GREEN PLANET GROUP, INC. - FORM 10-Q

Attached files

file	filename
EX-31.1 - 302 CERTIFICATION OF CEO - GREEN PLANET GROUP, INC.	p0240_ex31-1.htm
EX-32 - 906 CERTIFICATION - GREEN PLANET GROUP, INC.	p0240_ex32.htm
EX-31.2 - 302 CERTIFICATION OF CFO - GREEN PLANET GROUP, INC.	p0240_ex31-2.htm

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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

For the quarterly period ended December 31, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number 333-136583

GREEN PLANET GROUP, INC.

(Exact name of registrant as specified in its charter)

Nevada	41-2145716
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

33747 N. Scottsdale Rd., Suite 130, Scottsdale, AZ	85266
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:	(480) 222-6222

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 158,174,239 shares of common stock, par value $0.001, issued and outstanding as of February 11, 2011.

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		Page No.

PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Consolidated Balance Sheets as of December 31, 2010 (Unaudited) and March 31, 2010	3
	Consolidated Statements of Operations for the Three Months and Nine Months Ended December 31, 2010 and 2009 (Unaudited)	4
	Consolidated Statements of Stockholders’ Equity/(Deficit) for the Nine Months Ended December 31, 2010 and 2009 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Nine Months Ended December 31, 2010 and 2009 (Unaudited)	6
	Notes to Consolidated Financial Statements December 31, 2010 and 2009 (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	35
Item 1A.	Risk Factors	35
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3.	Defaults Upon Senior Securities	35
Item 4.	Removed and Reserved	35
Item 5.	Other Information	35
Item 6.	Exhibits	35

SIGNATURES		36

Exhibit 31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
Exhibit 31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a)
Exhibit 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

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PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements

Green Planet Group, Inc. and Subsidiaries

Consolidated Balance Sheets

	December 31,			March 31,
	2010			2010
ASSETS	(Unaudited)

Current Assets:
Cash	$	99,717		$	880,808
Accounts receivable, net of allowance for doubtful accounts		2,624,144			3,330,736
Inventory		270,631			280,122
Prepaid expenses		508,638			476,169
Total Current Assets		3,503,130			4,967,835
Property, plant and equipment, net of accumulated depreciation		1,616,852			1,747,645
Other Assets:
Other assets		189,122			570,426
Intangible assets		2,678,508			3,224,524
Goodwill		4,522,616			4,624,671
Total Other Assets		7,390,246			8,419,621
Total Assets	$	12,510,228		$	15,135,101

LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT)

Current Liabilities:
Accounts payable	$	1,448,034		$	1,249,239
Accounts payable – Affiliates		443,054			273,555
Accrued liabilities		4,137,130			4,862,937
Accrued payroll, taxes and benefits		1,588,258			9,400,058
Cashless warrant liability		1,972			10,496
Notes payable and amounts due within one year		5,442,565			11,014,332
Convertible notes payable		5,054,100			5,054,100
Derivative liability		84,971			251,715
Total Current Liabilities		18,200,084			32,116,432
Long-term tax contracts payable		11,439,809			–
Notes payable due after one year		5,732,524			2,963,104
Total Liabilities		35,372,417			35,079,536
Stockholders’ Equity/(Deficit)
Preferred Stock, $0.001 par value, 1,000,000 authorized; 100,000 and 0 Series A shares issued and outstanding at December 31, 2010 and March 31, 2010, respectively		100			–
Additional paid-in capital – preferred stock		1,575,623			–
Common Stock, $0.001 par value, 250,000,000 authorized, 158,174,239 and 147,330,292 issued and outstanding at December 31, 2010 and March 31, 2010, respectively		158,174			147,330
Additional paid-in capital - common stock		16,362,047			16,180,591
Accumulated deficit		(40,958,133	)		(36,272,356	)
Total Stockholders’ Equity/(Deficit)		(22,862,189	)		(19,944,435	)
Total Liabilities and Stockholders’ Equity/(Deficit)	$	12,510,228		$	15,135,101

See accompanying notes to these consolidated financial statements.

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Green Planet Group, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	For the three months ended						For the nine months ended
	December 31,			December 31,			December 31,			December 31,
	2010			2009			2010			2009
Revenue:
Sales, net of returns and allowances	$	9,255,078		$	15,721,209		$	29,591,125		$	48,825,923
Cost of sales		7,901,776			13,654,794			25,067,975			42,656,494

Gross Profit		1,353,302			2,066,415			4,523,150			6,169,429

Operating Expenses:
Selling, general and administrative		1,984,437			3,253,959			6,119,748			10,734,835
Depreciation and amortization		260,064			239,365			765,629			718,538
Allowance for bad debts		(16,000	)		399,447			(16,000	)		870,017
Research and development		(968,659	)		389			(968,659	)		13,483

Total Operating Expenses		1,259,842			3,893,160			5,900,718			12,336,873

Income (Loss) From Operations		93,460			(1,826,745	)		(1,377,568	)		(6,167,444	)

Other Income and (Expense):
Other income		252			1,449			83,822			2,941
Interest expense		74,102			(897,106	)		(3,392,031	)		(2,219,464	)

Income/(Loss) before provision for income taxes		167,814			(2,722,402	)		(4,685,777	)		(8,383,967	)

Provision for/(Benefit of) income taxes		–			–			–			–

Net Income/(Loss)	$	167,814		$	(2,722,402	)	$	(4,685,777	)	$	(8,383,967	)

Earnings (Loss) per share:
Basic and diluted income/(loss) per common share	$	0.00		$	(0.02	)	$	(0.03	)	$	(0.07	)
Weighted average common shares outstanding		151,424,239			135,020,376			150,134,604			128,272,842

See accompanying notes to these consolidated financial statements.

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Green Planet Group, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity/(Deficit)

(Unaudited)

					Additional
					Paid-In						Additional
	Preferred				Capital		Common				Paid-In		Accumulated
	Shares		Amount		Preferred		Shares		Amount		Capital		Deficit			Total

Balance March 31, 2009		–	$	–	$	–		117,440,764	$	117,441	$	14,590,073	$	(20,584,750	)	$	(5,877,236	)

Shares issued for cash		–		–		–		4,380,000		4,380		115,620		–			120,000
Shares issued for acquisition and payables		–		–		–		4,068,230		4,068		208,140		–			212,208
Shares issued for services of consultants and others		–		–		–		10,656,182		10,656		611,294		–			621,950
Shares issued for interest expense		–		–		–		396,114		396		26,104		–			26,500
Stock option expense		–		–		–		–		–		201,299		–			201,299
Net loss for the nine months ended December 31, 2009		–		–		–		–		–		–		(8,383,967	)		(8,383,967	)
Balance December 31, 2009		–		–		–		136,941,290	$	136,941	$	15,752,530	$	(28,968,717	)	$	(13,079,246	)

Balance March 31, 2010		–	$	–	$	–		147,330,292	$	147,330	$	16,180,591	$	(36,272,356	)	$	(19,944,435	)

Conversion of Note payable to Preferred Stock – Series A		100,000		100		1,575,623		–		–		–		–			1,575,723
Shares issued for services of consultants and others		–		–		–		3,765,000		3,765		43,535		–			47,300
Shares issued for accounts payable – affiliates		–		–		–		5,500,000		5,500		104,500		–			110,000
Shares issued for interest payments		–		–		–		1,578,947		1,579		33,421		–			35,000
Net loss for the nine months ended December 31, 2010		–		–		–		–		–		–		(4,685,777	)		(4,685,777	)
Balance December 31, 2010		100,000	$	100	$	1,575,623		158,174,239	$	158,174	$	16,362,047	$	(40,958,133	)	$	(22,862,189	)

See accompanying notes to these consolidated financial statements.

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Green Planet Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	For the nine months ended
	December 31,			December 31,
	2010			2009
	(Unaudited)			(Unaudited)
Cash Flows from Operating Activities:
Net loss	$	(4,685,777	)	$	(8,383,967	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		765,629			718,538
Bad debt provision		–			870,017
Amortization of debt discount and consulting contracts		431,778			132,419
Shares issued for services and interest		82,300			860,658
Stock option costs		–			201,299
Change in derivative valuation		(166,744	)		427,423
Cashless warrant conversion		(8,524	)		(1,855	)
Changes in assets and liabilities:
Receivables		621,107			(688,222	)
Inventory		9,491			(16,638	)
Prepaid expenses		(28,225	)		26,118
Other assets		(54,718	)		77,984
Accounts payable		300,850			440,632
Accounts payable – affiliates		279,499			(208,449	)
Accrued liabilities		3,442,732			6,448,049
Cash provided by operating activities		989,398			904,006

Investing Activities:
Capital expenditures		(3,335	)		(1,220	)
Cash used by investing activities		(3,335	)		(1,220	)

Financing Activities:
Repayment of long-term tax contracts		(540,530	)		–
Repayment of debt		(1,226,624	)		(959,176	)
Net proceeds from issuance of common shares		–			120,000
Net cash used by financing activities		(1,767,154	)		(839,176	)

Net increase (decrease) in cash		(781,091	)		63,610
Cash at beginning of period		880,808			470,288
Cash at end of period	$	99,717		$	533,898

Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest	$	148,460		$	769,985
Income taxes	$	–		$	–

(Continued)

See accompanying notes to these consolidated financial statements.

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Green Planet Group, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

	For the nine months ended
	December 31,			December 31,
	2010			2009
	(Unaudited)			(Unaudited)

Non Cash Activities:
Common stock issued for services, payable and interest	$	(192,300	)	$	(860,658	)
Common stock issued for services, payable and interest		10,844			15,120
Additional paid-in capital from conversion of payables		181,456			(845,538	)
	$	–		$	–
Reclass of accrued liabilities to long-term contracts	$	11,439,809			–
Conversion of debt to preferred stock	$	1,575,723		$	–
Shares issued for accounts payable-affiliates	$	110,000		$	–
Net adjustments to goodwill and intangibles	$	16,570		$	–

See accompanying notes to these consolidated financial statements.

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Green Planet Group, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

For the Nine Months Ended December 31, 2010 and 2009 (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 our name through merger with a wholly-owned subsidiary to Green Planet Group, Inc. Our common stock now trades on the OTC-Bulletin Board market under the trading symbol “GNPG.”

Nature of the Business – We operate in two industry segments: 1) a specialty energy conservation chemical company that produces and supplies technologies to the global transportation, industrial and consumer markets and 2) an employee staffing business which primarily provides staffing to the light industrial market. The energy technologies include gasoline, oil and diesel additives for engines and other transportation-related fluids and industrial lubricants.

Presentation of Interim Statements – The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q for smaller reporting companies. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Form 10-K for the years ended March 31, 2010 and 2009. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation, have been included in the accompanying unaudited consolidated 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.

Going Concern Uncertainty

The Company’s continued existence is dependent upon its ability to generate sufficient cash flows from operations to support its daily operations as well as provide sufficient resources to retire existing liabilities and obligations on a timely basis.

The Company anticipates that future sales of equity and debt securities to fully implement its business objectives and to raise working capital to support and preserve the integrity of the corporate entity will be necessary. There is no assurance that the Company will be able to obtain additional funding through the sales of additional equity or debt securities or, that such funding, if available, will be obtained on terms favorable to or affordable by the Company.

If no additional capital is received to successfully implement the Company’s business plan, the Company will be forced to rely on existing cash in the bank and upon additional funds which may or may not be loaned by management and/or significant stockholders to preserve the integrity of the corporate entity at this time. In the event the Company is unable to acquire sufficient capital, the Company’s ongoing operations would be negatively impacted.

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As a result, the Company’s independent registered public accounting firm’s audit opinion for the year ended March 31, 2010 included an explanatory paragraph expressing the substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

It is the intent of management and significant stockholders to provide sufficient working capital necessary to support and preserve the integrity of the corporate entity. However, no formal commitments or arrangements to advance or loan funds to the Company or repay any such advances or loans exist. There is no legal obligation for either management or significant stockholders to provide additional future funding.

While the Company is of the opinion that good faith estimates of the Company’s ability to secure additional capital in the future to reach our goals have been made, there is no guarantee that the Company will receive sufficient funding to sustain operations or implement its objectives.

Note 2 – Significant Accounting Policies

Consolidation – The consolidated financial statements include the accounts of Green Planet Group, Inc. and its consolidated subsidiaries and wholly-owned limited liability company. All significant intercompany transactions and profits have been eliminated.

Use of Estimates – The preparation of financial statements in conformity with United States generally accepted accounting principles requires the Company to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The more significant estimates relate to revenue recognition, contractual allowances and uncollectible accounts, intangible assets, accrued liabilities, derivative liabilities, income taxes, litigation and contingencies. Estimates are based on historical experience and on various other assumptions that the Company believes to be reasonable under the circumstances, the results of which form the basis for judgments about results and the carrying values of assets and liabilities. Actual results and values may differ 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 initial maturities of three months or less when purchased.

Allowance for Doubtful Accounts – The Company provides an allowance for doubtful accounts when management estimates collectability to be uncertain. Accounts receivable are continually reviewed to determine which, if any, accounts are doubtful of collection. In making the determination of the appropriate allowance amount, the Company considers current economic and industry conditions, relationships with each significant customer, overall customer credit-worthiness and historical experience. The allowance for doubtful accounts was $2,018,760 and $2,034,760 at December 31, 2010 and March 31, 2010, respectively.

Inventories – Inventories are stated at the lower of cost or market value. Cost of inventories is determined by the first-in, first-out (FIFO) method. Obsolete or abandoned inventories are charged to operations in the period that it is determined that the items are no longer viable sales products.

Property, Plant, and Equipment – Plant and equipment are carried at cost. Repair and maintenance costs are charged against operations while renewals and betterments are capitalized as additions to the related assets. The Company depreciates its plant and equipment and computers on a straight-line basis. Estimated useful life of the plant is 31 years and the equipment ranges from 3 to 10 years.

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Intangible Assets – Intangible assets consist of an Environmental Protection Agency (“EPA”) license and customer relationships (including client contracts). For financial statement purposes, identifiable intangible assets with a defined life are being amortized using the straight-line method over the estimated useful lives of seven years for the EPA license and five years for the customer relationships. Costs incurred by the Company in connection with patent, trademark applications and approvals from governmental agencies such as the EPA, including legal fees, patent and trademark fees and specific testing costs, are expensed as incurred. Purchased intangible costs of completed developments are capitalized and amortized over an estimated economic life of the asset, generally seven years, commencing on the acquisition date. Costs subsequent to the acquisition date are expensed as incurred.

Goodwill – Goodwill represents the excess of the purchase price over the fair value of the net assets acquired by Lumea. Goodwill and other intangible assets having an indefinite useful life are not amortized for financial statement purposes. The Company performs an annual impairment test each year and in the event that facts and circumstances indicate that goodwill and other identifiable intangible assets may be impaired, an interim impairment test would be required. The Company’s testing approach will utilize a discounted cash flow analysis to determine the fair value of its reporting units for comparison to their corresponding book values. If the book value exceeds the estimated fair value for a reporting unit, a potential impairment is indicated. ASC 350-10 and ASC 360-10 prescribe the approach for determining the impairment amount, if any. At the March 31, 2010 year end, the Company recognized an impairment loss of $4,355,151 in conjunction with goodwill valuation for the period.

Impairment of Long-Lived Assets – In accordance with ASC 360-10, the Company reviews long-lived assets, including, but not limited to, property and equipment, patents and other assets, for impairment whenever events or changes in circumstances indicate the carrying amounts of assets may not be recoverable. The carrying value of long-lived assets is assessed for impairment by evaluating operating performance and future undiscounted cash flows of the underlying assets. If the sum of the expected future cash flows of an asset is less than its carrying value, an impairment measurement is required. Impairment charges are recorded to the extent that an asset’s carrying value exceeds fair value. Accordingly, actual results could vary significantly from such estimates.

Fair Value Disclosures – The carrying values of cash, accounts receivable, deposits, prepaid expenses, accounts payable and accrued expenses generally approximate the respective fair values of these instruments due to their current nature.

The fair values of debt instruments for disclosure purposes only are estimated based upon the present value of the estimated cash flows at interest rates applicable to similar instruments.

The Company generally does not use derivative financial instruments to hedge exposures to cash flow or market risks. However, certain other financial instruments, such as warrants and embedded conversion features that are indexed to the Company’s common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net-share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.

Derivative Financial Instruments – The Company accounts for derivative instruments and debt instruments in accordance with the interpretative guidance of ASC 815. It is necessary for the Company to make certain assumptions and estimates to value derivatives and debt instruments.

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Revenue Recognition – Revenues are recognized at the time of shipment of products to customers, or at the time of transfer of title, if later, and when collection is reasonably assured. All amounts in a sales transaction billed to a customer related to shipping and handling are reported as revenues. Staffing revenue is recognized at the completion of each billing cycle to the customer after completion of the work. The billing cycle is generally weekly.

Provisions for sales discounts and rebates to customers are recorded, based upon the terms of sales contracts, in the same period the related sales are recorded, as a deduction to the sale. Sales discounts and rebates are offered to certain customers to promote customer loyalty and encourage greater product sales. As a general rule, the Company does not charge interest on its accounts receivable and the accounts receivable are generally unsecured.

Components of Cost of Sales – Cost of sales is comprised of raw material costs including freight and duty, inbound handling costs associated with the receipt of raw materials, contract manufacturing costs, third party bottling and packaging, maintenance and storage costs, plant and engineering overhead allocation, terminals and other warehousing costs, and handling costs. The components of cost of sales of the staffing business are primarily the personnel costs of labor, payroll taxes, and other direct costs of maintaining employees.

Selling Expenses – Included in selling, and general and administrative expenses are the commission expenses for both employees and outside sales representatives ranging from 1.5% to 11.5% per dollar of sales. Our staffing sales representatives are paid a commission on new sales. The Company expends amounts to advertise and distinguish its products from those of its competitors through the use of in-store advertising, printed media, internet and broadcast media. Advertising expenses for the three and nine months ended December 31, 2010 and 2009 were $26,077 and $55,431, and $5,130 and $14,742, respectively.

Research and Development – Research and development costs are expensed as incurred. There were $389 and $13,483 of research and development expenses during the three and nine months ended December 31, 2009, respectively. There were $9,492 of research and development expenses during the three months and nine months ended December 31, 2010. The Company determined that the reserve for contingent research and development costs from 2005 was no longer needed and reversed the accrual for that amount, $978,151, in the quarter ended December 31, 2010. Costs to acquire in-process research and development (IPR&D) projects that have no alternative future use and that have not yet reached technological feasibility at the date of acquisition are expensed upon acquisition.

Income Taxes – We provide for income taxes in accordance with ASC 740-10 that requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the financial statement carrying amounts and the tax bases of the assets and liabilities.

The recording of a net deferred tax asset assumes the realization of such asset in the future; otherwise a valuation allowance must be recorded to reduce this asset to its net realizable value. The Company considers future pretax income and, if necessary, ongoing prudent and feasible tax planning strategies in assessing the need for such a valuation allowance. In the event that the Company determines that it may not be able to realize all or part of the net deferred tax asset in the future, a valuation allowance for the deferred tax asset is charged against income in the period such determination is made. The Company has recorded full valuation allowances as of December 31, 2010 and March 31, 2010.

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Concentrations of Credit Risks – Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Although the amount of credit exposure to any one institution may exceed federally insured amounts, the Company limits its cash investments to high-quality financial institutions in order to minimize its credit risk. With respect to accounts receivable, such receivables are primarily from customers located in the United States. The Company extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral. Exposure to losses on receivables is dependent on each customer’s financial condition. At December 31, 2010 and 2009, the amounts due from foreign distributors were $1,347,756 and $1,363,756, which represent 0% and 0% of net accounts receivable, respectively, after the Company had recognized prior allowance for doubtful accounts aggregating $1,347,756, after recovery of $16,000 during the current quarter, and $1,363,756 at December 31, 2010 and 2009, respectively. At December 31, 2010, the staffing business had two customers that accounted for approximately 12.0% and 10.6% and 13.1% and 11.9% of gross sales for the three and nine months then ended and for the same periods in 2009 had three customers that contributed greater than 10% of sales. The percentages were 13.2%, 12.6%, 10.1%, 13.7%, 13.1% and 11.7%, for the same periods in 2009, respectively. In the staffing business, customer volume fluctuates with the seasons, the customers’ lines of business and other factors.

Stock-Based Compensation

We account for stock-based awards to employees and non-employees using the accounting provisions of ASC 718-10 which provides for the use of the fair value based method to determine compensation for all arrangements where shares of stock or equity instruments are issued for compensation. Shares of common stock issued in connection with acquisitions are also recorded at their estimated fair values based on the Hull-White enhanced US ASC 718-10 standard. The standard establishes the accounting for transactions in which an entity exchanges its equity instruments for goods or services, particularly transactions in which an entity obtains employee services in share-based payment transactions. The statement also requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is recognized over the period during which the employee is required to provide service in exchange for the award.

Earnings/(Loss) Per Share

Basic earnings/(loss) per share is calculated using the weighted average number of shares outstanding during the year. The Company has adopted ASC 260-10, Earnings per Share, and uses the treasury stock method to compute the dilutive effect of options, warrants and similar instruments. Under this method, the dilutive effect on loss per share is recognized on the use of the proceeds that could be obtained upon exercise of options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the period. The stock options and warrants as disclosed in Note 15 were not included in the computation of loss per share as their inclusion would be anti-dilutive. None of the warrants, options and convertible preferred stock were in the money at December 31, 2010.

On April 1, 2010, the Company adopted ASC 260-10-45, Earnings per Share - Overall - Other Presentation Matters, which addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and affects entities that accrue cash dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the awards. ASC 260-10-45 states that all outstanding unvested share-based payment awards that contain rights to nonforfeitable dividends participate in undistributed earnings with common shareholders and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The adoption of ASC 260-10-45 did not have a material impact on the Company’s financial statements.

Index

Segment Information

We operate in two industry segments, the development, manufacture and sale of private and commercial vehicle energy efficient enhancement products and employee staffing services. The enhancement products are designed to extend engine life, promote fuel efficiency and reduce emissions. These products are being marketed by the Company and sales were predominantly in the United States of America and Canada . The staffing segment was added on March 1, 2009 and provides staffing services primarily to the light industrial segment of the economy. During the three and nine months ended December 31, 2010, the states of AZ, CA, FL and IL accounted for 84.6% and 84.8% of gross sales, respectively. During the three and nine months ended December 31, 2009, the same states accounted for 81.1% and 80.1% of gross sales, respectively.

Litigation – The Company is and may become a party in routine legal actions or proceedings in the ordinary course of its business. Management does not believe that the outcome of these routine matters will have a material adverse effect on the Company’s consolidated financial position or results of operations.

Environmental – The Company’s enhancement products and related operations are subject to extensive federal, state and local laws, regulations and ordinances in the United States relating to the generation, storage, handling, emission, transportation and discharge of certain materials, substances and waste into the environment, and various other health and safety matters. Governmental authorities have the power to enforce compliance with their regulations, and violators may be subject to fines, injunctions or both. The Company must devote substantial financial resources to ensure compliance, and it believes that it is in substantial compliance with all the applicable laws and regulations.

New Accounting Pronouncements:

No new accounting pronouncements issued during the current period are expected to have a material impact on the Company’s results of operations, cash flows or financial condition.

Note 3 – Inventories

Inventory consists of finished goods and raw material as follows:

	December 31, 2010		March 31, 2010
	(Unaudited)

Finished goods	$	67,611	$	68,257
Raw material		203,020		211,865
	$	270,631	$	280,122

Index

Note 4 – Property, Plant and Equipment

At December 31, 2010 and March 31, 2010 property, plant and equipment and computers consisted of the following:

	December 31, 2010			March 31, 2010
	(Unaudited)

Property and plant	$	1,452,146		$	1,452,146
Equipment and computers		855,110			858,328
Less accumulated depreciation		(690,404	)		(562,829	)
Net property, plant and equipment	$	1,616,852		$	1,747,645

During the three and nine months ended December 31, 2010 and 2009, depreciation expense was $49,563 and $43,034 for the three month periods and $134,128 and $129,544 for the nine month periods, respectively.

Note 5 – Intangible Assets and Goodwill

Intangible assets consist of technology of production and license rights under the Environmental Protection Agency to market one of the products acquired in the acquisition of White Sands, L.L.C. on March 31, 2006. The Company is amortizing this asset over its estimated useful life of seven years on a straight-line basis. For the three and nine months ended December 31, 2010 and 2009, amortization of the EPA licenses was $31,681 in each three month period and $95,041 for each nine month period. The customer relationships are primarily the value of the purchased business relationships acquired as part of the purchase by Lumea of the staffing business on March 1, 2009. The amortization period of this intangible is five years. For the three and nine months ended December 31, 2010 and 2009, the amortization expense of the customer relationships was $178,821 and $164,650 for the three month periods ended December 31, 2010 and 2009, and $536,460 and $493,952 for the nine month periods ended December 31, 2010 and 2009.

Intangible assets subject to amortization:

	Weighted	December 31, 2010
	Average	Gross Carrying		Accumulated		Net Carrying
	Useful Life	Amount		Amortization		Amount

Intangible assets subject to amortization:
EPA licenses	7 years	$	887,055	$	601,930	$	285,125
Customer relationships	5 years		3,661,876		1,268,493		2,393,383
		$	4,548,931	$	1,870,423	$	2,678,508

Goodwill not subject to amortization:
Goodwill:
Goodwill		$	4,522,616	$	–	$	4,522,616
		$	4,522,616	$	–	$	4,522,616

(Continued)

Index

	Weighted	March 31, 2010
	Average	Gross Carrying		Accumulated			Net Carrying
	Useful Life	Amount		Amortization			Amount

Intangible assets subject to amortization:
EPA licenses	7 years	$	887,055	$	506,889		$	380,166
Customer Relationships	5 years		3,576,391		732,033			2,844,358
		$	4,463,446	$	1,238,922		$	3,224,524

Goodwill not subject to amortization:
Goodwill:
Goodwill		$	8,979,822	$	4,355,151	(1)	$	4,624,671
		$	8,979,822	$	4,355,151		$	4,624,671

_______________

(1)	Impairment valuation.

The scheduled amortization to be recognized over the next four years is as follows:

December 31, 2011	$	859,097
December 31, 2012	$	859,097
December 31, 2013	$	764,056
December 31, 2014	$	196,258

Note 6 – Accrued Liabilities

Accrued liabilities consist of the following as of December 31, 2010 and March 31, 2010:

	December 31, 2010		March 31, 2010

Accrued contingent liabilities	$	306,379	$	1,278,151
Accrued interest and penalties		1,951,514		2,629,271
Other accrued expenses and workmen’s compensation claims		1,879,237		955,515
	$	4,137,130	$	4,862,937

Note 7 – Accrued Payroll, Taxes and Benefits and Long-Term Tax Contracts

Accrued payroll, taxes and benefits was $1,588,258 and $9,400,058 at December 31, 2010 and March 31, 2010, respectively.

Subsidiaries of the Company are delinquent in the payment of their payroll tax liabilities with the Internal Revenue Service and various states. As of December 31, 2010, unpaid payroll taxes and related interest and penalties total $11,821,266. The estimated payroll tax penalties and interest liability could be subject to material revision in the future. The Company has entered into installment agreements with the Internal Revenue Service which require installment payments of $100,000 per month until paid. The Company has also entered into certain payment contracts with various states requiring monthly payments until paid. At December 31, 2010, these contract payments due after one year were $11,439,809. The current portion of $485,029, together with obligations for which the Company does not have long-term agreements, are included in accrued payroll, taxes and benefits.

Index

Note 8 – Notes and Contracts Payable

As of December 31, 2010 and March 31, 2010 notes and contracts payable consist of the following:

	December 31,		March 31,
	2010		2010

Revolving line of credit against factored Lumea receivables (1)	$	1,769,546	$	2,011,018
Bank loans, payable in installments		230,145		340,657
Mortgage loan payable, monthly payments of principal and interest at 3 month LIBOR plus 4.7% (2)		782,683		790,683
Payments due seller of XenTx Lubricants		254,240		254,240
Loan from Dyson		60,000		60,000
Notes payable		1,254,709		1,336,692
Loans from individuals, due within one year		740,645		778,656
Purchase note payable		–		1,574,555
Purchase note 1		4,805,568		4,805,568
Purchase note 2		1,277,553		2,025,367
Total		11,175,089		13,977,436
Less current portion		5,442,565		11,014,332
Long-term debt	$	5,732,524	$	2,963,104

____________

(1)	The Company maintains a $5 million line of credit relating to its factored accounts receivable.
(2)	In conjunction with the acquisition of Dyson, the mortgage became payable as a result of the change of control of that company. The Company is in the process of refinancing the property.

Bank Loans consist of two loans that became due in the first quarter of 2009; these loans are secured by receivables, inventory and equipment in Durant, Oklahoma. The loan had been extended through December, 2010. The Company is working to replace these loans and to arrange a payment schedule to retire these loans. The Mortgage Loan Payable has matured as a result of the change in control of the operations in Durant. The Company is attempting to negotiate a replacement loan or a modification of the current mortgage. Interest is reset quarterly at Libor plus 4.7% and the Company is currently making payments of $8,000 per month on this obligation.

During the quarter ended December 31, 2010, the Company entered into an agreement with the holder of the Purchase note payable to convert the outstanding debt to Series A Preferred Stock, abate $191,699, $0.00 per weighted average common share outstanding, of interest accrued and pay preferred dividends of $8,000 per month. The preferred stock is convertible to common stock at any time the common stock price is in excess of $0.32 per share.

The amounts due sellers bear interest at a rate of 8.0% and are due June 30, 2011.

Certain notes are in default and have been included as current at December 31, 2010. Notes payable in default includes the loan from Shelter Island Opportunity Fund with interest at 12.25%, or a default rate, per annum and secured by the plant and equipment in Durant, Oklahoma.

Substantially all of the staffing receivables are pledged as collateral for the revolving line of credit. At December 31, 2010 and March 31, 2010, the Company had pledged receivables of $2,084,768 and $2,488,760, respectively. In addition, Purchase Notes 1 and 2 are secured by all of the business assets of Lumea.

The balance of the notes payable consist of commercial loans of vehicles and equipment in the normal course of business.

The Loans from individuals include four loans which are all due within one year and bear interest from 9% to 12%.

Index

Notes payable include amounts due after one year consists of the loan from Purchase Notes 1 and 2, all of which are secured by all of the business assets of Lumea. Maturities for the remainder of the loans are as follows:

2012	$	1,276,884
2013	$	1,268,544
2014	$	2,520,310
2015	$	33,473
Thereafter	$	633,313

Substantially all of the Company’s assets are pledged as collateral for our debt obligations at December 31, 2010.

The Company has commenced litigation against the sellers of the staffing business to the Company in March, 2009. The litigation seeks to rescind the purchase and other equitable relief and the Company has stopped making scheduled payments on the Purchase Note 1 ($4,805,568) and Purchase Note 2 ($1,277,553) and does not intend to make future payments on these notes. The Company has received a garnishment against Lumea, Inc., a wholly-owned subsidiary, from the ACE American Insurance Company with respect to the payments on the Purchase Note 1 seeking payment of the amounts due under the note for obligations of the seller, Easy Staffing Services, Inc. The Company has resisted these claims and is pursuing its rights through the courts. Substantially all of Purchase Note 2 represents potential payments to third party taxing authorities under the successor liability statutes of various states and the Company may be forced to make these payments thereon to maintain its licenses in those states. The litigation is seeking restitution of any such amounts paid under these obligations. Other notes have been modified during the year changing the maturity date and restructuring the payment structure.

Note 9 – Income Taxes

Provision/benefit for income taxes for the periods ended December 31, 2010 and 2009 consisted of the follows:

	For the nine months ended December 31,
	2010			2009
	(Unaudited)			(Unaudited)

Federal income taxes/(benefit)	$	(867,601	)	$	(2,278,158	)
State income taxes		(177,807	)		(501,858	)
Total		(1,045,408	)		(2,780,016	)
Valuation allowance		1,045,408			2,780,016
Net tax provision/benefit	$	–		$	–

Through December 31, 2010, we recorded a valuation allowance of $12,281,875 against deferred income tax assets primarily associated with tax loss carry forwards. Our significant operating losses experienced in prior years establishes a presumption that realization of these income tax benefits does not meet a “more likely than not” standard. For the nine months ended December 31, 2010 and 2009 we recognized $1,045,408 and $2,780,016, respectively, of valuation allowance to offset the tax benefit of the losses for the periods.

We have estimated net operating loss carryforwards of approximately $29,225,000. Our net operating loss carryforwards will expire between 2025 and 2031.

Index

Future realization of the net operating losses is dependent on generating sufficient taxable income prior to their expiration. Tax effects are based on a 34% Federal income tax rate. The Federal net operating losses expire as follows:

Expiration	Amount

2025	$	1,525,000
2026		5,132,000
2027		3,053,000
2028		2,251,000
2029		2,295,000
2030		12,417,000
2031		2,552,000
Total	$	29,225,000

The Company is subject to various state income tax laws. The carryover of net operating losses in the various states range from five (5) years to fifteen (15) years based on the actual business activities within each state.

Note 10 – Fair Value Measurements

The Company adopted ASC 820-10 as of April 1, 2010. ASC 820-10 applies to certain assets and liabilities that are being measured and reported on a fair value basis. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosure about fair value measurements. This ASC enables the reader of the financial statements to assess the inputs used to develop those measurements by establishing a hierarchy for ranking the quality and reliability of the information used to determine fair values. ASC 820-10 requires that assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

Level 1: Quoted market prices in active markets for identical assets or liabilities.

Level 2: Observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3: Unobservable inputs that are not corroborated by market data.

The Company records liabilities related to its derivative liability (See Note 12 – Derivative Financial Instruments) and the cashless warrant liability, both consisting of warrants and options outstanding, at their fair market values as provided by ASC 820-10.

The following table provides fair market measurements of the derivative liability and cashless warrant liability as of December 31, 2010:

	Fair Value Measurements at Reporting Date Using Significant Unobservable Inputs (Level 3)

Warrant liabilities	$	84,971
Cashless warrant liability		1,972
	$	86,943

Index

The change in fair market value of the derivative liability and cashless warrant liability is included in interest expense in the Consolidated Statements of Operations.

The following table provides a reconciliation of the beginning and ending balances of the derivative liability and cashless warrant liability as of December 31, 2010:

	Warrant Liability			Cashless Warrant Liability			Total

Beginning balance April 1, 2010	$	251,715		$	10,496		$	262,211
Change in fair market value of derivative liability and cashless warrant liability		(166,744	)		(8,524	)		(175,268	)
Ending balance December 31, 2010	$	84,971			1,972			86,943

Certain financial instruments are carried at cost on the consolidated balance sheets, which approximates fair value due to their short-term, highly liquid nature. These instruments include cash and cash equivalents, accounts receivable, deposits, prepaid expenses, accounts payable and accrued expenses and other short-term liabilities.

Note 11 – Convertible Debt

The Company entered into a Convertible Loan Agreement which also entitled the lenders to warrants and to convert the loans, at their option, to common stock of the Company. The debt is convertible at a rate of 50% of the then current market price at the time of conversion. At December 31, 2010, the value of the 6% Convertible Notes, with interest quarterly, was as follows:

Maturity	Face Amount		Conversion Derivative		Balance

April 28, 2009 (Matured)	$	327,050	$	327,050	$	654,100
August 17, 2009 (Matured)		700,000		700,000		1,400,000
October 28, 2009 (Matured)		300,000		300,000		600,000
November 10, 2009 (Matured)		1,200,000		1,200,000		2,400,000
Total	$	2,527,050	$	2,527,050	$	5,054,100

Interest expense for the three and nine months ended December 31, 2010 and 2009 was $93,439 and $86,139 for the three month periods and $280,319 and $177,655 for the nine month periods, respectively.

The notes have matured and although the Company is in default for non-payment, the conversion features have expired. These loans are subordinate to the Shelter Island Opportunity Fund (“SIOF”) loan, which prevents collection or enforcement without either the full payment of the SIOF loans or the consent of that loan holder. The Company is attempting to negotiate an agreeable settlement with the convertible note holders for a loan extension and fixed payment terms over several years.

Note 12 – Derivative Financial Instruments

In connection with various financings through November 10, 2006, the Company has issued warrants to purchase shares of common stock in conjunction with the convertible notes to purchase 12,000,000 shares of common stock at an exercise price of $2.50 per share. These warrants expire if not exercised at various dates in 2013 through November 10, 2013. At December 31, 2010, all of the 12,000,000 warrants have been issued entitling the lender to one share for each warrant at an exercise price of $2.50 per share.

Index

The agreements include registration rights and certain other terms and conditions related to share settlement of the embedded conversion features and the warrants. In this instance, ASC 815-10, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock”, requires allocation of the proceeds between the various instruments and the derivative elements carried at fair values.

In addition, in conjunction with financings, purchases and consulting transactions, between April 1, 2007 and March 31, 2009 the Company issued additional warrants, net of expirations, to purchase 5,775,000 shares of the Company’s common stock at an exercise price of $0.75 per share. No warrants have been exercised.

At December 31, 2010, there were 17,775,000 shares subject to warrants at a weighted average exercise price of $1.93.

Exercise Price	Number of Shares Subject to Outstanding Warrants and Options and Exercisable	Weighted Average Remaining Contractual Life (years)

$ 0.75	5,775,000	1.50
$ 2.50	12,000,000	2.51
	17,775,000

In addition to the spot price of the stock and remaining term of the warrant, other factors used in the binomial model included in the analysis at December 31, 2010 were the volatility of 232.2%, risk free rate of between 0.47% and 2.69% and a dividend rate of $0 per period.

Note 13 – Commitments and Contingencies

Concentration of Credit Risk

In addition to the concentration of credit risks in Note 2 - Significant Accounting Policies, we also have credit risks from financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash. The Company periodically evaluates the credit worthiness of financial institutions, and maintains cash accounts only in large high quality financial institutions, thereby minimizing exposure for deposits in excess of federally insured amounts.

Lease Commitments

The Company has lease agreements for office space in Scottsdale, Arizona and for 10 offices throughout the United States. The remaining lease commitment for the two Scottsdale offices are three and five years and the other offices are year-to-year or month-to-month. The following table sets forth the aggregate minimum future annual lease commitments at December 31, 2010 under all non-cancelable leases for the twelve months ended December 31:

2011	$	206,272
2012		148,513
2013		81,172
2014		74,538
2015		60,000
	$	570,495

Index

Lease expense for the three months ended December 31, 2010 and 2009 was $96,645 and $217,547, respectively. Lease expense for the nine months ended December 31, 2010 and 2009 was $300,295 and $481,448, respectively. The total of all scheduled lease payments, assuming all locations are continued at the same rates, is $323,811 per year.

Workmens’ Compensation Claims

In conjunction with our staffing business, in states other than those that require participation in state funded programs, we maintain a workmens’ compensation policy to cover claims by employees. The Company retains the first portion of each such claims and the funds the amount to the insurance carrier on a current basis. Should our claims experience increase in frequency and/or severity our claims losses would increase substantially.

General Liabilities

The Company is subject to normal recurring litigation as a result of its normal business lines. The Company attempts to provide for all losses as known. There may be losses or claims that the Company is not currently aware of or has not been provided information as to the claims or the nature of the claim as of the financial statement review date.

Note 14 – Company Stock

Preferred Stock

At December 31, 2010, the Company had 1,000,000 shares of $0.001 par value preferred stock authorized and issued 100,000 of its Convertible Series A Preferred Stock in exchange for an outstanding debt of the Company. The shares have a dividend rate of 6%, or $8,000 per month commencing in April 2011, are convertible by the holder at any time that the quoted stock price of the common stock is equal to or greater than $0.32 per share. The shares are convertible at a rate of 49.24 shares of common stock for each share of preferred stock.

Common Stock

At December 31, 2010, the Company had 250,000,000 shares of $0.001 par value common stock authorized of which issued and outstanding shares were 158,174,239.

During the nine months ended December 31, 2010, the Company issued an aggregate of 5,343,947 common shares for services of consultants and others, and for interest payments and 5,500,000 shares to affiliates for the payment of accounts payable obligations recognizing an aggregate addition to stockholders’ equity/(deficit) of $192,300 based on the market price of the stock at the date of the agreements for services and interest payments and twice the market price for shares issued to affiliates at the date of issuance.

Warrants

No warrants have been exercised.

Index

At December 31, 2010, the status of the outstanding warrants is as follows:

Issue Date	Shares Exercisable	Weighted Average Exercise Price		Expiration Date

April 29, 2006	1,866,667	$	2.50	April 28, 2013
September 28, 2006	5,000,000	$	2.50	August 10, 2013
August 17, 2006	1,633,333	$	2.50	August 17, 2013
October 28, 2006	700,000	$	2.50	October 28, 2013
November 10, 2006	2,800,000	$	2.50	November 10, 2013
July 1, 2007	5,775,000	$	.75	December 31, 2012
Cashless April 20 – November 10, 2006	700,000	$	2.50	April 29 – November 10, 2015
Cashless July 1, 2007	519,750	$	.75	December 31, 2012

The warrants have no intrinsic value at December 31, 2010.

Stock Options

At December 31, 2010, the Company had one stock option plan under which grants were outstanding. The stock options outstanding are for grants issued under the Company’s 2007 Stock Incentive Plan.

The 2007 Stock Incentive Plan

During the fiscal year ended March 31, 2008, the Company adopted a stock option plan, entitled the “2007 Incentive Plan” (the “2007 Plan”), under which the Company may grant options to purchase up to 20,000,000 shares of common stock.

The 2007 Plan is administered by the Board of Directors or a Committee of the Board of Directors which has the authority to determine the persons to whom the options may be granted, the number of shares of common stock to be covered by each option grant, and the terms and provisions of each option grant. Options granted under the 2007 Plan may be incentive stock options or non-qualified options, and may be issued to employees, consultants, advisors and directors of the Company and its subsidiaries. The exercise price of options granted under the 2007 Plan may not be less than the fair market value of the shares of common stock on the date of grant, and may not be granted more than ten years from the date of adoption of the plan or exercised more than ten years from the date of grant. At December 31, 2010, there are no non-vested options outstanding.

During the year ended March 31, 2008, the Company granted options to purchase an aggregate of 5,415,000 shares of common stock to employees, directors and consultants for services to be provided. These options are exercisable at $0.20 per share, and vested one third on October 1, 2008, April 1, 2009 and October 1, 2009 with an expiration of three years from the date of grant for all options. The Company valued these options at their fair value on the date of grant using the Hull-White enhanced option-pricing model.

The assumptions used in calculating the fair value of stock-based payment awards represent management’s best estimates.

The Company based its expected volatility on the historical volatility of similar companies with consideration given to the expected life of the award. The Company intends to continue to consistently use this method until sufficient market acceptance of its stock has reached a stable level.

Index

The risk-free interest rate used for each grant is equal to the U.S. Treasury yield in effect at the time of grant for instruments with a similar expected life.

The expected term of options granted was determined based on the historical exercise behavior of similar peer groups.

The Company has never declared or paid a cash dividend, and has no current plans to pay a cash dividend in the future.

ASC 718-10 also requires that the Company recognize compensation expense for only the portions that are expected to vest. Therefore, the Company has estimated expected forfeitures of stock options with the adoption of ASC 718-10. In developing a forfeiture rate estimate, the Company considered its historical experience. If the actual number of forfeitures differs from those estimated by management, additional adjustments to compensation expense may be required in future periods.

Note 15 – Earnings (Loss) Per Share

Basic earnings (loss) per common share is computed by dividing the net earnings (loss) by the weighted average number of shares outstanding during the period. For purposes of determining the number of shares outstanding the shares received by the acquirer in the reverse acquisition are treated as outstanding for all periods prior to the transaction.

Diluted earnings (loss) per common share adjusts basic income (loss) per common share for the effects of convertible securities, stock options, warrants and other potentially dilutive financial instruments only in periods in which such effect is dilutive. No instruments were dilutive at December 31, 2010 or 2009. The diluted income (loss) per common share excludes the dilutive effect of approximately 24,409,750 warrants and options and the equivalent of 4,924,134 of common shares available for the exercise of the conversion of preferred shares issued at December 31, 2010 and 26,259,750 of warrants and options at December 31, 2009, since such warrants and options have an exercise price in excess of the average market value and the conversion price of the preferred stock is in excess of the market price of the Company’s common stock during the respective periods.

Note 16 – Segment Reporting

Green Planet Group, Inc. has two reportable segments: the engine, fuel additives and green energy products and the industrial staffing segments. The first segment is comprised of the XenTx Lubricants, EMTA Corp. and White Sands entities and the staffing segment is comprised of Lumea, Inc. and its operating subsidiaries.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Interest expense related to the individual entities is paid by or charged to those entities and the related debt is included as that entity’s liability. Green Planet management evaluates performance based on profit or loss before income taxes not including nonrecurring gains and losses.

There have been no significant intersegment sales or costs.

Green Planet’s business is conducted through separate legal entities that are wholly-owned subsidiaries. Each entity has a specific set of business objectives and line of business.

Index

The Company analyzes the result of the operations of the individual entities and the segments. Green Planet does not allocate income taxes and unusual items to the segments. The segment information for the three months and nine months ended December 31, 2010 and December 31, 2009 are presented below.

For the three months ended	Additives &						Corporate
December 31, 2010	Green Energy			Staffing			& Eliminations			Consolidated

Income statement information:
Sales	$	205,451		$	9,049,627		$	–		$	9,255,078
Depreciation and amortization		81,245			178,819			–			260,064
Interest expense		15,944			(325,149	)		235,103			(74,102	)
Income/(loss) before income taxes		855,626			(203,450	)		(484,362	)		167,814
Net income/(loss)		855,626			(203,450	)		(484,362	)		167,814

For the three months ended	Additives &						Corporate
December 31, 2009	Green Energy			Staffing			& Eliminations			Consolidated

Income statement information:
Sales	$	229,478		$	15,491,731		$	–		$	15,721,209
Depreciation and amortization		64,351			172,314			2,701			239,365
Interest expense		20,312			376,058			500,736			897,106
Loss before income taxes		(539,449	)		(896,131	)		(1,286,822	)		(2,722,402	)
Net loss		(539,449	)		(896,131	)		(1,286,822	)		(2,722,402	)

For the nine months ended	Additives &						Corporate
December 31, 2010	Green Energy			Staffing			& Eliminations			Consolidated

Income statement information:
Sales	$	861,613		$	28,729,512		$	–		$	29,591,125
Depreciation and amortization		209,945			555,684			–			765,629
Interest expense		49,837			2,874,328			467,866			3,392,031
Income/(loss) before income taxes		718,462			(4,016,845	)		(1,387,394	)		(4,685,777	)
Net income/(loss)		718,462			(4,016,845	)		(1,387,394	)		(4,685,777	)

Balance sheet information:
Total assets		1,748,583			10,269,093			492,552			12,510,228

For the nine months ended	Additives &						Corporate
December 31, 2009	Green Energy			Staffing			& Eliminations			Consolidated

Income statement information:
Sales	$	916,783		$	47,909,140		$	–		$	48,825,923
Depreciation and amortization		193,050			517,387			8,101			718,538
Interest expense		369,782			1,097,346			752,336			2,219,464
Loss before income taxes		(836,765	)		(3,744,467	)		(3,802,735	)		(8,383,967	)
Net loss		(836,765	)		(3,744,467	)		(3,802,735	)		(8,383,967	)

Balance sheet information:
Total assets	$	2,855,800		$	16,769,024		$	589,635		$	20,214,459

Index

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, 2010.

Overview

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is intended to help the reader understand Green Planet Group, Inc., our operations and our business environment. MD&A is provided as a supplement to (and should be read in conjunction with) our Financial Statements and accompanying notes.

Index

RESULTS OF OPERATIONS

The following table sets forth our results of operations for the three and nine months ended December 31, 2010 and 2009 as a percentage of net sales:

	For the three months ended				For the nine months ended
	December 31,				December 31,
	2010		2009		2010		2009

NET SALES		100.0%		100.0%		100.0%		100.0%

COST OF SALES		85.4%		86.9%		84.7%		87.4%

GROSS PROFIT		14.6%		13.1%		15.3%		12.6%

OPERATING EXPENSES
Selling, general and administrative		21.5%		20.7%		20.7%		22.0%
Depreciation and amortization		2.8%		1.5%		2.6%		1.5%
Allowance for bad debts		(0.2)%		2.5%		(0.1)%		1.8%
Research and development		(10.5)%		0.0%		(3.3)%		0.0%

TOTAL OPERATING EXPENSES		13.6%		24.7%		19.9%		25.3%

INCOME/(LOSS) FROM OPERATIONS		1.0%		(11.6)%		(4.6)%		(12.7)%

Other income (expense)		0.0%		0.0%		0.3%		0.0%
Interest expense		0.8%		(5.7)%		(11.5)%		(4.5)%

LOSS BEFORE INCOME TAXES		1.8%		(17.3)%		(15.8)%		(17.2)%
Income tax benefit		0.0%		0.0%		0.0%		0.0%

NET LOSS		1.8%		(17.3)%		(15.8)%		(17.2)%

Three months ended December 31, 2010 as compared to three months ended December 31, 2009

Net Sales: Net Sales decreased from $15,721,209 in 2009 to $9,255,078 in 2010 or a decrease of $6,466,131. This represents a decrease of 41.1% over the same period a year earlier. This decrease was due to our termination of clients that refused to adhere to safety standards, the economy in general and continued interference by former employees in the operations of the Company’s business.

Gross Margin: Gross Margin increased from 13.1% to 14.6% an increase of 11.5%. This was due to fluctuations in the composition and pay levels of staff provided.

Selling, General and Administrative Expenses: The Company decreased its SG&A from $3,253,959 to $1,984,437 or a decrease of 39.0%, reflecting operational measures to reduce overhead, close unprofitable locations and achieve greater efficiency of staff.

Depreciation and Amortization: The increase in the depreciation and amortization was due to the addition of small amounts of tangible and intangible asset additions also being depreciated or amortized.

Index

Allowance for Bad Debts: The allowance for bad debts in 2009 was attributable to the staffing segment and the filing of bankruptcy by two of its clients which made the collection of their outstanding amounts uncertain. There were no increases in the allowance for bad debts for the quarter ended December 31, 2010 and the recovery of $16,000 of formerly fully reserved amounts reflecting an improvement of 2.7% of revenue over the prior year.

Research and Development: During the quarter ended December 31, 2010 the Company evaluated its contingent research and development liability and determined that it such expenditures will not be made and as such reversed the prior expense of $978,151, an expense it had provided for several years earlier. New research and development expenditures have been limited to maintaining current products and the Company has not and will not undertake new product development until sufficient funds are available to complete and test such products.

Interest Expense: Interest expense decreased from a net expense of $897,106 to a net credit of $74,102, a net improvement of $971,208, or an improvement of 6.5% of sales over the interest expense for the prior year due primarily to the adjustment of the accrual of interest and penalties on unpaid payroll taxes of $417,418 in the current period, a decrease in derivative valuations of $152,914, and the abatement of $191,699 of accrued interest from the conversion of debt to preferred stock.

Nine months ended December 31, 2010 as compared to nine months ended December 31, 2009

Net Sales: Net Sales decreased from $48,825,923 in 2009 to $29,591,125 in 2010 or a decrease of $19,324,798. This represents a decrease of 39.4% over the same period a year earlier. This decrease was due to our termination of clients that refused to adhere to safety standards, the economy in general and the interference by former employees of the Company's business.

Gross Margin: Gross Margin increased from 12.6% to 15.3% or an increase of 21.4%. This was due to the termination of non-compliant clients and the economic impact of low margin clients that have been terminated.

Selling, General and Administrative Expenses: The Company decreased its SG&A from $10,734,835 to $6,119,748 or a decrease of $4,615,087, reflecting a decrease in the percentage of SG&A relative to sales from 22.0% of sales to 20.7% of sales, a decrease of 5.9%. The decreased dollar amount was due to the increased operating efficiencies, cost cutting measures, closing unprofitable locations and greater productivity from the staff.

Allowance for Bad Debts: There has been no need for an increase in the Company's allowance for bad debts for the nine months ended December 31, 2010. The prior nine months reflected an allowance of $870,017 attributable to the staffing segment and the filing of bankruptcy by two of its clients.

Interest Expense: Interest expense increased from $2,219,464 to $3,392,031 for the nine months ended December 31, 2010 over the prior year nine months. The increase was due to accrual of interest on certain loans at the default rates of interest and the accrual of penalties and interest attributable to underpayment of payroll tax payments and offset by a decrease in the derivative valuations of $175,268 and the abatement of $191,699 of accrued interest from the conversion of debt to preferred stock.

Index

IMPACT OF INFLATION

Inflation has not had a material effect on our results of operations. We expect the cost of petroleum base products to track the increase and decrease in the worldwide oil prices.

SEASONALITY

The seasons of the year have no material impact on the Company’s fuel efficiency/emission reducing products or services but it does have an impact on both revenues and margin of our staffing companies. Revenues are generally lowest in the first calendar quarter and largest in the third calendar quarter.

FINANCIAL LIQUIDITY AND CAPITAL RESOURCES

We have experienced net losses for the nine months ended December 31, 2010 and 2009 and positive cash flows from operations of $989,398 for the period ended December 31, 2010. The aggregate net losses for the last two fiscal years ended March 31, 2010 and 2009, aggregated $15,687,606 and $2,696,277, respectively. For the three months ended December 31, 2010, the net income was $167,814 with aggregate contributing non-cash factors of depreciation, amortization, share based payments and derivative valuation factors of $608,221 for the quarter compared to the prior year quarter of a loss of $2,722,402 and the contributing non-cash factors of depreciation, amortization, bad debts, share based payments and derivative valuation factors of $1,433,694. The net loss for the nine months ended December 31, 2010 was $4,685,777 with net aggregate contributing non-cash factors of depreciation, amortization, share based payment expense and derivative valuation factors of $1,104,439 while for the same nine months a year earlier the loss was $8,383,967 with net aggregate contributing non-cash factors of depreciation, amortization, bad debts, share based payment expense and derivative valuation factors of $3,208,499. We have funded our operations to date by borrowings from third parties and investors. In the December 31, 2010 quarter, we issued $192,300 of common stock for services, interest and payables. 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.

As a result, the Company’s independent registered public accounting firm has issued a going concern opinion on the Company’s consolidated financial statements for the year ended March 31, 2010 contained in our Form 10-K filed with the Securities and Exchange Commission.

Substantially all of the Company’s assets are pledged as collateral for our debt obligations at December 31, 2010. Certain of the Company's notes are in default at December 31, 2010.

The Company has commenced litigation against the sellers of the staffing business to the Company in March, 2009. The litigation seeks to rescind the purchase and other equitable relief and the Company has stopped making scheduled payments on the Purchase Note 1 ($4,805,568) and Purchase Note 2 ($1,277,553) and does not intend to make future payments on these notes. The Company has received a garnishment from the ACE with respect to the payments on the Purchase Note 1 seeking payment of the amounts due under the note for obligations of the seller. The Company has resisted these claims and is pursuing its rights through the courts. Substantially all of Purchase Note 2 represents potential payments to third party taxing authorities under the successor liability statutes of various states and the Company may be forced to make these payments thereon to maintain its licenses in those states. The litigation is seeking restitution of any such amounts paid under these obligations. Other notes have been modified during the year changing the maturity date and restructuring the payment structure.

At December 31, 2010, the Company does not have any significant commitments for capital expenditures. The Company is discussing with potential customers the manufacturing and delivery logistics and depending on the results of such negotiations, the Company may be required to expand its manufacturing capabilities. We have no special purpose entities or off balance sheet financing arrangements, commitments, or guarantees other than certain long-term operating lease arrangements for our corporate facilities and short-term purchase order commitments to our suppliers.

Index

At December 31, 2010, the Company’s aggregate of accounts payable, accrued liabilities and notes due within one year has decreased by $13,741,080 from $26,800,121 at March 31, 2010 to $13,059,041 at December 31, 2010, which was offset by the long-term tax contracts which accounted for $11,439,809 being considered long-term for a net decrease of $2,301,271. These obligations together with operating costs will have to be funded from operations and additional funding from debt and equity offerings.

The Company’s cost of raw materials is highly dependent on the cost of petroleum products and synthetic materials and the staffing segment is dependent on the cost of labor in various geographic areas within the United States. To the extent that such prices fluctuate significantly the Company may be unable to adjust sales prices to reflect cost increased and secondarily price increases may negatively influence sales.

OFF BALANCE SHEET ARRANGEMENTS

Not applicable.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Index

Intangible Assets – Intangible assets consist of an EPA license and customer relationships (including client contracts). For financial statement purposes, identifiable intangible assets with a defined life are being amortized using the straight-line method over the estimated useful lives of seven years for the EPA license and five years for the customer relationships. Costs incurred by the Company in connection with patent, trademark applications and approvals from governmental agencies such as the Environmental Protection Agency, including legal fees, patent and trademark fees and specific testing costs, are expensed as incurred. Purchased intangible costs of completed developments are capitalized and amortized over an estimated economic life of the asset, generally seven years, commencing on the acquisition date. Costs subsequent to the acquisition date are expensed as incurred.

Goodwill – Goodwill represents the excess of the purchase price over the fair value of the net assets acquired by Lumea. Goodwill and other intangible assets having an indefinite useful life are not amortized for financial statement purposes. The Company performs an annual impairment test each year and in the event that facts and circumstances indicate that goodwill and other identifiable intangible assets may be impaired, an interim impairment test would be required. The Company’s testing approach will utilize a discounted cash flow analysis to determine the fair value of its reporting units for comparison to their corresponding book values. If the book value exceeds the estimated fair value for a reporting unit, a potential impairment is indicated. ASC 350-10 and ASC 360-10 prescribes the approach for determining the impairment amount, if any. At the March 31, 2010 year end the Company recognized an impairment loss of $4,355,151 in conjunction with goodwill valuation for the period.

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.

Index

Research and Development – Research and development costs are expensed as incurred. There were $389 and $13,483 of research and development expenses during the three and nine months ended December 31, 2009, respectively. There was no research and development expense during the three months and nine months ended December 31, 2010. The Company determined that the reserve for contingent research and development costs from 2005 was no longer needed and reversed the accrual for that amount, $978,151, in the quarter ended December 31, 2010. Costs to acquire in-process research and development (IPR&D) projects that have no alternative future use and that have not yet reached technological feasibility at the date of acquisition are expensed upon acquisition.

Index

Stock-Based Compensation

Earnings/(Loss) Per Share

Segment Information

Index

New Accounting Pronouncements:

No new accounting pronouncements issued during the current period are expected to have a material impact on the Company’s results of operations, cash flows or financial condition.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4.

Controls and Procedures

Disclosure Controls and Procedures

We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer of the effectiveness of the design and operation of our disclosure controls and procedures. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d – 15(e) under the Securities Exchange Act of 1934 (“Exchange Act”), as amended, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s (“SEC”) rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures as of December 31, 2010, have concluded that our disclosure controls and procedures are not effective in ensuring that material information required to be disclosed is included in the reports that we file with the SEC.

Changes in Internal Controls

There have been no changes in our internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the fiscal quarter ended December 31, 2010, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Index

Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal controls over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures.

Index

PART II – OTHER INFORMATION

Item 1.

Legal Proceedings

None.

Item 1A.

Risk Factors

Not applicable.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3.

Defaults Upon Senior Securities

None.

Item 4.

Removed and Reserved

Item 5.

Other Information

None.

Item 6.

Exhibits

Exhibit No.		Description

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a)
31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a)/15d-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

Index

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: February 22, 2011			/s/ Edmond L. Lonergan
			Edmond L. Lonergan President and Chief Executive Officer


Date: February 22, 2011			/s/ James C. Marshall
			James C. Marshall Chief Financial Officer

GREEN PLANET GROUP, INC. - FORM 10-Q - February 22, 2011

Attached files

GREEN PLANET GROUP, INC. Reports