 | ) | ||||
Cash
provided (used) by investing activities
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(1,220 | ) | 77,617 | |||||
Financing
Activities:
|
||||||||
Net
borrowings of debt
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– | 157,000 | ||||||
Repayment
of debt
|
(842,099 | ) | (282,825 | ) | ||||
Net
proceeds from issuance of common shares
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120,000 | 1,096,930 | ||||||
Net
cash provided (used) by financing activities
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(722,099 | ) | 971,105 | |||||
Net
increase (decrease) in cash
|
714,555 | (12,246 | ) | |||||
Cash
at beginning of period
|
470,288 | 59,544 | ||||||
Cash
at end of period
|
$ | 1,184,843 | $ | 47,298 | ||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid during the period for:
|
||||||||
Interest
|
$ | 769,985 | $ | 231,719 | ||||
Income
taxes
|
$ | – | $ | – | ||||
Non
Cash Activities:
|
||||||||
Common
stock issued for services, payables and interest
|
$ | (619,058 | ) | $ | – | |||
Common
stock issued for services, payables and interest
|
9,667 | – | ||||||
Additional
paid-in capital from conversion of note payable
|
609,391 | – | ||||||
$ | – | $ | – |
See
accompanying notes to these consolidated financial statements.
6
Green
Planet Group, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
For
the Six Months Ended September 30, 2009 and 2008 (Unaudited)
Note
1 – The Company
The Company – Green
Planet Group, Inc. (which is referred to herein together with its
subsidiaries as “Green Planet,” “GPG,” “the Company,” “we”, “us” or “our”),
formerly EMTA Holdings, Inc. and before that Omni Alliance Group, Inc., was
organized and incorporated in the state of Nevada. On March 31, 2006, we changed
our name from Omni Alliance Group, Inc. to EMTA Holdings, Inc., and on May 22,
2009 we changed the name through merger with a wholly owned subsidiary to
Green Planet Group, Inc. Our common stock now trades on the OTC-Bulletin Board
market under the trading symbol “GNPG”.
Nature of the
Business – We operate in two industry segments: 1) a specialty energy
conservation chemical company that produces and supplies technologies to the
global transportation, industrial and consumer markets and 2) an employee
staffing business which primarily provides staffing to the light industrial
market. The energy technologies include gasoline, oil and diesel additives for
engines and other transportation-related fluids and industrial
lubricants.
Presentation of Interim
Statements – The accompanying unaudited consolidated financial statements
have been prepared in accordance with accounting principles generally accepted
in the United States for interim financial information and with the instructions
to Form 10-Q for small business filers. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements and should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Form 10-K for the years ended March 31, 2009 and 2008.
In the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included in the
accompanying unaudited consolidated financial statements. The results of
operations for the periods presented are not necessarily indicative of results
that may be expected for any other interim period or for the full fiscal
year.
Restatement of Prior
Financial Statements – See Note 17 Restatement of Prior Financial
Statements.
Going Concern
Uncertainty
The
Company’s continued existence is dependent upon its ability to generate
sufficient cash flows from operations to support its daily operations as well as
provide sufficient resources to retire existing liabilities and obligations on a
timely basis.
The
Company anticipates that future sales of equity and debt securities to fully
implement its business objectives and to raise working capital to support and
preserve the integrity of the corporate entity will be necessary. There is no
assurance that the Company will be able to obtain additional funding through the
sales of additional equity or debt securities or, that such funding, if
available, will be obtained on terms favorable to or affordable by the
Company.
7
In
addition, the Company has $5,596,824 of outstanding payroll tax liabilities due
the Internal Revenue Service and various states. The Company
anticipates negotiating a payment plan with these agencies, but there is no
assurance that the Company will be successful. In the event that the
Company is unable to negotiate acceptable payment plans, the Company’s
operations could be negatively impacted including ceasing operations in certain
states and jurisdictions.
If no
additional capital is received to successfully implement the Company’s business
plan, the Company will be forced to rely on existing cash in the bank and upon
additional funds which may or may not be loaned by management and/or significant
stockholders to preserve the integrity of the corporate entity at this time. In
the event, the Company is unable to acquire sufficient capital, the Company’s
ongoing operations would be negatively impacted.
It is the
intent of management and significant stockholders to provide sufficient working
capital necessary to support and preserve the integrity of the corporate entity.
However, no formal commitments or arrangements to advance or loan funds to the
Company or repay any such advances or loans exist. There is no legal obligation
for either management or significant stockholders to provide additional future
funding.
While the
Company is of the opinion that good faith estimates of the Company’s ability to
secure additional capital in the future to reach our goals have been made, there
is no guarantee that the Company will receive sufficient funding to sustain
operations or implement its objectives.
Note
2 – Significant Accounting Policies
Over the
years, the Financial Accounting Standards Board (“FASB”) and other designated
GAAP-setting bodies, have issued standards in the form of FASB Statements,
Interpretations, FASB Staff Positions, EITF consensuses, AICPA Statements of
Position, etc. The FASB finalized the Codification for periods ending after
September 15, 2009. Prior FASB standards are no longer being issued in the
previous format and are included herein for the convenience of the reader.
References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards
Codification, sometimes referred to as the “Codification” or
“ASC”.
Consolidation – The
consolidated financial statements include the accounts of Green Planet Group,
Inc. and its consolidated subsidiaries and wholly-owned limited liability
company. All significant intercompany transactions and profits have been
eliminated.
Use of Estimates –
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities. The
more significant estimates relate to revenue recognition, contractual allowances
and uncollectible accounts, intangible assets, accrued liabilities, derivative
liabilities, income taxes, litigation and contingencies. Estimates are based on
historical experience and on various other assumptions that the Company believes
to be reasonable under the circumstances, the results of which form the basis
for judgments about results and the carrying values of assets and liabilities.
Actual results and values may differ significantly from these
estimates.
Cash Equivalents –
The Company invests its excess cash in short-term investments with various banks
and financial institutions. Short-term investments are cash equivalents, as they
are part of the cash management activities of the Company and are comprised of
investments having maturities of three months or less when
purchased.
8
Allowance for Doubtful Accounts – The Company provides an allowance for doubtful accounts when management estimates collectibility to be uncertain. Accounts receivable are continually reviewed to determine which, if any, accounts are doubtful of collection. In making the determination of the appropriate allowance amount, the Company considers current economic and industry conditions, relationships with each significant customer, overall customer credit-worthiness and historical experience. The allowance for doubtful accounts was $1,267,123 and $806,846 at September 30, 2009 and March 31, 2009, respectively.
Inventories –
Inventories are stated at the lower of cost or market value. Cost of inventories
is determined by the first-in, first-out (FIFO) method. Obsolete or
abandoned inventories are charged to operations in the period that it is
determined that the items are not longer viable sales products.
Property, Plant and
Equipment – Property, plant and equipment are carried at cost. Repair and
maintenance costs are charged against operations while renewals and betterments
are capitalized as additions to the related assets. The Company depreciates it
assets on a straight line basis. Estimated useful lives for the equipment range
from 3 to 10 years and the buildings are being depreciated over 31
years.
Intangible Assets –
Intangible assets consist of patents, trademarks, intellectual property and
government approval. For financial statement purposes, identifiable intangible
assets with a defined life are being amortized using the straight-line method
over the estimated useful lives of the assets. Costs incurred in connection with
patent, trademark applications and approvals from governmental agencies such as
the Environmental Protection Agency, including legal fees, patent and trademark
fees and specific testing costs, are capitalized and amortized over an estimated
economic life of the asset, generally seven years, commencing upon the grant or
approval date. Costs subsequent to grant date are expensed as incurred.
Impairment of Long-Lived
Assets – In accordance with ASC 360-10 (formerly the Statement of
Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,”) the Company reviews long-lived assets,
including, but not limited to, property and equipment, patents and other assets,
for impairment annually or whenever events or changes in circumstances indicate
the carrying amounts of assets may not be recoverable. The carrying value of
long-lived assets is assessed for impairment by evaluating operating performance
and future undiscounted cash flows of the underlying assets. If the sum of the
expected future cash flows of an asset is less than its carrying value, an
impairment measurement is required. Impairment charges are recorded to the
extent that an asset’s carrying value exceeds fair value. Accordingly, actual
results could vary significantly from such estimates. There were no impairment
charges during the periods presented.
Fair Value
Disclosures – The carrying values of cash, accounts receivable, deposits,
prepaid expenses, accounts payable and accrued expenses generally approximate
the respective fair values of these instruments due to their current
nature.
The fair
values of debt instruments for disclosure purposes only are estimated based upon
the present value of the estimated cash flows at interest rates applicable to
similar instruments.
The
Company generally does not use derivative financial instruments to hedge
exposures to cash flow or market risks. However, certain other financial
instruments, such as warrants and embedded conversion features that are indexed
to the Company’s common stock, are classified as liabilities when either (a) the
holder possesses rights to net-cash settlement or (b) physical or net-share
settlement is not within the control of the Company. In such instances, net-cash
settlement is assumed for financial accounting and reporting, even when the
terms of the underlying contracts do not provide for net-cash settlement. Such
financial instruments are initially recorded at fair value and subsequently
adjusted to fair value at the close of each reporting period.
9
Revenue Recognition –
Revenues are recognized at the time of shipment of products to customers, or at
the time of transfer of title, if later, and when collection is reasonably
assured. All amounts in a sales transaction billed to a customer related to
shipping and handling are reported as revenues. Staffing revenue is
recognized at the completion of each billing cycle to the customer after
completion of the work. The billing cycle is generally
weekly.
Provisions
for sales discounts and rebates to customers are recorded, based upon the terms
of sales contracts, in the same period the related sales are recorded, as a
deduction to the sale. Sales discounts and rebates are offered to certain
customers to promote customer loyalty and encourage greater product sales.
As a general rule, the Company does not charge interest on its accounts
receivables.
Income Taxes – We
provide for income taxes in accordance with ASC 740-10 (formerly SFAS
No. 109, “Accounting for Income Taxes.”) that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax bases of the assets and liabilities.
The
recording of a net deferred tax asset assumes the realization of such asset in
the future; otherwise a valuation allowance must be recorded to reduce this
asset to its net realizable value. The Company considers future pretax income
and, if necessary, ongoing prudent and feasible tax planning strategies in
assessing the need for such a valuation allowance. In the event that the Company
determines that it may not be able to realize all or part of the net deferred
tax asset in the future, a valuation allowance for the deferred tax asset is
charged against income in the period such determination is made. The Company has
recorded full valuation allowances as of September 30, 2009 and
2008.
Stock-Based
Compensation
We
account for stock-based awards to employees and non-employees using the
accounting provisions of ASC 718-10 (formerly the Statement of Financial
Accounting Standards (“SFAS”) No. 123 — Accounting for Stock-Based
Compensation and SFAS No. 123(R which revised SFAS No. 123) which
provides for the use of the fair value based method to determine compensation
for all arrangements where shares of stock or equity instruments are issued for
compensation. Shares of common issued in connection with acquisitions are also
recorded at their estimated fair values based on the Hull-White “enhanced US ASC
718-10 standard. The standards for the accounting of transactions in which an
entity exchanges its equity instruments for goods or services, particularly
transactions in which an entity obtains employee services in share-based payment
transactions. The statement also requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award. That cost is recognized over the
period during which the employee is required to provide service in exchange for
the award.
Concentrations of Credit
Risks – Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. Although the amount of credit exposure to
any one institution may exceed federally insured amounts, the Company limits its
cash investments to high-quality financial institutions in order to minimize its
credit risk. The Company extends credit based on an evaluation of the customer’s
financial condition, generally without requiring collateral. Exposure to losses
on receivables is dependent on each customer’s financial condition. At September
30, 2009 and 2008 the Company had a receivable from one foreign customer in the
amount of $1,363,756 and $1,391,171 and at September 30, 2009 the Company had a
reserve for bad debts of $681,000 against this account. The balance
of the accounts receivable are primarily from clients, retailers and
distributors located in the United States. For the six months ended September
30, 2009 three clients accounted for 12.0%, 13.6% and 13.7% of gross sales for
the period.
10
Recent Accounting
Pronouncements
Fair
Value Measurement and Fair Value of a Financial Asset When the Market is Not
Active
ASC
820-10 (formerly SFAS No. 157, Fair Value Measurements
(“SFAS 157”), as amended by FSP FAS 157-2, Effective Date of FASB Statement
No. 157, and further amended by FSP FAS 157-3, Fair Value of a Financial
Asset When the Market for that Asset is Not Active. Portions of the
provisions of ASC 820-10 became effective for the Company as of April 1,
2008 while other provisions deferred the effective date for all nonfinancial
assets and liabilities, except those recognized or disclosed at fair value on an
annual or more frequent basis, until April 1, 2009 and a further revision
which clarifies the application in a market that is not active became
effective upon issuance. ASC 820-10 defines fair value, creates a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements and additional guidance is provided
regarding how the reporting entity’s own assumptions should be considered when
relevant observable inputs do not exist, how available observable inputs in a
market that is not active should be considered when measuring fair value, and
how the use of market quotes should be considered when assessing the relevance
of inputs available to measure fair value. The adoption of these standards did
not have a material impact on the Company’s consolidated financial statements
for the current period.
Fair Value When the Volume and Level
of Activity Significantly Decreased
ASC
820-10 was amended in April 2009 by what was formerly FSP
No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, which
clarifies the application of ASC 820-10 when there is no active market or where
the price inputs being used represent distressed sales. Additional guidance is
provided regarding estimating the fair value of an asset or liability (financial
and nonfinancial) when the volume and level of activity for the asset or
liability have significantly decreased and identifying transactions that are not
orderly. The Company adopted the standard as of June 30, 2009, which was the
required effective date. Its adoption did not have a material impact on the
Company’s consolidated financial statements.
Determining
Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own
Stock (ASC 815-10)
Fair
Value Option
In
February 2007, ASC 825-10 was amended by the FASB in what was formerly SFAS
No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities — Including an amendment of FASB
Statement No. 115 which permits all entities to choose to measure
eligible items at fair value on specified election dates. The associated
unrealized gains and losses on the items for which the fair value option has
been elected shall be reported in earnings. The ASC 825-10 became effective for
the Company as of April 1, 2008; however, the Company has not elected to
utilize the fair value option on any of its financial assets or liabilities
under the scope of this ASC.
11
Interim Disclosures about Fair Value
of Financial Instruments
In
April 2009, the FASB further amended ASC 825-10 with the issued FSP FAS
107-1 and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value
of Financial Instruments . The amendments ASC 825-10 to require an entity
to provide disclosures about fair value of financial instruments in interim
financial information. This FSP is to be applied prospectively and is effective
for interim and annual periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. The adoption of
this amendment did not have an impact on the Company’s financial
statements.
In
December 2007, the FASB amended ASC 805-10 by issuing SFAS No. 141(R),
Business Combinations.
The objective of this ASC is to improve the information provided in financial
reports about a business combination and its effects. ASC 805-10 states that all
business combinations (whether full, partial or step acquisitions) must apply
the “acquisition method.” In applying the acquisition method, the acquirer must
determine the fair value of the acquired business as of the acquisition date and
recognize the fair value of the acquired assets and liabilities assumed. As a
result, it will require that certain forms of contingent consideration and
certain acquired contingencies be recorded at fair value at the acquisition
date. This ASC also states acquisition costs will generally be expensed as
incurred and restructuring costs will be expensed in periods after the
acquisition date. This amendment is effective for business combination
transactions for which the acquisition date is on or after April 1, 2009,
and earlier application is prohibited. The Company adopted this statement on
April 1, 2009. The impact of the adoption of amendment on the Company’s
financial statements will largely be dependent on the size and nature of the
business combinations completed after the adoption of this ASC. While this
amendment to ASC 805-10 generally applies only to transactions that close after
its effective date, the amendment to ASC 740-10 are applied prospectively as of
the adoption date and will apply to business combinations with acquisition dates
before the effective date of this amendment. Adoption of this amendment
did not have a material effect on the results of operations or statement of
position for the period ended September 30, 2009.
Contingencies
in Business Combinations
In
April 2009, the FASB further amended ASC 805-10 by the issuance of FSP FAS
141(R)-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies. This amendment requires that assets acquired and
liabilities assumed in a business combination that arise from contingencies be
recognized at fair value if fair value can be reasonably estimated. If fair
value cannot be reasonably estimated, the asset or liability would generally be
recognized in accordance with ASC 450-10 and ASC 450-20. Further, the FASB
removed the subsequent accounting guidance for assets and liabilities arising
from contingencies from ASC 805-10. The requirements of this amendment carry
forward without significant revision the other guidance on contingencies of ASC
805-10, which was superseded by SFAS No. 141(R) (see previous
paragraph). The amendment also eliminates the requirement to disclose an
estimate of the range of possible outcomes of recognized contingencies at the
acquisition date. For unrecognized contingencies, the FASB requires that
entities include only the disclosures required by ASC 450-10. This amendment was
adopted effective April 1, 2009. There was no impact upon adoption, and its
effects on future periods will depend on the nature and significance of business
combinations subject to this statement.
12
Disclosures about Derivative
Instruments and Hedging Activities
In March
2008, the FASB amended ASC 815-10 by issuing SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities-an amendment of FASB Statement
No. 133. This amendment changes the disclosure requirements for
derivative instruments and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under ASC 815-10 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company adopted this amendment on April 1, 2009, the
beginning of the Company’s first fiscal 2010 quarter and its adoption did not
have a material effect on the results of operations or statement of position in
the subsequent periods.
Codification
and the Hierarchy of Generally Accepted Accounting Principles
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles,” which replaces
SFAS No. 162 and establishes the source of authoritative U.S. generally
accepted accounting principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. On the effective date for financial statements issued
for interim and annual periods ending after September 15, 2009, the Codification
will supersede all then–existing non-SEC accounting and reporting standards and
is codified as ASC 105-10. The Company has determined that the adoption of the
Codification will not have a material impact on the financial
statements.
Convertible
Debt
In
May 2008, ASC 470-20 was amended by the FASB issuance
of Financial Statement Position (FSP) Accounting Principles Board
(APB) 14-1 “Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement).” This amendment
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer’s non-convertible debt borrowing rate. ASC 470-20
became effective for fiscal years beginning after December 15, 2008 on a
retroactive basis and has been adopted by the Company in the first quarter of
fiscal 2010.
Useful
Life of Intangible Assets
In
April 2008, the FASB amended ASC 350-30 by issuing FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets. The amendment states that in developing assumptions
about renewal or extension options used to determine the useful life of an
intangible asset, an entity needs to consider its own historical experience
adjusted for entity-specific factors. In the absence of that experience, an
entity shall consider the assumptions that market participants would use about
renewal or extension options. This ASC is to be applied to intangible assets
acquired after January 1, 2009. The adoption of this ASC did not have an
impact on the Company’s financial statements.
13
Other
Than Temporary Impairments
In April
2009, the FASB issued FASB Staff Position (FSP) No. FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments,” amending ASC
320-10 to determine whether the holder of an investment in a debt or equity
security for which changes in fair value are not regularly recognized in
earnings (such as securities classified as held-to-maturity or
available-for-sale) should recognize a loss in earnings when the investment is
impaired. ASC 320-10 improves the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. The effective date for interim and annual reporting periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is
not permitted. The adoption of this amendment did not have an impact
on the Company’s financial statements.
Subsequent
Events
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events,” which amends ASC 855-10
and requires entities to disclose the date through which they have evaluated
subsequent events and whether the date corresponds with the release of their
financial statements. The statement establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. ASC 855-10 as
amended is effective for interim or annual financial periods ending after June
15, 2009, and shall be applied prospectively. The adoption of this amendment did
not have a material impact on the Company’s consolidated financial
statements.
Transfers
of Financial Assets
In
June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets,” which has not be codified yet and which is an amendment of ASC 860-10
(formerly SFAS No. 140, “Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities,” and requires entities to provide
more information about sales of securitized financial assets and similar
transactions, particularly if the seller retains some risk to the assets. This
amendment will improve the relevance, representation faithfulness, and
comparability of the information that a reporting entity provides in its
financial statements about a transfer of financial assets. It will also take
into account the effects of a transfer on its financial position, financial
performance, and cash flows, and a transferor’s continuing involvement. SFAS No.
166 is effective for annual periods beginning after November 15,
2009. This statement is effective for the Company beginning
April 1, 2010 and is not expected to have a material impact on the
financial statements.
Amendments
to FASB interpretation No. 46(R)
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB interpretation No.
46(R),” which will amend ASC 810-10 and has not been codified yet. It
establishes how a company determines when an entity that is insufficiently
capitalized or not controlled through voting should be consolidated. This
statement improves financial reporting by enterprises involved with variable
interest entities, which addresses the effects on certain provisions of ASC
810-10 as a result of the elimination of the qualifying special-purpose entity
concept in FASB No. 166, “Accounting for Transfers of Financial Assets,” which
also has not be codified yet, and clarifies constituent concerns about the
application of certain key provisions of ASC 810-10. SFAS No. 167 is effective
after November 15, 2009. This statement is effective for the Company beginning
January 1, 2010 and is expected to have no material impact on the financial
statements.
14
Inventory
consists of finished goods and raw material as follows:
September
30,
2009
|
March
31,
2009
|
|||||||
(Unaudited) | ||||||||
Finished
goods
|
$ | 327,378 | $ | 173,523 | ||||
Raw
material
|
61,186 | 195,880 | ||||||
$ | 388,564 | $ | 369,403 |
At
September 30, 2009 and March 31, 2009 property, plant and equipment and
computers consisted of the following:
September
30,
2009
|
March
31,
2009
|
|||||||
(Unaudited) | ||||||||
Property
and plant
|
$
|
1,452,146
|
$
|
1,453,650
|
||||
Equipment
and computers
|
840,910
|
839,690
|
||||||
Less
accumulated depreciation
|
(477,512
|
)
|
(392,506
|
)
|
||||
Net
property, plant and equipment
|
$
|
1,815,544
|
$
|
1,900,834
|
During
the six months ended September 30, 2009 and 2008 depreciation expense was
$86,510 and $60,572, respectively.
15
Note
5 – Intangible Assets and Goodwill
Intangible
assets consist of technology of production and license rights under the
Environmental Protection Agency to market one of the products acquired in the
acquisition of White Sands, L.L.C. on March 31, 2006. The Company is amortizing
this asset over its estimated useful life of seven years on a straight line
basis. For the six months ended September 30, 2009 and 2008 amortization was
$63,361 in each period. The customer relationships are the value of the
purchased business relationships acquired as part of the purchase by Lumea of
the staffing business on March 1, 2009. The amortization period of
this intangible is 5 years. For the period ended September 30, 2009 the
amortization expense was $329,302.
Intangible
assets subject to amortization:
Weighted
|
September
30, 2009
(Unaudited)
|
||||||||||||
Average
|
Gross
Carrying
|
Accumulated
|
Net
Carrying
|
||||||||||
Useful
Life
|
Amount
|
Amortization
|
Amount
|
||||||||||
Intangible
assets subject to amortization:
|
|||||||||||||
EPA
licenses
|
7
years
|
$
|
887,055
|
$
|
443,528
|
$
|
443,527
|
||||||
Customer
relationships
|
5
years
|
3,293,020
|
384,186
|
2,908,834
|
|||||||||
$
|
4,180,075
|
$
|
827,714
|
$
|
3,352,361
|
||||||||
Goodwill
not subject to amortization:
|
|||||||||||||
Goodwill:
|
|||||||||||||
Goodwill
|
$
|
8,979,822
|
$
|
–
|
$
|
8,979,822
|
|||||||
$
|
8,979,822
|
$
|
–
|
$
|
8,979,822
|
||||||||
Weighted
|
March
31, 2009
|
||||||||||||
Average
|
Gross
Carrying
|
Accumulated
|
Net
Carrying
|
||||||||||
Useful
Life
|
Amount
|
Amortization
|
Amount
|
||||||||||
Intangible
assets subject to amortization:
|
|||||||||||||
EPA
licenses
|
7
years
|
$
|
887,055
|
$
|
380,166
|
$
|
506,889
|
||||||
Customer Relationships
|
5
years
|
3,293,020
|
54,884
|
3,238,136
|
|||||||||
$
|
4,180,075
|
$
|
435,050
|
$
|
3,745,025
|
||||||||
Goodwill
not subject to amortization:
|
|||||||||||||
Goodwill:
|
|||||||||||||
Goodwill
|
$
|
8,979,822
|
$
|
–
|
$
|
8,979,822
|
|||||||
$
|
8,979,822
|
$
|
–
|
$
|
8,979,822
|
16
The
scheduled amortization to be recognized over the next five years is as
follows:
September
30, 2010
|
$ | 785,326 | ||
September
30, 2011
|
$ | 785,326 | ||
September
30, 2012
|
$ | 785,326 | ||
September
30, 2013
|
$ | 721,965 | ||
September
30, 2014
|
$ | 274,418 |
Note
6 – Accrued Liabilities
Accrued
liabilities consist of the following as of September 30, 2009 and March 31,
2009:
September
30,
2009
|
March
31,
2009
|
|||||||
(Unaudited) | ||||||||
Accrued
marketing and advertising
|
$
|
300,000
|
$
|
300,000
|
||||
Accrued
reimbursement to product testing partner
|
978,151
|
978,151
|
||||||
Accrued
interest
|
1,851,018
|
804,717
|
||||||
Accrued
workmen’s compensation
|
484,676
|
–
|
||||||
Other
|
244,858
|
235,229
|
||||||
$
|
3,858,703
|
$
|
2,318,097
|
Note
7 – Accrued Payroll,
Taxes and Benefits
Accrued
payroll, taxes and benefits was $7,350,736 and $2,446,929 at September 30, 2009
and March 31, 2009, respectively.
Subsidiaries
of the Company are delinquent in the payment of their payroll tax liabilities
with the Internal Revenue Service and various states. As of September
30, 2009, unpaid payroll taxes total $5,596,824. The
Company has estimated the related penalties and interest at approximately
$646,639 through September 30, 2009, which are included in accrued liabilities
at September 30, 2009. The Company expects to pay these delinquent
payroll tax liabilities in installments and as soon as possible subject to
negotiations with the Internal Revenue Service.
17
As of
September 30, 2009 and March 31, 2009 notes and contracts payable consist of the
following:
September
30,
|
March
31,
|
|||||||
2009
|
2009
|
|||||||
(Unaudited) | ||||||||
Revolving
line of credit against factored Lumea receivables (2)
|
$
|
2,095,914
|
$
|
2,055,015
|
||||
Bank
loans, payable in installments
|
308,507
|
359,803
|
||||||
Mortgage
loan payable, monthly payments of principal and interest
at 3 month LIBOR plus 4.7% (1)
|
806,853
|
806,853
|
||||||
Payments
due seller of XenTx Lubricants
|
254,240
|
254,240
|
||||||
Loan
from Dyson
|
60,000
|
60,000
|
||||||
Notes
payable
|
1,336,692
|
1,475,380
|
||||||
Loans
from individuals, due within one year
|
277,407
|
255,000
|
||||||
Houtz Loan | 212,000 | 306,000 | ||||||
Purchase
note payable
|
1,575,139
|
1,569,139
|
||||||
Purchase
note 1
|
5,151,609
|
5,667,626
|
||||||
Purchase
note 2
|
2,677,392
|
2,888,796
|
||||||
Total
|
14,755,753
|
15,597,852
|
||||||
Less
current portion
|
6,915,549
|
6,536,202
|
||||||
Long-term
debt
|
$
|
7,840,204
|
$
|
9,061,650
|
____________
(1)
|
In
conjunction with the acquisition of Dyson, the mortgage became payable as
a result of the change of control of that company. The Company is in the
process of refinancing the property.
|
(2)
|
The
Company maintains a $5 million line of credit relating to its factored
accounts receivable.
|
Bank
Loans consist of two loans that became due in the first quarter of 2009; these
loans are secured by receivables, inventory and equipment in Durant,
Oklahoma. The Company is working to replace these loans and has
arranged a payment schedule to retire these loans. The Mortgage Loan Payable has
matured as a result of the change in control of the operations in
Durant. The Company continues to make principal and interest payments
while the Company obtains a replacement loan on the
property. Interest is reset quarterly at Libor plus
4.7%.
The
amounts due sellers bear interest at a rate of 8.0% and are due March 31,
2010.
18
Substantially
all of the staffing receivables are pledged as collateral for the revolving line
of credit. At September 30, 2009 and March 31, 2009, the Company had
pledged receivables of $3,721,302 and $2,532,926, respectively.
The
balance of the notes payable consist of commercial loans of a vehicles and
equipment in the normal course of business.
The Loans
from individuals includes three loans which are all due within one year and bear
interest from 9% to 12%.
Notes
payable include amounts due after one year consists of the loan from Purchase
Notes 1 and 2, all of which are secured by all of the business assets of
Lumea, Notes Payable which is secured by all of the business assets of
XenTx and the unsecured Houtz Loan. Maturities for the remainder of the
loans are as follows:
2011
|
$ | 2,111,985 | |
2012
|
$ | 1,150,198 | |
2013
|
$ | 1,155,930 | |
2014
|
$ | 3,422,091 |
Note
9 – Fair Value Measurements
The
Company adopted the amendments to ASC 820-10 that apply to certain assets and
liabilities that are being measured and reported on a fair value basis. ASC
820-10 defines fair value, establishes a framework for measuring fair value in
accordance with generally accepted accounting principles, and expands disclosure
about fair value measurements. This ASC enables the reader of the
financial statements to assess the inputs used to develop those measurements by
establishing a hierarchy for ranking the quality and reliability of the
information used to determine fair values. It also requires that
assets and liabilities carried at fair value will be classified and disclosed in
one of the following three categories:
Level
1: Quoted market prices in active markets for identical assets or
liabilities.
Level
2: Observable market based inputs or unobservable inputs that are
corroborated by market data.
Level
3: Unobservable inputs that are not corroborated by market
data.
The
Company records liabilities related to its warrants (See Note 11 – Derivative
Financial Instruments) and the beneficial conversion feature of its convertible
debentures (See Note 9 – Convertible Debt) at their fair market values as
provided by ASC 820-10.
19
The
following table provides fair market measurements of the warrant and beneficial
conversion feature liabilities as of September 30, 2009:
Fair
Value Measurements at Reporting Date Using Significant Unobservable Inputs
(Level 3)
|
||||
(Unaudited) | ||||
Warrant
liabilities
|
$
|
763,876
|
||
Beneficial
conversion feature liabilities
|
1,500,000
|
|||
$
|
2,263,876
|
The
change in fair market value of the warrant and beneficial conversion feature
liabilities is included in interest expense in the Consolidated Statements of
Operations.
The
following table provides a reconciliation of the beginning and ending balances
of the warrant and beneficial conversion feature liabilities as of September 30,
2009:
Warrant
liability
|
Beneficial
conversion
feature
liability
|
Total
|
||||||||||
Beginning
balance April 1, 2009
|
$
|
643,750
|
$
|
2,527,050
|
$
|
3,170,800
|
||||||
Change
in fair market value of beneficial conversion liabilities due to partial
maturity of note and conversion feature
|
–
|
(1,027,050)
|
(1,027,050)
|
|||||||||
Change
in fair market value of warrant and beneficial conversion
liabilities
|
120,126
|
–
|
120,126
|
|||||||||
Ending
balance September 30, 2009
|
$
|
763,876
|
$
|
1,500,000
|
$
|
2,263,876
|
Certain
financial instruments are carried at cost on the consolidated balance sheets,
which approximates fair value due to their short-term, highly liquid nature.
These instruments include cash and cash equivalents, accounts receivable,
accounts payable and accrued expenses, other short-term liabilities, and capital
lease obligations.
Note
10 – Convertible Debt
The
Company entered into a Convertible Loan Agreement which also entitled the
lenders to warrants and to convert the loans, at their option, to common stock
of the Company. The debt is convertible at a rate of 50% of the then current
market price at the time of conversion. At September 30, 2009, the value of the
6% Convertible Notes, with interest quarterly, was as follows:
20
Maturity
|
Face
Amount
|
Conversion
Derivative
|
Balance
|
|||||||||
April
28, 2009 (Matured)
|
$
|
327,050
|
$
|
–
|
$
|
327,050
|
||||||
August
17, 2009 (Matured)
|
700,000
|
–
|
700,000
|
|||||||||
October
28, 2009
|
300,000
|
300,000
|
600,000
|
|||||||||
November
10, 2009
|
1,200,000
|
1,200,000
|
2,400,000
|
|||||||||
Total
|
$
|
2,527,050
|
$
|
1,500,000
|
$
|
4,027,050
|
Interest
expense for the quarter ended September 30, 2009 and 2008 was $91,516 and
$76,940, respectively.
Note 11
– Income Taxes
Provision/benefit
for income taxes for the periods ended September 30, 2009 and 2008 consisted of
the follows:
For
the six months ended
September
30,
|
||||||||
2009
|
2008
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Federal
income taxes/(benefit)
|
$
|
(1,021,116
|
) |
$
|
(304,675)
|
|||
State
income taxes
|
(224,943
|
) |
(61,171)
|
|||||
Total
|
(1,246,059
|
)
|
(371,792)
|
|||||
Valuation
allowance
|
1,246,059
|
371,792
|
||||||
Net
tax provision/benefit
|
$
|
–
|
$
|
–
|
Through
September 30, 2009, we recorded a valuation allowance of $7,117,274 against
deferred income tax assets primarily associated with tax loss carry forwards.
Our significant operating losses experienced in prior years establishes a
presumption that realization of these income tax benefits does not meet a “more
likely than not” standard. For the six months ended September 30,
2009 and 2008 we recognized $1,246,049 and $371,792 respective of the valuation
allowance to offset the provision for income taxes for these
periods.
We have
net operating loss carry forwards of $17,013,433. Our net operating loss carry
forwards will expire between 2025 and 2030.
21
Future
realization of the net operating losses is dependent on generating sufficient
taxable income prior to their expiration. Tax effects are based on a 34% Federal
income tax rate. The Federal net operating losses expire as
follows:
Expiration
|
Amount
|
|||
2025
|
$
|
1,524,541
|
||
2026
|
5,132,298
|
|||
2027
|
3,052,902
|
|||
2028
|
2,251,029
|
|||
2029
|
2,295,008
|
|||
2030
|
2,757,655
|
|||
Total
|
$
|
17,013,433
|
Note
12 – Derivative Financial Instruments
In
connection with various financings through November 10, 2006, the Company has
issued warrants to purchase shares of common stock in conjunction with the
convertible notes to purchase 12,000,000 shares of common stock at an exercise
price of $2.50 per share. The Company also issued warrants to a broker in the
transaction for the exercise of 70,000 shares of common stock at an exercise
price of $2.50. These warrants expire if not exercised at various dates in 2013
through November 10, 2013. At September 30, 2009, all of the 12,000,000 warrants
have been issued entitling the lender to one share for each warrant at an
exercise price of $2.50 per share.
The
agreements include registration rights and certain other terms and conditions
related to share settlement of the embedded conversion features and the
warrants. In this instance, ASC 815-40 requires allocation of the proceeds
between the various instruments and the derivative elements carried at fair
values.
In
additional, in conjunction with financings, purchases and consulting
transactions between April 1, 2007 and March 31, 2009 the Company issued
additional warrants, net of expirations, to purchase 8,725,000 shares of the
Company’s common stock at exercise prices between $0.75 and $2.50 per
share.
At
September 30, 2009 there were 18,225,000 shares subject to warrants at a
weighted average exercise price of $1.95.
Number
of Shares
|
Weighted
Average
|
|||||
Subject
to Outstanding
|
Remaining
|
|||||
Exercise
|
Warrants
|
Contractual
Life
|
||||
Price
|
and
Exercisable
|
(years)
|
||||
$
|
0.75
|
5,775,000
|
2.50
|
|||
$
|
2.50
|
12,450,000
|
3.51
|
|||
18,225,000
|
22
In
addition to the spot price of the stock and remaining term of the warrant, other
factors used in the binomial model included in the analysis at September 30,
2009 were the volatility of 229.95%, risk free rate of between 0.40% and 2.93%
and a dividend rate of $0 per period.
Concentration of Credit
Risk
Financial
instruments, which potentially subject the Company to concentrations of credit
risk, consist of cash. The Company periodically evaluates the credit worthiness
of financial institutions, and maintains cash accounts only in large high
quality financial institutions, thereby minimizing exposure for deposits in
excess of federally insured amounts.
Lease
Commitments
The
Company has lease agreements for office space in Scottsdale, Arizona and for 26
offices throughout the United States. The remaining lease commitment for the two
Scottsdale offices are 3 and 5 years and the other offices are year to year or
month-to-month. The following table sets forth the aggregate minimum future
annual lease commitments at September 30, 2009 under all non-cancelable
leases:
2010
|
$
|
334,905
|
||
2011
|
241,907
|
|||
2012
|
185,350
|
|||
2013
|
67,618
|
|||
2014
|
60,442
|
|||
Thereafter
|
75,000
|
|||
$
|
965,222
|
Lease
expense for the six months ended September 30, 2009 and 2008 were $263,901 and
$19,856, respectively. The total of all scheduled lease payments, assuming
all locations are continued at the same rates, is $498,475 per
year.
Note 14
– Company Stock
Preferred
Stock
At
September 30, 2009, the Company had 1,000,000 shares of $0.001 par value
authorized and no outstanding or issued shares.
23
Common
Stock
At
September 30, 2009, the Company had 250,000,000 shares authorized of $0.001 par
value common stock, of which issued and outstanding shares were
131,487,944.
During
the six months ended September 30, 2009, the Company issued 4,380,000 par value
$0.001 common shares of stock for net proceeds of $120,000. Also
during the period, the Company issued an aggregate of 6,656,182 common shares
for services to consultants recognizing an aggregate addition to stockholders’
equity of $421,950 based on the market price of the stock at the date of the
agreements. Some of these services will be recognized over the next
one year and the related expense is being recognized over the service
period. Also during this period, the Company issued 2,846,324 shares of
common stock for an acquisition and payment of accounts payable, 6,656,182
shares for services of consultants and directors and 164,764 shares for interest
expense. The Company recorded these accounts at $181,658, $421,950 and
$16,000, respectively.
Warrants
At
September 30, 2009 the status of the outstanding warrants is as
follows:
Issue
Date
|
Shares
Exercisable
|
Weighted
Average
Exercise
Price
|
Expiration
Date
|
||||
September
27, 2005
|
450,000
|
$
|
2.50
|
September
26, 2010
|
|||
April
29, 2006
|
1,866,667
|
$
|
2.50
|
April
28, 2013
|
|||
June
28, 2006
|
5,000,000
|
$
|
2.50
|
August
10, 2013
|
|||
August
17, 2006
|
1,633,333
|
$
|
2.50
|
August
17, 2013
|
|||
October
28, 2006
|
700,000
|
$
|
2.50
|
October
28, 2013
|
|||
November
10, 2006
|
2,800,000
|
$
|
2.50
|
November
10, 2013
|
|||
July
1, 2007
|
5,775,000
|
$
|
.75
|
June
30, 2012
|
|||
Cashless
April 20-November 10, 2006
|
700,000
|
$
|
2.50
|
April
29 - November 10, 2015
|
|||
Cashless
March 26, 2007
|
1,400,000
|
$
|
.75
|
March
26, 2010
|
|||
Cashless
July 1, 2007
|
519,750
|
$
|
.75
|
June
30, 2012
|
The
warrants have no intrinsic value at September 30, 2009 or 2008.
24
Stock
Options
At
March 31, 2009, the Company had one stock option plan under which grants
were outstanding. The stock options outstanding are for grants issued under the
Company’s 2007 Stock Incentive Plan.
The
2007 Stock Incentive Plan
During
the fiscal year ended March 31, 2008, the Company adopted a stock option
plan, entitled the “2007 Incentive Plan” (the “2007 Plan”), under which the
Company may grant options to purchase up to 20,000,000 shares of common
stock.
The 2007
Plan is administered by the Board of Directors or a Committee of the Board of
Directors which has the authority to determine the persons to whom the options
may be granted, the number of shares of common stock to be covered by each
option grant, and the terms and provisions of each option grant. Options granted
under the 2007 Plan may be incentive stock options or non-qualified options, and
may be issued to employees, consultants, advisors and directors of the Company
and its subsidiaries. The exercise price of options granted under the 2007 Plan
may not be less than the fair market value of the shares of common stock on the
date of grant, and may not be granted more than ten years from the date of
adoption of the plan or exercised more than ten years from the date of
grant.
The
following table sets forth the status of the Company’s non-vested stock options
under the 2007 Plan as of September 30, 2009:
Number of
Options
|
Weighted-Average
Grant-Date
Fair
Value
|
|||||||
Non-vested
as of March 31, 2008
|
5,415,000
|
$
|
.11
|
|||||
Granted
|
||||||||
Forfeited
|
(450,000
|
)
|
–
|
|||||
Vested
|
(3,310,000
|
)
|
–
|
|||||
Non-vested
as of March 31, 2009
|
1,655,000
|
$
|
.11
|
|||||
Granted
|
–
|
–
|
||||||
Forfeited
|
–
|
–
|
||||||
Vested
|
(1,655,000
|
) |
.11
|
|||||
Non-vested
as of September 30, 2009
|
–
|
$
|
–
|
25
During
the year ended March 31, 2008, the Company granted options to purchase an
aggregate of 5,415,000 shares of common stock to employees, directors and
consultants for services to be provided. These options are exercisable at $0.20
per share, and vest one third on October 1, 2008, April 1, 2009 and October 1,
2009 with an expiration of three years from the date of grant, March 26, 2011,
for all options. The Company has valued these at their fair value on the date of
grant using the Hull-White enhanced option-pricing model.
Unrecognized
stock-based compensation expense related to the unvested options at the issue
date was approximately $525,165 which is being recognized over the vesting
periods of 18 months. This estimate is based on the number of unvested options
currently outstanding and could change based on the number of options granted or
forfeited in the future. During the six months ended September 30, 2009
and 2008 the Company recognized expense of $201,299 and $170,370, respectively.
These options had no intrinsic value at September 30, 2009.
The
assumptions used in calculating the fair value of stock-based payment awards
represent management’s best estimates.
The
risk-free interest rate used for each grant is equal to the U.S. Treasury yield
in effect at the time of grant for instruments with a similar expected
life.
The
expected term of options granted was determined based on the historical exercise
behavior of similar peer groups.
The
Company has never declared or paid a cash dividend, and has no current plans to
pay a cash dividend in the future.
ASC
718-10 also requires that the Company recognize compensation expense for only
the portions that are expected to vest. Therefore, the Company has estimated
expected forfeitures of stock options with the adoption of ASC 718-10. In
developing a forfeiture rate estimate, the Company considered its historical
experience. If the actual number of forfeitures differs from those estimated by
management, additional adjustments to compensation expense may be required in
future periods.
2008
|
|
Risk
Free Interest Rate
|
1.79% |
Expected
Life
|
3.0 years
|
Expected
Volatility
|
116% |
Expected
Dividend Yield
|
0% |
The per
share weighted average fair value of stock options granted for the fiscal year
ended March 31, 2008 was $0.11.
26
Purchase
stock options
In
conjunction with the acquisition of the staffing business on March 1, 2009, the
Company issued 2,500,000 options to acquire shares of the Company’s stock at a
price of $0.04 per share. The options vest at a rate of 150,000
shares per quarter beginning June 30, 2009 through March 1, 2017. At
September 30, 2009, 300,000 options were vested. For the six months ended
September 30, 2009 the Company has recorded an expense of $17,670. At September 30, 2009, the 300,000 options vested had
an intrinsic value of $3,000.
Note 15
– Earnings (Loss) Per Share
Basic
income/(loss) per common share is computed by dividing the results of operations
by the weighted average number of shares outstanding during the period. For
purposes of the determining the number of shares outstanding the shares received
by the acquirer in the reverse acquisition are treated as outstanding for all
periods prior to the transaction.
Diluted
income/(loss) earnings per common share adjusts basic income/(loss) per common
share for the effects of convertible securities, stock options, warrants and
other potentially dilutive financial instruments only in periods in which such
effect is dilutive. At September 30, 2009, the potentially issuable shares of
common stock reflect the potential dilution that could occur from common stock
issuable through stock options, warrants, and convertible debt, which excludes
30,000,000 shares for convertible debt, 20,844,750 under warrants and 5,265,000
shares issuable under stock options. No instruments were dilutive at
September 30, 2009 or 2008. These potential shares of common stock were
not included as they were anti-dilutive.
Note 16 – Subsequent Events
In
August 1, 2009, the Company received notice of default from Shelter Island
Opportunity Fund, LLC that due to the failure to make timely payments under the
note that it was accelerating the note and making demand for payment and has
filed such documents with the New York Supreme Court seeking judgment. In
November, 2009 the parties settled the default and the litigation will be
dismissed.
Subsequent to September 30, 2009, the Company
issued 3,000,000 shares of common stock in conjunction with a twelve month
consulting contract valued at $150,000 and 1,110,998 shares in conjunction with
the payment of accounts payable valued at $55,550.
Management
performed an evaluation of Company activity through November 18, 2009, the date
the unaudited consolidated financial statements were issued. The
Company concluded that there are no other significant subsequent events
requiring disclosure.
Note 17 – Segment Reporting
Green
Planet Group, Inc. has two reportable segments: the engine, fuel additives and
green energy products and the industrial staffing segments. The first
segment is comprised of the XenTx Lubricants, EMTA Corp. and White Sands
entities and the staffing segment is comprised of Lumea, Inc. and its operating
subsidiaries. Prior to March 1, 2009 Green Planet Group, Inc. only had the first
reporting segment of business.
The
accounting policies of the segments are the same as those described in the
summary of significant accounting policies. Interest expense related
to the individual entities is paid by or charged to those entities and the
related debt is included as that entity’s liability. Green Planet management
evaluates performance based on profit or loss before income taxes not including
nonrecurring gains and losses.
27
There
have been no significant intersegment sales or costs.
Green
Planet’s business is conducted through separate legal entities that are wholly
owned subsidiaries. Each entity has a specific set of business
objectives and line of business.
The
Company analyzes the result of the operations of the individual entities and the
segments. Green Planet does not allocate income taxes and unusual items to the
segments. The segment information for the three and six months ended September
30, 2009 are presented below.
For the three months ended September 30,
2009
|
Additives
&
|
Corporate
|
||||||||||||||
Green
Energy
|
Staffing
|
&
Eliminations
|
Consolidated
|
|||||||||||||
Income
statement information:
|
||||||||||||||||
Sales
|
$
|
103,072
|
$
|
16,303,738
|
$
|
–
|
$
|
16,406,810
|
||||||||
Depreciation
and amortization
|
61,650
|
172,405
|
5,400
|
239,455
|
||||||||||||
Interest
expense
|
174,735
|
287,197
|
(1,552,998)
|
(1,091,066
|
)
|
|||||||||||
Income
(Loss) before income taxes
|
55,944
|
(1,209,824
|
)
|
162,268
|
(991,612
|
)
|
||||||||||
Net
income (loss)
|
55,944
|
(1,209,824
|
)
|
162,268
|
(991,612
|
)
|
For the six months ended September 30,
2009
|
Additives
&
|
Corporate
|
||||||||||||||
Green
Energy
|
Staffing
|
&
Eliminations
|
Consolidated
|
|||||||||||||
Income
statement information:
|
||||||||||||||||
Sales
|
$
|
687,305
|
$
|
32,417,409
|
$
|
–
|
$
|
33,104,714
|
||||||||
Depreciation
and amortization
|
128,700
|
345,073
|
5400
|
479,173
|
||||||||||||
Interest
expense
|
349,470
|
721,288
|
(734,590)
|
336,168
|
||||||||||||
Loss
before income taxes
|
(297,316
|
)
|
(2,848,336
|
)
|
(1,529,723
|
)
|
(4,675,375
|
)
|
||||||||
Net
loss
|
(297,316
|
)
|
(2,848,336
|
)
|
(1,529,723
|
)
|
(4,675,375
|
)
|
||||||||
Balance
sheet information:
|
||||||||||||||||
Total
assets
|
3,603,760
|
16,047,429
|
3,165,810
|
22,816,999
|
28
Note
18 – Restatement of Prior Financial Statements
On July
31, 2009, the board of directors (the “Board”) of Green Planet Group, Inc. (the
“Company”) concluded that the Company’s previously filed consolidated financial
statements for the fiscal year ends March 31, 2007, 2008 and 2009 on Form 10-K
and the quarterly statements from September 30, 2006 (the first required filing
date) through December 31, 2008 on Form 10-Q should no longer be relied
upon. The Board with the recommendation of management came to this
conclusion based on comments received the Accounting Staff of the Division of
Corporate Finance of the Securities and Exchange Commission (the “SEC”) in its
review of the Company’s financial statements for the year ended March 31, 2008
and interim filings through December 31, 2008. After discussion,
review and analysis of our accounting and disclosures, the Company identified
the following issues:
1)
|
The
Company treated the convertible debt and related warrants under ASC 470-20
under which such converted or exercised instruments are recognized as
equity and under the ASC 815-40 and owing to the unlimited nature of the
potential issuances, the instruments are to be treated as liabilities or
assets and revalued each reporting
period.
|
2)
|
Under
ASC 480-10 and (ASC 815-10) state in part that convertible
instruments should be valued at their fair value at date of issuance and
derivatives, such as warrants, should be valued at their fair value at
issuance and each subsequent reporting
date.
|
3)
|
Accordingly,
the Company will restate the financial statements referred to above. In
summary, in conjunction with the aggregate face amount of the convertible
loans of $3,000,000 with net proceeds of $2,512,500, the Company estimates
that at the closing of the various convertible loans in the year ended
March 31, 2007 the Company will book an additional $3,000,000 of loan
balance representing the 50% conversion feature of the instruments to
common stock of the Company and a derivative liability of $39,207,874 for
the then fair value of the warrants issued and outstanding. At the end of
the reporting period credits of $13,960,334 to adjust for the “default
warrants” issued and valued under ASC 470-20 in error and a valuation
allowance of $38,685,527 to adjust to the year end valuation resulting in
a net decrease of $10,437,986 in the net loss for March 31,
2007. At March 31, 2008, the year end valuation resulted in
additional interest expense of $1,272,447 and a increase in the net loss
for the period of a like amount and at March 31, 2009 the Company has a
reduction of interest expense by $1,151,045 and a decrease in the net loss
for the period of the same amount. For the six months ended September 30,
2008 the Company is reporting a reduction in interest expense of $840,993
and a change in the net loss for the period from $(967,240) to a loss of
$(126,247). The results of these changes are reflected in the following
balance sheets and statements of operations for the year ended March 31,
2009 and the six months ended September 30,
2008:
|
29
March
31, 2009
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
|||||||||||||||
Cash
|
$
|
470,288
|
$
|
–
|
$
|
470,288
|
|||||||||
Accounts
receivable
|
4,349,866
|
–
|
4,349,866
|
||||||||||||
Inventory
|
369,403
|
–
|
369,403
|
||||||||||||
Prepaid
expenses
|
1,495,461
|
158,970
|
A
|
1,654,431
|
|||||||||||
Total
Current Assets
|
6,685,018
|
158,970
|
6,843,988
|
||||||||||||
Plant
and equipment, net of accumulated depreciation
|
1,900,834
|
–
|
1,900,834
|
||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
189,164
|
106,208
|
A
|
295,372
|
|||||||||||
Intangible
assets
|
3,745,025
|
–
|
3,745,025
|
||||||||||||
Goodwill
|
8,979,822
|
–
|
8,979,822
|
||||||||||||
Total
Other Assets
|
12,914,011
|
106,208
|
13,020,219
|
||||||||||||
Total
Assets
|
$
|
21,499,863
|
$
|
265,178
|
$
|
21,765,041
|
|||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$
|
1,210,127
|
$
|
–
|
$
|
1,210,127
|
|||||||||
Accounts
payable - affiliates
|
165,565
|
–
|
165,565
|
||||||||||||
Accrued
liabilities
|
4,765,026
|
–
|
4,765,026
|
||||||||||||
Cashless
warrant liability
|
57,876
|
–
|
57,876
|
||||||||||||
Notes
payable and amounts due within one year
|
6,429,994
|
106,208
|
A
|
6,536,202
|
|||||||||||
Derivative
liability
|
–
|
643,750
|
B
|
643,750
|
|||||||||||
Convertible
notes payable
|
2,474,287
|
2,579,813
|
C
|
5,054,100
|
|||||||||||
Total
Current Liabilities
|
15,102,875
|
3,329,771
|
18,432,646
|
||||||||||||
Notes
payable due after one year
|
8,955,442
|
106,208
|
A
|
9,061,650
|
|||||||||||
Total
Liabilities
|
24,058,317
|
3,435,979
|
27,494,296
|
||||||||||||
Stockholders’
Equity
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 Authorized; no shares issued and
outstanding
|
–
|
–
|
–
|
||||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized, issued and outstanding
117,440,103 at March 31, 2009
|
117,441
|
–
|
117,441
|
||||||||||||
Additional
paid-in capital
|
28,201,532
|
(13,487,384
|
)
|
D
|
14,714,148
|
||||||||||
Accumulated
deficit
|
(30,877,427
|
)
|
10,316,583
|
E
|
(20,560,844
|
)
|
|||||||||
Total
Stockholders’ Equity/Deficit
|
(2,558,454
|
)
|
(3,170,801
|
)
|
(5,729,255
|
)
|
|||||||||
Total
Liabilities and Stockholders’ Equity
|
$
|
21,499,863
|
$
|
265,178
|
$
|
21,765,041
|
(Continued)
30
Consolidated
Statements of Operations
|
|||||||||||||||
For
the Year Ended March 31, 2009
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
Reported
|
Adjustments
|
Restatement
|
|||||||||||||
Revenue:
|
|||||||||||||||
Sales,
net of returns and allowances
|
$
|
9,170,794
|
$
|
–
|
$
|
9,170,794
|
|||||||||
Cost
of sales
|
7,030,015
|
–
|
7,030,015
|
||||||||||||
Gross
Profit
|
2,140,779
|
–
|
2,140,779
|
||||||||||||
Operating
Expenses:
|
|||||||||||||||
Selling,
general and administrative
|
3,798,290
|
–
|
3,798,290
|
||||||||||||
Depreciation
and amortization
|
308,833
|
–
|
308,833
|
||||||||||||
Allowance
for bad debts
|
970,542
|
–
|
970,542
|
||||||||||||
Total
Operating Expenses
|
5,077,665
|
–
|
5,077,665
|
||||||||||||
Loss
From Operations
|
(2,936,886
|
)
|
–
|
(2,936,886
|
)
|
||||||||||
Other
Income and (Expense):
|
|||||||||||||||
Other
income
|
416
|
–
|
416
|
||||||||||||
Interest
expense
|
(886,945
|
)
|
1,151,045
|
B
|
264,100
|
||||||||||
Loss
before provision for income taxes
|
(3,823,415
|
)
|
1,151,045
|
(2,672,370
|
)
|
||||||||||
Provision
for/(Benefit of) income taxes
|
–
|
–
|
–
|
||||||||||||
Net
Loss
|
$
|
(3,823,415
|
)
|
$
|
1,151,045
|
$
|
(2,672,370
|
)
|
|||||||
Loss
per share:
|
|||||||||||||||
Basic
and diluted earnings per share
|
$
|
(0.05
|
)
|
$
|
0.01
|
$
|
(0.04
|
)
|
|||||||
Weighted
average shares outstanding
|
73,612,313
|
73,612,313
|
73,612,313
|
(Continued)
31
(Unaudited)
|
|||||||||||||||
September
30, 2008
|
|||||||||||||||
As
Originally
|
After
|
||||||||||||||
ASSETS
|
Reported
|
Adjustments
|
Restatement
|
||||||||||||
Current
Assets:
|
|||||||||||||||
Cash
|
$ | 47,298 | $ | – | $ | 47,298 | |||||||||
Accounts
receivable
|
1,880,130 | – | 1,880,130 | ||||||||||||
Notes
receivable
|
52,500 | – | 52,500 | ||||||||||||
Inventory
|
476,750 | – | 476,750 | ||||||||||||
Prepaid
expenses
|
835,117 | 225,897 | A | 1,061,014 | |||||||||||
Total
Current Assets
|
3,291,795 | 225,897 | 3,517,692 | ||||||||||||
Property,
plant and equipment, net of accumulated depreciation
|
1,749,639 | – | 1,749,639 | ||||||||||||
Other
Assets:
|
|||||||||||||||
Other
assets
|
2,351 | 161,176 | A | 163,527 | |||||||||||
Intangible
assets
|
570,250 | – | 570,250 | ||||||||||||
Total
Other Assets
|
572,601 | 161,176 | 733,777 | ||||||||||||
Total
Assets
|
$ | 5,614,035 | $ | 387,073 | $ | 6,001,107 | |||||||||
LIABILITIES
AND STOCKHOLDERS EQUITY/(DEFICIT)
|
|||||||||||||||
Current
Liabilities:
|
|||||||||||||||
Accounts
payable
|
$ | 951,403 | $ | – | $ | 951,403 | |||||||||
Accrued
liabilities
|
1,812,959 | – | 1,812,959 | ||||||||||||
Cashless
warrant liability
|
91,028 | – | 91,028 | ||||||||||||
Notes
payable and amounts due within one year
|
1,985,530 | 115,863 | A | 2,101,393 | |||||||||||
Derivative
liability
|
– | 953,801 | B | 953,801 | |||||||||||
Convertible
notes payable
|
990,679 | 1,063,421 | C | 2,054,100 | |||||||||||
Total
Current Liabilities
|
5,831,600 | 2,133,085 | 7,964,684 | ||||||||||||
Notes
payable due after one year
|
706,779 | 169,332 | A | 876,111 | |||||||||||
Convertible
notes payable
|
1,434,495 | 1,565,505 | C | 3,000,000 | |||||||||||
Total
Liabilities
|
7,972,874 | 3,867,922 | 11,840,795 | ||||||||||||
Stockholders’
Equity
|
|||||||||||||||
Preferred
Stock, $0.001 par value, 1,000,000 authorized; no
shares issued and outstanding
|
– | – | – | ||||||||||||
Common
Stock, $0.001 par value, 250,000,000 authorized,
issued and outstanding 66,616,103 at
September 30, 2008
|
66,616 | – | 66,616 | ||||||||||||
Additional
paid-in capital
|
25,595,797 | (13,487,384 | ) | D | 12,108,413 | ||||||||||
Accumulated
deficit
|
(28,021,252 | ) | 10,006,535 | E | (18,014,717 | ) | |||||||||
Total
Stockholders’ Equity/(Deficit)
|
(2,358,839 | ) | (3,480,849 | ) | (5,839,688 | ) | |||||||||
Total
Liabilities and Stockholders’ Equity/Deficit)
|
$ | 5,614,035 | $ | 387,073 | $ | 6,001,107 |
(Continued)
32
Consolidated
Statements of Operations
(Unaudited)
|
||||||||||||||||||||||||||
For
the three months ended
September
30, 2008
|
For
the six months ended
September
30, 2008
|
|||||||||||||||||||||||||
As
Originally
|
After
|
As
Originally
|
After
|
|||||||||||||||||||||||
Reported
|
Adjustments
|
Restatement
|
Reported
|
Adjustments
|
Restatement
|
|||||||||||||||||||||
Revenue:
|
||||||||||||||||||||||||||
Sales,
net of returns and allowances
|
$ | 529,650 | $ | – | $ | 529,650 | $ | 2,366,071 | $ | – | $ | 2,366,071 | ||||||||||||||
Cost
of sales
|
324,483 | – | 324,483 | 1,051,259 | – | 1,051,259 | ||||||||||||||||||||
Gross
Profit
|
205,167 | – | 205,167 | 1,314,812 | – | 1,314,812 | ||||||||||||||||||||
Operating
Expenses:
|
||||||||||||||||||||||||||
Selling,
general and administrative
|
1,250,717 | – | 1,250,717 | 1,932,420 | – | 1,932,420 | ||||||||||||||||||||
Depreciation
and amortization
|
61,967 | – | 61,967 | 123,933 | – | 123,933 | ||||||||||||||||||||
Research
and development
|
250 | – | 250 | 250 | – | 250 | ||||||||||||||||||||
Total
Operating Expenses
|
1,312,934 | – | 1,312,934 | 2,056,603 | – | 2,056,603 | ||||||||||||||||||||
Loss
From Operations
|
(1,107,767 | ) | – | (1,107,767 | ) | (741,791 | ) | – | (741,791 | ) | ||||||||||||||||
Other
Income and (Expense):
|
||||||||||||||||||||||||||
Other
income
|
41 | – | 41 | 416 | – | 416 | ||||||||||||||||||||
Interest
expense
|
(27,031 | ) | 1,911,542 | B | 1,884,511 | (225,865 | ) | 840,993 | B | 615,128 | ||||||||||||||||
Loss
before provision for income taxes
|
(1,134,757 | ) | 1,911,542 | 776,785 | (967,240 | ) | 840,993 | (126,247 | ) | |||||||||||||||||
Provision
for/(Benefit of) income taxes
|
– | – | – | – | – | – | ||||||||||||||||||||
Net
Income/(Loss)
|
$ | (1,134,757 | ) | $ | 1,911,542 | $ | 776,785 | $ | (967,240 | ) | $ | 840,993 | $ | (126,247 | ) | |||||||||||
Earnings/(Loss)
per share:
|
||||||||||||||||||||||||||
Basic
earnings/(loss) per share
|
$ | (0.02 | ) | $ | 0.03 | $ | 0.01 | $ | (0.02 | ) | $ | 0.02 | $ | (0.00 | ) | |||||||||||
Weighted
average shares outstanding
|
66,066,375 | 66,066,375 | 66,066,375 | 63,962,835 | 63,962,835 | 63,962,835 |
A –
Adjustment to reclassify unamortized loan fees and costs to prepaids and other
assets
B –
Adjustment to reflect change in derivative value for the period
C –
Cumulative effect to reflect loan conversion feature net of conversions in prior
periods
D –
Cumulative effect of error in reporting cure cost of default and effect of
conversions
E –
Cumulative effect of prior period adjustments and current period adjustment to
accumulated deficit
33
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
Forward-Looking
Statements
The
statements contained in this Quarterly Report on Form 10-Q that are not purely
historical are “forward-looking statements” under the Private Securities
Litigation Reform Act of 1995 and within Section 27A of the Securities Act of
1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All forward-looking statements involve various risks and uncertainties.
Forward-looking statements contained in this Report include statements regarding
the plans of Green Planet Group, Inc. (“Green Planet, “GPG,” “we,” “our,” or
“the Company”) to develop, test and deliver new products; market risks,
opportunities and acceptance; industry growth; anticipated capital expenditures;
the impact of option expensing; our ability to finance operations, refinance
current maturities of long-term obligations; and our ability to meet our cash
requirements while maintaining proper liquidity. These statements involve risks
and uncertainties and are based on management’s current expectations and
estimates; actual results may differ materially. Those risks and uncertainties
that could impact these statements include the risks relating to implementation
and success of our advertising and marketing plans and sensitivity to general
economic conditions, including the current economic environment, consumer
spending patterns; our ability to complete long-term financing, our leverage and
debt risks; the effect of competition on GPG and our clients; management’s
allocation of capital and the timing of capital purchases; and internal factors
such as the ability to increase efficiencies, control expenses and successfully
execute growth strategies. The effect of market risks could be impacted by
future borrowing levels and economic factors such as interest rates. The
expected impact of option/warrant expensing is based on certain assumptions
regarding the number and fair value of options granted, resulting tax benefits
and shares outstanding. The actual ultimate impact of option/warrant expensing
could vary significantly to the extent actual results vary significantly from
current assumptions and market conditions.
Such forward-looking statements
encompass our beliefs, expectations, hopes or intentions regarding future
events. Words such as “expects,” “believes,” “anticipates,” “should,” and
“likely” also identify forward-looking statements. All forward-looking
statements included in this Report are made as of the date hereof, based on
information available to us as of such date, and we assume no obligation to
update any forward-looking statement. It is important to note that such
statements may not prove to be accurate and that our actual results and future
events could differ materially from those anticipated in such statements. Among
the factors that could cause actual results to differ materially from our
expectations are those described under “Management’s Discussion and Analysis of
Financial Condition and Results of Operations---Risks Related to Existing and
Proposed Operations.” All subsequent written and oral forward-looking statements
attributable to GPG or persons acting on our behalf are expressly qualified in
their entirety by this section and other factors included elsewhere in this
Report. For a more detailed discussion of these and other factors that could
cause actual results to differ from those contained in the forward-looking
statements, see the company’s annual report on Form 10-K filed with the
Securities and Exchange Commission which includes our financial statements for
the year ended March 31, 2009. As previously reported, the Company
will be restating its financial statements on Form 10-K for the year ended March
31, 2009 and prior years as soon as practicable.
Overview
The
following Management’s Discussion and Analysis of Financial Condition and
Results of Operations (“MD&A”) is intended to help the reader understand
Green Planet Group, Inc., our operations and our business environment. MD&A
is provided as a supplement to (and should be read in conjunction with) our
Financial Statements and accompanying notes.
34
For
the three months ended
|
For
the six months ended
|
|||||||||||
September
30,
|
September
30,
|
|||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||
NET
SALES
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
100.0
|
%
|
||||
COST
OF SALES
|
87.0
|
%
|
61.3
|
%
|
87.6
|
%
|
44.4
|
%
|
||||
GROSS
PROFIT
|
13.0
|
%
|
38.7
|
%
|
12.4
|
%
|
55.6
|
%
|
||||
OPERATING
EXPENSES
|
||||||||||||
Selling,
general and administrative
|
23.8
|
%
|
236.1
|
%
|
22.6
|
%
|
81.7
|
%
|
||||
Depreciation
and amortization
|
1.5
|
%
|
11.7
|
%
|
1.4
|
%
|
5.2
|
%
|
||||
Allowance
for bad debts
|
0.3
|
%
|
0.0
|
%
|
1.4
|
%
|
0.0
|
%
|
||||
Research
and development
|
0.1
|
%
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
||||
TOTAL
OPERATING EXPENSES
|
25.7
|
%
|
247.8
|
%
|
25.4
|
%
|
86.9
|
%
|
||||
INCOME/(LOSS) FROM
OPERATIONS
|
(12.7)
|
%
|
(209.1)
|
%
|
(13.0)
|
%
|
(31.3)
|
%
|
||||
Other
income (expense)
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
||||
Interest
expense
|
6.7
|
%
|
355.8
|
%
|
(1.0)
|
%
|
26.0
|
%
|
||||
LOSS BEFORE
INCOME TAXES
|
(6.0)
|
%
|
146.7
|
%
|
(14.0)
|
%
|
(5.3)
|
%
|
||||
Income
tax benefit
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
0.0
|
%
|
||||
NET LOSS
|
(6.0)
|
%
|
146.7
|
%
|
(14.0)
|
%
|
(5.3)
|
%
|
Three
months ended September 30, 2009 as compared to three months ended September 30,
2008
Net Sales: Net Sales increased
from $529,650 in 2008 to $16,406,810 in 2009 or an increase of $15,877,160. This
represents an increase of 2,998% over the same period a year earlier. This
increase was due to the addition of the staffing business segment that added
$16,303,738 and a decrease in the chemical additive volume of
$168,401.
Gross Margin: Gross Margin
decreased to 13.00% from 38.7% or a decrease of 66.4%. This was due to the
lower gross margins from the staffing segment and decreased sales of the
chemical additive products and an increase in petroleum based product costs used
by our product mix.
35
Selling, General and Administrative
Expenses: The Company increased its SG&A from $1,250,717 to
$3,900,241 or an increase of $2,649,524, reflecting a decrease in the percentage
of SG&A relative to sales from 236.1% of sales to 23.8% of sales, a decrease
of 89.9%. The increased dollar amount was due to the increase in
operating costs of the staffing segment, including
interest and penalties of $296,424 related to underpayment of various state and
federal payroll taxes, that was
not present in the prior period and an increase in consulting costs and sales
and promotional expenses.
Depreciation and Amortization:
The increase in the depreciation and amortization was due to the addition of the
staffing segment which accounted for all of the increase. The amortization of
the customer relations for the three months ended September 30, 2009 was
$164,651 that was not present in the comparable period a year
earlier.
Allowance for Bad
Debts: The allowance for bad debts was attributable to the
staffing segment and the filing of bankruptcy by two of its clients, the
collection of their outstanding amounts is uncertain.
Six
months ended September 30, 2009 as compared to six months ended September 30,
2008
Net Sales: Net Sales increased
from $2,366,071 in 2008 to $33,104,714 in 2009 or an increase of $30,738,643.
This represents an increase of 1,299% over the same period a year earlier. This
increase was due to the addition of the staffing business segment that added
$32,417,409 and a decrease in the chemical additive volume of
$1,678,766.
Gross Margin: Gross Margin
decreased to 12.4% from 55.6% or a decrease of 77.7%. This was due to the
lower gross margins from the staffing segment and decreased sales of the
chemical additive products and an increase in petroleum based product costs used
by our product mix.
Selling, General and Administrative
Expenses: The Company increased its SG&A from $1,932,420 to
$7,480,876 or an increase of $5,548,456, reflecting a decrease in the percentage
of SG&A relative to sales from 81.7% of sales to 22.6% of sales, a decrease
of 72.3%. The increased dollar amount was due to the increased
operating costs of the staffing segment, including
interest and penalties of $646,639 related to underpayment of various state and
federal payroll taxes, that was
not present in the prior period and an increase in consulting costs and sales
and promotional expenses.
Depreciation and Amortization:
The increase in the depreciation and amortization was due to the addition of the
staffing segment which accounted for all of the increase. The amortization of
the customer relations for the 6 months ended September 30, 2009 was $329,302
that was not present in the comparable period a year earlier.
Allowance for Bad
Debts: The allowance for bad debts was attributable to the
staffing segment and the filing of bankruptcy by two of its clients the
collection of their outstanding amounts is uncertain.
DERIVATIVE
FLUCTUATIONS
We
experience significant fluctuations in the aggregate interest expense for each
period as a result of the revaluation of the derivatives and changes in the
conversion options. These fluctuations are based on our stock price
at the end of each period, volatility, risk free interest rates, the number of
warrants outstanding and the conversion options outstanding.
36
IMPACT
OF INFLATION
Inflation
has not had a material effect on our results of operations. We expect
the cost of petroleum base products to track the increase and decrease in the
worldwide oil prices.
SEASONALITY
The
seasons of the year have no material impact on the Company’s fuel
efficiency/emission reducing products or services but it does have an impact on
both revenues and margin of our staffing companies. Revenues are lowest in the
first calendar quarter and largest in the third calendar quarter.
We have
experienced net losses for the three months ended September 30, 2009 and six
months ended September 30, 2008 and 2009 and net income of for the three months
ended September 30, 2008. The aggregate net losses for the last two fiscal years
aggregated $2,672,370 (restated) and $3,722,531 (restated), respectively. For the three months ended September 30, 2009
the net loss was $991,612 with net aggregate contributing non-cash factors
of depreciation, amortization, bad debts, share based payment expense and
derivation valuation factors of $976,021 which has been offset by $1,661,046 of
derivative benefits which reduce interest expense for the quarter compared to
the prior year quarter which had a net benefit of $2,177,675 which includes
derivative benefits of $2,115,708. The aggregate loss for the six months ended
September 30, 2009 was $4,675,375 with net aggregate contributing non-cash
factors of depreciation, amortization, bad debts, share based payment expense
and derivation valuation factors of $1,705,837 which has been offset by $917,222
of derivative benefits which created an interest expense of $336,168 for the six
months compared to the prior year period which had a net interest benefit of
$615,128. We have funded our operations to date by borrowings from third parties
and investors, a substantial portion of which are convertible into our common
stock and underpayment
of various state and federal payroll taxes. In the September 30, 2009
quarter we issued 7,081,000 common shares and recorded a value of $540,177 of
common stock for services, interest, payables, acquisitions and stock option
expense. The inability of the Company to raise capital through the private sale
of common stock or through the issuance of debt instruments at acceptable prices
and in a timely manner will have a negative impact on the results of operations
and viability of the Company.
At
September 30, 2009, the Company aggregate of accounts payable, accrued
liabilities and notes due within one year has increased by $19,614,894 from
$4,865,755 a year earlier. These obligations together with operation
costs will have to be funded from operations and additional funding from debt
and equity offerings.
OFF
BALANCE SHEET ARRANGEMENTS
Not
applicable.
37
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Over the
years, the Financial Accounting Standards Board (“FASB”) and other designated
GAAP-setting bodies, have issued standards in the form of FASB Statements,
Interpretations, FASB Staff Positions, EITF consensuses, AICPA Statements of
Position, etc. The FASB finalized the Codification for periods ending after
September 15, 2009. Prior FASB standards are no longer being issued in the
previous format and are included herein for the convenience of the reader.
References to GAAP issued by the FASB in these footnotes are to the FASB Accounting Standards
Codification, sometimes referred to as the “Codification” or
“ASC”.
Consolidation – The consolidated financial statements include the accounts of Green Planet Group, Inc. and its consolidated subsidiaries and wholly-owned limited liability company. All significant intercompany transactions and profits have been eliminated.
Use of Estimates –
The preparation of financial statements in conformity with United States
generally accepted accounting principles requires the Company to make estimates
and assumptions that affect the reported amounts of assets, liabilities, revenue
and expenses, and related disclosure of contingent assets and liabilities. The
more significant estimates relate to revenue recognition, contractual allowances
and uncollectible accounts, intangible assets, accrued liabilities, derivative
liabilities, income taxes, litigation and contingencies. Estimates are based on
historical experience and on various other assumptions that the Company believes
to be reasonable under the circumstances, the results of which form the basis
for judgments about results and the carrying values of assets and liabilities.
Actual results and values may differ significantly from these
estimates.
Cash Equivalents –
The Company invests its excess cash in short-term investments with various banks
and financial institutions. Short-term investments are cash equivalents, as they
are part of the cash management activities of the Company and are comprised of
investments having maturities of three months or less when
purchased.
Allowance for Doubtful
Accounts – The Company provides an allowance for doubtful accounts
when management estimates collectibility to be uncertain. Accounts receivable
are continually reviewed to determine which, if any, accounts are doubtful of
collection. In making the determination of the appropriate allowance amount, the
Company considers current economic and industry conditions, relationships with
each significant customer, overall customer credit-worthiness and historical
experience. The allowance for doubtful accounts was $1,267,123 and $806,846
at September 30, 2009 and March 31, 2009, respectively.
Inventories –
Inventories are stated at the lower of cost or market value. Cost of inventories
is determined by the first-in, first-out (FIFO) method. Obsolete or
abandoned inventories are charged to operations in the period that it is
determined that the items are not longer viable sales products.
Property, Plant and
Equipment – Property, plant and equipment are carried at cost. Repair and
maintenance costs are charged against operations while renewals and betterments
are capitalized as additions to the related assets. The Company depreciates it
assets on a straight line basis. Estimated useful lives for the equipment range
from 3 to 10 years and the buildings are being depreciated over 31
years.
Intangible Assets –
Intangible assets consist of patents, trademarks, intellectual property and
government approval. For financial statement purposes, identifiable intangible
assets with a defined life are being amortized using the straight-line method
over the estimated useful lives of the assets. Costs incurred in connection with
patent, trademark applications and approvals from governmental agencies such as
the Environmental Protection Agency, including legal fees, patent and trademark
fees and specific testing costs, are capitalized and amortized over an estimated
economic life of the asset, generally seven years, commencing upon the grant or
approval date. Costs subsequent to grant date are expensed as
incurred.
38
Impairment of Long-Lived
Assets – In accordance with ASC 360-10 (formerly the Statement of
Financial Accounting Standards No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets,”) the Company reviews long-lived assets,
including, but not limited to, property and equipment, patents and other assets,
for impairment annually or whenever events or changes in circumstances indicate
the carrying amounts of assets may not be recoverable. The carrying value of
long-lived assets is assessed for impairment by evaluating operating performance
and future undiscounted cash flows of the underlying assets. If the sum of the
expected future cash flows of an asset is less than its carrying value, an
impairment measurement is required. Impairment charges are recorded to the
extent that an asset’s carrying value exceeds fair value. Accordingly, actual
results could vary significantly from such estimates. There were no impairment
charges during the periods presented.
Fair Value
Disclosures – The carrying values of cash, accounts receivable, deposits,
prepaid expenses, accounts payable and accrued expenses generally approximate
the respective fair values of these instruments due to their current
nature.
The fair
values of debt instruments for disclosure purposes only are estimated based upon
the present value of the estimated cash flows at interest rates applicable to
similar instruments.
The
Company generally does not use derivative financial instruments to hedge
exposures to cash flow or market risks. However, certain other financial
instruments, such as warrants and embedded conversion features that are indexed
to the Company’s common stock, are classified as liabilities when either (a) the
holder possesses rights to net-cash settlement or (b) physical or net-share
settlement is not within the control of the Company. In such instances, net-cash
settlement is assumed for financial accounting and reporting, even when the
terms of the underlying contracts do not provide for net-cash settlement. Such
financial instruments are initially recorded at fair value and subsequently
adjusted to fair value at the close of each reporting period.
Revenue Recognition –
Revenues are recognized at the time of shipment of products to customers, or at
the time of transfer of title, if later, and when collection is reasonably
assured. All amounts in a sales transaction billed to a customer related to
shipping and handling are reported as revenues. Staffing revenue is
recognized at the completion of each billing cycle to the customer after
completion of the work. The billing cycle is generally
weekly.
Provisions
for sales discounts and rebates to customers are recorded, based upon the terms
of sales contracts, in the same period the related sales are recorded, as a
deduction to the sale. Sales discounts and rebates are offered to certain
customers to promote customer loyalty and encourage greater product sales.
As a general rule, the Company does not charge interest on its accounts
receivables.
Income Taxes – We
provide for income taxes in accordance with ASC 740-10 (formerly SFAS
No. 109, “Accounting for Income Taxes.”) that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the financial statement carrying amounts and the
tax bases of the assets and liabilities.
The
recording of a net deferred tax asset assumes the realization of such asset in
the future; otherwise a valuation allowance must be recorded to reduce this
asset to its net realizable value. The Company considers future pretax income
and, if necessary, ongoing prudent and feasible tax planning strategies in
assessing the need for such a valuation allowance. In the event that the Company
determines that it may not be able to realize all or part of the net deferred
tax asset in the future, a valuation allowance for the deferred tax asset is
charged against income in the period such determination is made. The Company has
recorded full valuation allowances as of September 30, 2009 and
2008.
39
Stock-Based
Compensation
We
account for stock-based awards to employees and non-employees using the
accounting provisions of ASC 718-10 (formerly the Statement of Financial
Accounting Standards (“SFAS”) No. 123 — Accounting for Stock-Based
Compensation and SFAS No. 123(R which revised SFAS No. 123) which
provides for the use of the fair value based method to determine compensation
for all arrangements where shares of stock or equity instruments are issued for
compensation. Shares of common issued in connection with acquisitions are also
recorded at their estimated fair values based on the Hull-White “enhanced US ASC
718-10 standard. The standards for the accounting of transactions in which an
entity exchanges its equity instruments for goods or services, particularly
transactions in which an entity obtains employee services in share-based payment
transactions. The statement also requires a public entity to measure the cost of
employee services received in exchange for an award of equity instruments based
on the grant-date fair value of the award. That cost is recognized over the
period during which the employee is required to provide service in exchange for
the award.
Concentrations of Credit
Risks – Financial instruments that potentially subject the Company to
significant concentrations of credit risk consist principally of cash and cash
equivalents and accounts receivable. Although the amount of credit exposure to
any one institution may exceed federally insured amounts, the Company limits its
cash investments to high-quality financial institutions in order to minimize its
credit risk. The Company extends credit based on an evaluation of the customer’s
financial condition, generally without requiring collateral. Exposure to losses
on receivables is dependent on each customer’s financial condition. At September
30, 2009 and 2008 the Company had a receivable from one foreign customer in the
amount of $1,290,394 and $1,317,809 and at September 30, 2009 the Company had a
reserve for bad debts of $681,000 against this account. The balance
of the accounts receivable are primarily from clients, retailers and
distributors located in the United States. For the six months ended September
30, 2009 three clients accounted for 12.0%, 13.6% and 13.7% of gross sales for
the period.
Recent Accounting
Pronouncements
Fair
Value Measurement and Fair Value of a Financial Asset When the Market is Not
Active
ASC
820-10 (formerly SFAS No. 157, Fair Value Measurements
(“SFAS 157”), as amended by FSP FAS 157-2, Effective Date of FASB Statement
No. 157, and further amended by FSP FAS 157-3, Fair Value of a Financial
Asset When the Market for that Asset is Not Active. Portions of the
provisions of ASC 820-10 became effective for the Company as of April 1,
2008 while other provisions deferred the effective date for all nonfinancial
assets and liabilities, except those recognized or disclosed at fair value on an
annual or more frequent basis, until April 1, 2009 and a further revision
which clarifies the application in a market that is not active became
effective upon issuance. ASC 820-10 defines fair value, creates a framework for
measuring fair value in generally accepted accounting principles and expands
disclosures about fair value measurements and additional guidance is provided
regarding how the reporting entity’s own assumptions should be considered when
relevant observable inputs do not exist, how available observable inputs in a
market that is not active should be considered when measuring fair value, and
how the use of market quotes should be considered when assessing the relevance
of inputs available to measure fair value. The adoption of these standards did
not have a material impact on the Company’s consolidated financial statements
for the current period.
40
Fair Value When the Volume and Level
of Activity Significantly Decreased
ASC
820-10 was amended in April 2009 by what was formerly FSP
No. FAS 157-4, Determining Fair Value When the
Volume and Level of Activity for the Asset or Liability Have Significantly
Decreased and Identifying Transactions That Are Not Orderly, which
clarifies the application of ASC 820-10 when there is no active market or where
the price inputs being used represent distressed sales. Additional guidance is
provided regarding estimating the fair value of an asset or liability (financial
and nonfinancial) when the volume and level of activity for the asset or
liability have significantly decreased and identifying transactions that are not
orderly. The Company adopted the standard as of June 30, 2009, which was the
required effective date. Its adoption did not have a material impact on the
Company’s consolidated financial statements.
Determining
Whether an Instrument (or Embedded Feature) is indexed to an Entity’s Own
Stock (ASC 815-10)
In June
2008, the FASB amended ASC 815-10 by what was formerly EITF 07-5, Determining Whether an Instrument
(or Embedded Feature) is Indexed to an Entity’s Own Stock. ASC
815-10 provides that an entity should use a two-step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. The adoption of this pronouncement effective April 1,
2009, required the Company to perform additional analyses on both its
freestanding equity derivatives and embedded equity derivative features. The
adoption of these amendments to ASC 815-10 did not have a material effect on the
Company’s consolidated financial statements at September 30,
2009.
Fair
Value Option
In
February 2007, ASC 825-10 was amended by the FASB in what was formerly SFAS
No. 159, The Fair Value
Option for Financial Assets and Financial Liabilities — Including an amendment of FASB
Statement No. 115 which permits all entities to choose to measure
eligible items at fair value on specified election dates. The associated
unrealized gains and losses on the items for which the fair value option has
been elected shall be reported in earnings. The ASC 825-10 became effective for
the Company as of April 1, 2008; however, the Company has not elected to
utilize the fair value option on any of its financial assets or liabilities
under the scope of this ASC.
Interim Disclosures about Fair Value
of Financial Instruments
In
April 2009, the FASB further amended ASC 825-10 with the issued FSP FAS
107-1 and Accounting Principles Board (APB) 28-1, Interim Disclosures about Fair Value
of Financial Instruments . The amendments ASC 825-10 to require an entity
to provide disclosures about fair value of financial instruments in interim
financial information. This FSP is to be applied prospectively and is effective
for interim and annual periods ending after June 15, 2009 with early
adoption permitted for periods ending after March 15, 2009. The adoption of
this amendment did not have an impact on the Company’s financial
statements.
41
Business
Combinations
In
December 2007, the FASB amended ASC 805-10 by issuing SFAS No. 141(R),
Business Combinations.
The objective of this ASC is to improve the information provided in financial
reports about a business combination and its effects. ASC 805-10 states that all
business combinations (whether full, partial or step acquisitions) must apply
the “acquisition method.” In applying the acquisition method, the acquirer must
determine the fair value of the acquired business as of the acquisition date and
recognize the fair value of the acquired assets and liabilities assumed. As a
result, it will require that certain forms of contingent consideration and
certain acquired contingencies be recorded at fair value at the acquisition
date. This ASC also states acquisition costs will generally be expensed as
incurred and restructuring costs will be expensed in periods after the
acquisition date. This amendment is effective for business combination
transactions for which the acquisition date is on or after April 1, 2009,
and earlier application is prohibited. The Company adopted this statement on
April 1, 2009. The impact of the adoption of amendment on the Company’s
financial statements will largely be dependent on the size and nature of the
business combinations completed after the adoption of this ASC. While this
amendment to ASC 805-10 generally applies only to transactions that close after
its effective date, the amendment to ASC 740-10 are applied prospectively as of
the adoption date and will apply to business combinations with acquisition dates
before the effective date of this amendment. Adoption of this amendment
did not have a material effect on the results of operations or statement of
position for the period ended September 30, 2009.
Contingencies in Business Combinations
In
April 2009, the FASB further amended ASC 805-10 by the issuance of FSP FAS
141(R)-1, Accounting for
Assets Acquired and Liabilities Assumed in a Business Combination That Arise
from Contingencies. This amendment requires that assets acquired and
liabilities assumed in a business combination that arise from contingencies be
recognized at fair value if fair value can be reasonably estimated. If fair
value cannot be reasonably estimated, the asset or liability would generally be
recognized in accordance with ASC 450-10 and ASC 450-20. Further, the FASB
removed the subsequent accounting guidance for assets and liabilities arising
from contingencies from ASC 805-10. The requirements of this amendment carry
forward without significant revision the other guidance on contingencies of ASC
805-10, which was superseded by SFAS No. 141(R) (see previous
paragraph). The amendment also eliminates the requirement to disclose an
estimate of the range of possible outcomes of recognized contingencies at the
acquisition date. For unrecognized contingencies, the FASB requires that
entities include only the disclosures required by ASC 450-10. This amendment was
adopted effective April 1, 2009. There was no impact upon adoption, and its
effects on future periods will depend on the nature and significance of business
combinations subject to this statement.
Disclosures about Derivative
Instruments and Hedging Activities
In March
2008, the FASB amended ASC 815-10 by issuing SFAS No. 161, Disclosures about Derivative
Instruments and Hedging Activities-an amendment of FASB Statement
No. 133. This amendment changes the disclosure requirements for
derivative instruments and hedging activities. Entities are required to provide
enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under ASC 815-10 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance, and cash flows. This statement is effective for
financial statements issued for fiscal years and interim periods beginning after
November 15, 2008. The Company adopted this amendment on April 1, 2009, the
beginning of the Company’s first fiscal 2010 quarter and its adoption did not
have a material effect on the results of operations or statement of position in
the subsequent periods.
42
Codification
and the Hierarchy of Generally Accepted Accounting Principles
In June
2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification
and the Hierarchy of Generally Accepted Accounting Principles,” which replaces
SFAS No. 162 and establishes the source of authoritative U.S. generally
accepted accounting principles (GAAP) recognized by the FASB to be applied by
nongovernmental entities. On the effective date for financial statements issued
for interim and annual periods ending after September 15, 2009, the Codification
will supersede all then–existing non-SEC accounting and reporting standards and
is codified as ASC 105-10. The Company has determined that the adoption of the
Codification will not have a material impact on the financial
statements.
Convertible
Debt
In
May 2008, ASC 470-20 was amended by the FASB issuance
of Financial Statement Position (FSP) Accounting Principles Board
(APB) 14-1 “Accounting for Convertible Debt Instruments That May Be Settled
in Cash upon Conversion (Including Partial Cash Settlement).” This amendment
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer’s non-convertible debt borrowing rate. ASC 470-20
became effective for fiscal years beginning after December 15, 2008 on a
retroactive basis and has been adopted by the Company in the first quarter of
fiscal 2010.
Useful Life of Intangible Assets
In
April 2008, the FASB amended ASC 350-30 by issuing FSP FAS 142-3, Determination of the Useful Life of
Intangible Assets. The amendment states that in developing assumptions
about renewal or extension options used to determine the useful life of an
intangible asset, an entity needs to consider its own historical experience
adjusted for entity-specific factors. In the absence of that experience, an
entity shall consider the assumptions that market participants would use about
renewal or extension options. This ASC is to be applied to intangible assets
acquired after January 1, 2009. The adoption of this ASC did not have an
impact on the Company’s financial statements.
Other
Than Temporary Impairments
In April
2009, the FASB issued FASB Staff Position (FSP) No. FAS 115-2 and FAS 124-2,
“Recognition and Presentation of Other-Than-Temporary Impairments,” amending ASC
320-10 to determine whether the holder of an investment in a debt or equity
security for which changes in fair value are not regularly recognized in
earnings (such as securities classified as held-to-maturity or
available-for-sale) should recognize a loss in earnings when the investment is
impaired. ASC 320-10 improves the presentation and disclosure of
other-than-temporary impairments on debt and equity securities in the financial
statements. The effective date for interim and annual reporting periods ending
after June 15, 2009, with early adoption permitted for periods ending after
March 15, 2009. Earlier adoption for periods ending before March 15, 2009, is
not permitted. The adoption of this amendment did not have an impact
on the Company’s financial statements.
Subsequent
Events
In May
2009, the FASB issued SFAS No. 165, “Subsequent Events,” which amends ASC 855-10
and requires entities to disclose the date through which they have evaluated
subsequent events and whether the date corresponds with the release of their
financial statements. The statement establishes general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. ASC 855-10 as
amended is effective for interim or annual financial periods ending after June
15, 2009, and shall be applied prospectively. The adoption of this amendment did
not have a material impact on the Company’s consolidated financial
statements.
43
Transfers
of Financial Assets
In
June 2009, the FASB issued SFAS No. 166, “Accounting for Transfers of Financial
Assets,” which has not be codified yet and which is an amendment of ASC 860-10
(formerly SFAS No. 140, “Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities,” and requires entities to provide
more information about sales of securitized financial assets and similar
transactions, particularly if the seller retains some risk to the assets. This
amendment will improve the relevance, representation faithfulness, and
comparability of the information that a reporting entity provides in its
financial statements about a transfer of financial assets. It will also take
into account the effects of a transfer on its financial position, financial
performance, and cash flows, and a transferor’s continuing involvement. SFAS No.
166 is effective for annual periods beginning after November 15,
2009. This statement is effective for the Company beginning
April 1, 2010 and is not expected to have a material impact on the
financial statements.
Amendments
to FASB interpretation No. 46(R)
In June
2009, the FASB issued SFAS No. 167, “Amendments to FASB interpretation No.
46(R),” which will amend ASC 810-10 and has not been codified yet. It
establishes how a company determines when an entity that is insufficiently
capitalized or not controlled through voting should be consolidated. This
statement improves financial reporting by enterprises involved with variable
interest entities, which addresses the effects on certain provisions of ASC
810-10 as a result of the elimination of the qualifying special-purpose entity
concept in FASB No. 166, “Accounting for Transfers of Financial Assets,” which
also has not be codified yet, and clarifies constituent concerns about the
application of certain key provisions of ASC 810-10. SFAS No. 167 is effective
after November 15, 2009. This statement is effective for the Company beginning
January 1, 2010 and is expected to have no material impact on the financial
statements.
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
Not
applicable.
(a)
Evaluation of Disclosure Controls and Procedures
The
Securities and Exchange Commission defines the term “disclosure controls and
procedures”
to mean a company’s controls and other procedures that are designed to ensure
that information required to be disclosed in the reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported, within the time periods specified in the Commission’s
rules and forms. Our chief executive officer and our chief financial officer
have concluded, based on the evaluation of the effectiveness of our disclosure
controls and procedures by our management, with the participation of our chief
executive officer and our chief financial officer, as of the end of the period
covered by this report, that our disclosure controls and procedures were
effective for this purpose.
(b)
Changes in Internal Control Over Financial Reporting
There was
no change in our internal control over financial reporting for the three months
ended September 30, 2009 that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting. However,
during second quarter, we implemented a new accounting system which allows us to
develop better internal controls around issuing purchase orders, processing
accounts payable, accounts receivable, inventory, manufacturing and
reporting.
44
PART II – OTHER
INFORMATION
Item
1. Legal Proceedings
None.
Not
applicable.
During
the period from April 1, 2009 through June 30, 2009, the Registrant sold and
issued an aggregate of 4,380,000 shares of common stock, with par value of
$0.001, for a net purchase price of $120,000. The sales were exempt
from registration under Section 4(2) of the Securities Act of 1933, as amended,
and Rule 506 of Regulation D promulgated thereunder, in as much as the
securities were issued only to accredited investors without any form of general
solicitation or general advertising.
Except as
otherwise disclosed herein, there were no underwriting discounts or other
commissions paid in conjunction with the sales.
Item
3. Defaults Upon Senior Securities
On August
6, 2009, the Company received a lawsuit filed in the Supreme Court of the State
of New York, County of New York, Index No. 602313/09 by Shelter Island
Opportunity Fund, LLP claiming default for non-payment under the Note and
payment of $1,746,961 principal and interest or assignment of collateral pledged
under the various loan documents. In November 2009, the parties
settled the default and the litigation will be dismissed.
Item
4. Submission of Matters to a Vote of Security
Holders
None.
Item
5. Other Information
None.
Exhibit No.
|
Description
|
|
31.1
|
Certification
of Chief Executive Officer pursuant to Rule
13a-14(a)
|
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule
13a-14(a)
|
|
32
|
Certifications
of Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
45
SIGNATURES
Pursuant
to 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.
|
|
|
GREEN PLANET GROUP,
INC.
(Registrant)
|
|
|
|
|
Date:
November 23, 2009
|
|
|
/s/ Edmond
L. Lonergan
|
|
|
|
Edmond
L. Lonergan
President
and Chief Executive Officer
|
|
|
|
|
Date: November
23, 2009
|
|
|
/s/ James
C. Marshall
|
|
|
|
James
C. Marshall
Chief
Financial Officer
|
46