Attached files
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EXCEL - IDEA: XBRL DOCUMENT - GREEN EARTH TECHNOLOGIES, INC | Financial_Report.xls |
EX-31.2 - CERTIFICATION - GREEN EARTH TECHNOLOGIES, INC | getg_ex312.htm |
EX-32.1 - CERTIFICATION - GREEN EARTH TECHNOLOGIES, INC | getg_ex321.htm |
EX-31.1 - CERTIFICATION - GREEN EARTH TECHNOLOGIES, INC | getg_ex311.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
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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: MARCH 31, 2012
o
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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: 000-53797
GREEN EARTH TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Delaware
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26-0755102
|
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer Identification No.)
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1136 Celebration Boulevard, Celebration, Florida 34747
(Address of principal executive offices)
(877) 438-4761
(Registrant’s telephone number, including area code)
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 (Section 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 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
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o |
Accelerated filer
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o |
Non-accelerated filer
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o |
Smaller reporting company
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þ |
(Do not check if a smaller reporting company) |
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
As of May 14, 2012, the issuer had a total of 152,105,011 shares of common stock, $0.001 par value, outstanding.
TABLE OF CONTENTS
PAGE | |||||
PART I. FINANCIAL INFORMATION | |||||
Item 1.
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Condensed Consolidated Financial Statements (Unaudited)
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||||
Condensed Consolidated Balance Sheets at March 31, 2012 and June 30, 2011
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3 | ||||
Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2012 and 2011
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4 | ||||
Condensed Consolidated Statement of Stockholders’ Deficit for the Nine Months Ended March 31, 2012
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5 | ||||
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2012 and 2011
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6 | ||||
Notes to Condensed Consolidated Financial Statements
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7 | ||||
Item 2.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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16 | |||
Item 3.
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Quantitative and Qualitative Disclosures About Market Risk
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24 | |||
Item 4.
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Controls and Procedures
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24 | |||
PART II. OTHER INFORMATION | |||||
Item 1.
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Legal Proceedings
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25 | |||
Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds
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25 | |||
Item 6.
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Exhibits
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25 | |||
SIGNATURES
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26 |
2
PART I. FINANCIAL INFORMATION
GREEN EARTH TECHNOLOGIES, INC. AND SUBSIDIARY
|
||||||
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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||||||
(in thousands, except share data)
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March 31, 2012
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June 30, 2011
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|||||||
ASSETS
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||||||||
Current assets:
|
||||||||
Cash and cash equivalents
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$ | 714 | $ | 772 | ||||
Trade receivables, less allowance of $59 and $80
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624 | 2,428 | ||||||
Inventories, net
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1,196 | 957 | ||||||
Prepaid expenses and other current assets
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478 | 543 | ||||||
Total current assets
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3,012 | 4,700 | ||||||
Property and equipment, net
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57 | 57 | ||||||
Intangibles, net
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1,165 | 1,306 | ||||||
Total Assets
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$ | 4,234 | $ | 6,063 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT
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||||||||
Current liabilities:
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||||||||
Accounts payable
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2,074 | 2,959 | ||||||
Accounts payable, related parties
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696 | 1,973 | ||||||
Accrued expenses
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990 | 1,190 | ||||||
Accrued expenses, related parties
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799 | 61 | ||||||
Deferred revenue, related party
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806 | 380 | ||||||
Notes payable, related party
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1,600 | 1,140 | ||||||
Derivative liability
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2,581 | - | ||||||
Total current liabilities
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9,546 | 7,703 | ||||||
Secured convertible debentures, net of debt discount
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250 | - | ||||||
Total Liabilities
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9,796 | 7,703 | ||||||
Commitments and contingencies
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||||||||
Stockholders’ deficit
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||||||||
Common stock, $0.001 par value, 300,000,000 shares authorized, 152,105,011 and 150,042,965 shares issued and outstanding, as of March 31, 2012 and June 30, 2011
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152 | 150 | ||||||
Additional paid-in capital
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59,005 | 55,656 | ||||||
Common stock subscription
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290 | - | ||||||
Accumulated deficit
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(65,009 | ) | (57,446 | ) | ||||
Total stockholders' deficit
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(5,562 | ) | (1,640 | ) | ||||
$ | 4,234 | $ | 6,063 |
See notes to condensed consolidated financial statements.
3
GREEN EARTH TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except share data)
Three Months Ended
March 31,
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Nine Months Ended
March 31,
|
|||||||||||||||
2012
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2011
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2012
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2011
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|||||||||||||
Net sales
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$ | 1,520 | $ | 2,577 | $ | 4,940 | $ | 3,716 | ||||||||
Operating expense:
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||||||||||||||||
Cost of sales (exclusive of depreciation and amortization)
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1,380 | 2,099 | 4,258 | 3,061 | ||||||||||||
Selling, general and administrative expenses
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1,540 | 1,343 | 4,755 | 3,975 | ||||||||||||
Stock-based compensation
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976 | 1,001 | 2,945 | 3,141 | ||||||||||||
Depreciation and amortization
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52 | 96 | 157 | 293 | ||||||||||||
3,948 | 4,539 | 12,115 | 10,470 | |||||||||||||
Loss from operations
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(2,428 | ) | (1,962 | ) | (7,175 | ) | (6,754 | ) | ||||||||
Other income (expense):
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||||||||||||||||
Legal and settlement income (charges)
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- | (2,067 | ) | 254 | (2,525 | ) | ||||||||||
Change in revaluation of derivatives
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2,051 | - | 934 | - | ||||||||||||
Loss on issuance of convertible debt
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- | - | (1,265 | ) | - | |||||||||||
Interest expense, net
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(234 | ) | (2 | ) | (311 | ) | (6 | ) | ||||||||
Loss from operations before income taxes
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(611 | ) | (4,031 | ) | (7,563 | ) | (9,285 | ) | ||||||||
Income tax
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- | - | - | - | ||||||||||||
Net loss
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$ | (611 | ) | $ | (4,031 | ) | $ | (7,563 | ) | $ | (9,285 | ) | ||||
Basic and diluted net loss per common share
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$ | (0.00 | ) | $ | (0.03 | ) | $ | (0.05 | ) | $ | (0.07 | ) | ||||
Basic and diluted weighted average common shares outstanding
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152,001,000 | 137,954,000 | 151,694,000 | 137,571,000 |
See notes to condensed consolidated financial statements.
4
GREEN EARTH TECHNOLOGIES, INC. AND SUBSIDIARY CONDENSED CONSOLIDATED STATEMENT OF
STOCKHOLDERS' DEFICIT
(Unaudited)
(in thousands)
Additional
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Common
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|||||||||||||||||||||||
Common Stock
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Paid
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Stock
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Accumulated
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|||||||||||||||||||||
Shares
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Amount
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In Capital
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Subscription
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Deficit
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Total
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|||||||||||||||||||
Balance at June 30, 2011
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150,042,965 | $ | 150 | $ | 55,656 | $ | - | (57,446 | ) | $ | (1,640 | ) | ||||||||||||
Private placement of common stock
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1,992,046 | 2 | 404 | - | - | 406 | ||||||||||||||||||
Common Stock Subscription
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- | - | - | 290 | - | 290 | ||||||||||||||||||
Stock-based compensation
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70,000 | - | 2,945 | - | - | 2,945 | ||||||||||||||||||
Net loss
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- | - | - | - | (7,563 | ) | (7,563 | ) | ||||||||||||||||
Balance at March 31, 2012
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152,105,011 | $ | 152 | $ | 59,005 | $ | 290 | $ | (65,009 | ) | $ | (5,562 | ) |
See notes to condensed consolidated financial statements
5
GREEN EARTH TECHNOLOGIES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended March 31,
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||||||||
2012
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2011
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|||||||
Cash flows from operating activities:
|
||||||||
Net loss
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$ | (7,563 | ) | $ | (9,285 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities
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||||||||
Depreciation and amortization
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157 | 293 | ||||||
Shares issued in settlement of Zuckerman litigation
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- | 1,435 | ||||||
Amortization of debt discount
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250 | - | ||||||
Loss on issuance of convertible debt
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1,265 | - | ||||||
Change in fair value of derivative liability
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(934 | ) | - | |||||
Bad debt expense
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(21 | ) | 7 | |||||
Stock-based compensation expense
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2,945 | 3,141 | ||||||
Changes in assets and liabilities:
|
||||||||
Accounts receivable
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1,825 | (658 | ) | |||||
Inventories
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(239 | ) | 749 | |||||
Prepaid expenses and other current assets
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46 | 52 | ||||||
Accounts payable
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(886 | ) | 1,826 | |||||
Accounts payable, related parties
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(1,276 | ) | 13 | |||||
Accrued expenses
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(200 | ) | 78 | |||||
Accrued expenses, related parties
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738 | 131 | ||||||
Deferred revenue
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426 | 171 | ||||||
Net cash used in operating activities
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(3,467 | ) | (2,047 | ) | ||||
Cash flows from investing activities:
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||||||||
Acquisition of equipment
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(16 | ) | - | |||||
Net cash used in investing activities
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(16 | ) | - | |||||
Cash flows from financing activities:
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||||||||
Proceeds from issuance of common stock, net of issuance costs
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715 | 2,341 | ||||||
Issuance of secured convertible debentures
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2,250 | - | ||||||
Proceeds from notes payable, related party
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1,500 | |||||||
Repayment of notes payable
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(1,040 | ) | (60 | ) | ||||
Net cash provided by financing activities
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3,425 | 2,281 | ||||||
Net (decrease) increase in cash
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(58 | ) | 234 | |||||
Cash and cash equivalent
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||||||||
Beginning of period
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772 | 1,360 | ||||||
End of period
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$ | 714 | $ | 1,594 | ||||
Supplemental information from non-cash investing and financing activities
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||||||||
Interest payments
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$ | - | $ | - | ||||
Income taxes paid
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$ | 9 | $ | 6 | ||||
Commitment shares for financing activity
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$ | - | $ | 242 |
See notes to condensed consolidated financial statements.
6
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
1. SUMMARY OF BUSINESS AND BASIS FOR PRESENTATION
Organization and Business
Green Earth Technologies, Inc. and its wholly-owned subsidiary, GET Well! Inc., formally GET Manufacturing, Inc. (collectively, the “Company”), were each formed on August 7, 2007 under the laws of the state of Delaware. The Company, markets, sells and distributes bio-degradable performance and cleaning products. The Company’s product line crosses multiple industries including the automotive aftermarket, well services, marine and outdoor power equipment markets. The Company sells to home centers, mass retail outlets, automotive stores, equipment manufacturers and over the Internet.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. All significant intercompany balances and transactions have been eliminated in consolidation.
The condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and reflect all adjustments (consisting of normal recurring adjustments unless otherwise indicated) which, in the opinion of management, are necessary for a fair presentation of the results for the interim periods presented.
Certain information in footnote disclosures normally included in the financial statements were prepared in conformity with accounting principles generally accepted in the United States of America has been condensed or omitted pursuant to such principles and the financial results for the periods presented may not be indicative of the full year’s results. The Company believes the disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the Company’s audited financial statements and the notes thereto for the fiscal year ended June 30, 2011 included in the Company’s Annual Report on Form 10K filed in September 2011 (the “2011 Annual Report”).
Significant Accounting Policies
There have been no material changes during 2012 in the Company’s significant accounting policies to those previously disclosed in the 2011 Annual Report.
Liquidity and Going Concern
Due to the Company’s limited capital, recurring losses and negative cash flows from operations and the Company’s limited ability to pay outstanding liabilities, there is substantial doubt about its ability to continue as a going concern. The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, assuming that the Company will continue as a going concern.
As reflected in the Company’s historical consolidated financial statements, the Company has recurring net losses and net cash outflows from operating activities. The Company also has a working capital deficit. The Company relies upon cash from financing activities to fund its ongoing operations as it has not been able to generate sufficient cash from operating activities and there is no assurance that it will be able to do so in the future.
7
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
The Company cannot predict how long it will continue to incur further losses or whether it will ever become profitable. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
The Company plans to increase revenues in order to reduce, or eliminate, its operating losses. Additionally, the Company will attempt to raise capital from external sources or by selling stock under its agreement with Lincoln Park Capital Fund, LLC (“LPC”) (see note 10 below) in order to enable it to continue to meet its financial obligations until it achieves profitability or generates positive cash flow.
There can be no assurance that the Company will be able to raise additional capital, whether from the sale of equity, debt or convertible securities or otherwise, on favorable terms, or at all. Failure to obtain sufficient financing would have a substantial adverse effect on the Company’s business, operations and financial condition.
2. INVENTORIES, NET
Inventories consist of the following:
March 31, 2012
|
June 30, 2011
|
|||||||
Raw materials
|
$ | 854 | $ | 402 | ||||
Finished goods
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342 | 555 | ||||||
$ | 1,196 | $ | 957 |
Inventories are presented net of an obsolescence reserve of $656 and $725 at March 31, 2012 and June 30, 2011, respectively.
3. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expense and other current assets consist of the following:
March 31, 2012
|
June 30, 2011
|
|||||||
LPC commitment fee
|
$ | 207 | $ | 227 | ||||
Deferred financing costs, net
|
108 | - | ||||||
Prepaid advertising | 84 | 280 | ||||||
Other | 79 | 36 | ||||||
$ | 478 | $ | 543 |
4. INTANGIBLE ASSETS
Intangible assets consist of the following:
March 31, 2012
|
June 30, 2011
|
Estimated Useful Lives
|
||||||||||
Purchased technology and exclusivity rights
|
$ | 2,550 | $ | 2,550 | 7 | |||||||
Less: accumulated amortization
|
1,385 | 1,244 | ||||||||||
|
$ | 1,165 | $ | 1,306 |
8
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Expected amortization of intangible assets is as follows:
2012
|
$ | 47 | ||
2013
|
186 | |||
2014
|
186 | |||
2015
|
186 | |||
2016
|
186 | |||
Thereafter
|
374 | |||
$ | 1,165 |
Amortization expense included in depreciation and amortization totaled $47 and $91 for three months ended March 31, 2012 and 2011, respectively, and $140 and $273 for the nine months ended March 31, 2012 and 2011, respectively.
The decrease in amortization expense was due to a change in the estimated useful life of the intangible assets from 4 years as of June 30, 2011 to 7 years. The change was made because the Company deemed that future cash flows from this intangible asset supports a seven year carrying value.
5. ACCRUED EXPENSES
Accrued liabilities consist of the following:
March 31, 2012
|
June 30, 2011
|
|||||||
Accrued payroll and taxes
|
$ | 553 | $ | 714 | ||||
Accrued interest
|
231 | 227 | ||||||
Accrued board of director fees | 143 | 133 | ||||||
Other | 63 | 116 | ||||||
$ | 990 | $ | 1,190 |
6. NOTES PAYABLE, RELATED PARTY
Notes payable consist of the following:
March 31, 2012
|
June 30, 2011
|
|||||||
3.25 % secured note
|
$ | 100 | $ | 140 | ||||
12% secured note, related party
|
1,500 | 1,000 | ||||||
$ | 1,600 | $ | 1,140 |
The 12% secured note held by TTI, a related party, is secured by Walmart’s accounts receivable and is due on June 30, 2012.
The 3.25% secured note date was extended to June 30, 2012.
7. DERIVATIVE LIABILITY
Secured Convertible Debentures Conversion Option
The Debentures (as defined in note 8 below) are convertible into shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”) at a conversion price of $0.17 per share (the “Conversion Price.”) (See note 8 below.) The conversion feature was bifurcated from the Debenture and accounted for as a free standing derivative liability in the accompanying condensed balance sheet.
9
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
The Company records the conversion feature as a liability based upon its fair value on each reporting date.
The table below summarizes the fair values of the Company’s financial liabilities:
|
Fair Value at
|
|||||||||||||||
|
March 31,
|
Fair Value Measurement Using
|
||||||||||||||
2012
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Derivative liability - Debentures
|
$ | 1,588 | $ | - | $ | - | $ | 1,588 | ||||||||
|
$ | 1,588 | $ | - | $ | - | $ | 1,588 |
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (Derivative liability - Debentures) for the nine months ended March 31, 2012 and 2011:
March 31,
2012
|
March 31,
2011
|
|||||||
Balance at beginning of period – July 1, 2011 and 2010, respectively
|
$ | - | $ | - | ||||
Additions to derivative instruments
|
2,207 | |||||||
Change in fair market value of Debentures
|
(619 | ) | - | |||||
Balance at end of period - March 31, 2012 and 2011, respectively
|
$ | 1,588 | $ | - |
These instruments, including the Debentures, were valued using pricing models that incorporate the price of a share of Common Stock (as quoted on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life.
The Company computed the fair value of the conversion feature using the Black-Sholes model.
The following are the key assumptions used in connection with this computation:
March 31,
2012
|
Inception
December 2011
|
|||||||
Number of shares
|
13,235,000 | 13,235,000 | ||||||
Conversion Price
|
$ | 0.17 | $ | 0.17 | ||||
Volatility
|
137 | % | 136 | % | ||||
Risk-free interest rate
|
0.51 | % | 0.38 | % | ||||
Expected dividend yield
|
0 | % | 0 | % | ||||
Life of Debentures
|
2.7 | 3 |
Warrant Liability
In connection with the issuance of the Debentures, the Company issued warrants to purchase up to 6,617,000 shares of Common Stock (the “Warrants”). The Warrants are exercisable at any time on or before December 31, 2016 and have an exercise price of $0.21 per share (the “Exercise Price”).
The Warrants provide for weighted average anti-dilution protection in the event that any shares of Common Stock, or securities convertible into Common Stock, are issued at less than the Exercise Price. The Company accounts for the Warrants as derivative liabilities in the accompanying condensed balance sheet.
The Company recognizes their derivative financial instruments as assets or liabilities in the financial statements and measures them at fair value with changes in fair value reflected as current period income or loss.
10
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
The table below summarizes the fair values of the Company’s financial liabilities:
|
Fair Value at
|
|||||||||||||||
|
March 31,
|
Fair Value Measurement Using
|
||||||||||||||
2012
|
Level 1
|
Level 2
|
Level 3
|
|||||||||||||
Derivative liability - Warrants
|
$ | 993 | $ | - | $ | - | $ | 993 | ||||||||
|
$ | 993 | $ | - | $ | - | $ | 993 |
The table below sets forth a summary of changes in the fair value of the Company’s Level 3 financial liabilities (warrant derivative liability) for the nine months ended March 31, 2012 and 2011:
March 31,
2012
|
March 31,
2011
|
|||||||
Balance at beginning of period – July 1, 2011 and 2010, respectively
|
$ | - | $ | - | ||||
Additions to derivative instruments
|
1,308 | |||||||
Change in fair market value
|
(315 | ) | - | |||||
Balance at end of period - March 31, 2012 and 2011, respectively
|
$ | 993 | $ | - |
These instruments were valued using pricing models that incorporate the price of a share of Common Stock (as quoted on the Over the Counter Bulletin Board), volatility, risk free rate, dividend rate and estimated life.
The Company computed the value of the warrants using the Black-Scholes model.
The following are the key assumptions used in connection with this computation:
March 31,
2012
|
Inception
December 2011
|
|||||||
Number of shares underlying the Warrants
|
6,617,000 | 6,617,000 | ||||||
Exercise Price
|
$ | 0.21 | $ | 0.21 | ||||
Volatility
|
176 | % | 177 | % | ||||
Risk-free interest rate
|
1.04 | % | 0.91 | % | ||||
Expected dividend yield
|
0 | % | 0 | % | ||||
Warrant life (years)
|
4.7 | 5 |
8. SECURED CONVERTIBLE DEBENTURE, NET DEBT DISCOUNT
In December 2011, the Company realized gross proceeds of $2,250 from the sale of its 6.0% Secured Convertible Debentures, due December 31, 2014, in the aggregate original principal amount of $2,250 (the “Debentures”) and the Warrants to three accredited investors (the “Investors”). Interest on the outstanding principal balance of the Debentures is payable quarterly in arrears in cash or shares of Common Stock at the discretion of the Company. The entire outstanding principal balance of the Debentures and the accrued but unpaid interest thereon is due upon the earlier of (i) the occurrence of an “event of default” (as defined in the Debentures) and (ii) December 31, 2014. The outstanding principal balance of the Debentures and all accrued but unpaid interest thereon may be converted at any time at the option of each Investor into shares of Common Stock at the Conversion Price. The Company may prepay the Debentures at any time without penalty upon ten business days prior written notice to the Investors provided there is, at that time, an effective registration statement covering the resale of the shares issuable upon conversion of the Debentures.
The Debentures provide for weighted average anti-dilution protection in the event that any shares of Common Stock, or securities convertible into Common Stock, are issued at less than the Conversion Price.
11
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Secured convertible debentures, net of debt discount, consist of the following:
March 31, 2012
|
June 30, 2011
|
|||||||
Convertible Debentures
|
$ | 2,250 | $ | - | ||||
Debt discount ($2,250)
|
(2,000 | ) | - | |||||
$ | 250 | $ | - |
The Company recorded an immediate loss on the issuance of convertible debt due to the fair value of the conversion option and warrants exceeding the carrying value of the convertible debt of approximately $1,265 in the statement of operations.
Total debt discount of $2,250 is being amortized over the life of the Debentures and is included in interest expense.
In connection with the issuance of the Debentures and the Warrants, the Company recognized deferred financing costs of $117. These costs are being amortized over the life of the Debentures. These costs are recognized under prepaid expenses and other current assets in the accompanying condensed balance sheet.
9. STOCKHOLDERS EQUITY
Common Stock Subscription
In October 2011, the Company agreed to issue 1,800,000 shares of Common Stock on June 1, 2012 to an accredited investor for installment payments totaling $500. The Company will not issue the Common Stock until all payments are made in full. The Company received payments totaling $290 and expects to receive the remainder by June 1, 2012.
Private Placements
Lincoln Park Capital
On March 7, 2011, the Company signed a Purchase Agreement with Lincoln Park Capital Fund, LLC (“LPC”), an accredited investor, pursuant to which the Company, at its sole discretion, over a 30-month period beginning on May 12, 2011, the effective date of the registration statement covering the sale of those shares, may sell up to $15,000 worth of shares of its Common Stock. Under the Purchase Agreement, subject to the satisfaction of certain conditions as set forth in the Purchase Agreement, on any business day selected by the Company and as often as every two business days, the Company may direct LPC to purchase up to $50 worth of its Common Stock. The purchase price per share is equal to the lesser of:
●
|
the lowest sale price of the Common Stock on the purchase date; or
|
●
|
the average of the three lowest closing sale prices of the Common Stock during the 12 consecutive business days prior to the date of a purchase by LPC (the “Purchase Price”).
|
The Purchase Price will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the business days used to compute the Purchase Price.
12
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
The amount that the Company may sell to LPC as often as every two business days will increase as follows: (i) to $75 if, on the purchase date, the closing sale price of a share of Common Stock is not below $0.40 per share; (ii) to $150 if, on the purchase date, the closing sale price of a share of Common Stock is not below $0.60 per share; (iii) to $250 if, on the purchase date, the closing sale price of a share of Common Stock is not below $0.90 per share; and (iv) to $500 if, on the purchase date, the closing sale price of a share of Common Stock is not below $1.50 per share. The Purchase Price at which LPC would purchase these higher amounts of Common Stock will be the lesser of (1) the lowest sale price of a share of Common Stock on the purchase date and (2) the lowest Purchase Price during the 10 consecutive business days prior to the purchase date. If the Purchase Price would be below $0.20 the Company cannot sell its common stock to LPC.
During the nine month period ended March 31, 2012, the Company sold 1,830,000 shares of Common Stock to LPC under the Purchase Agreement for aggregate gross proceeds of $400, offset by placement fees of $19. In connection with these purchases, the Company issued an additional 23,000 shares of Common Stock as commitment fees to LPC.
Other
From July 1, 2011 through March 31, 2012, the Company issued 139,000 shares of common stock for gross proceeds of $25 in private placement transactions.
Warrants
Warrant activity for the nine months ended March 31, 2012 is as follows:
Numbe
of Warrants
|
Weighted Average Exercise Price
|
Weighted Average
Remaining Contractual Term
|
Aggregate
Intrinsic Value
|
||||||||||
Outstanding at June 30, 2011
|
7,689,000 | $ | 0.28 | 1.5 years | |||||||||
Granted
|
6,618,000 | 0.21 | |||||||||||
Exercised
|
-0- | ||||||||||||
Outstanding and exercisable at March 31, 2012
|
14,307,000 | $ | 0.25 |
1.6 years
|
$ | 87 |
Other Uses – Common Stock
In July 2011, the Company issued 50,000 shares of Common Stock to pay a consulting firm for services rendered. The fair value of the shares in connection with this transaction totaled $16. In October 2011, the Company issued 20,000 shares of Common Stock to pay for marketing fees. The fair value of the shares in connection with this transaction totaled $4.
10. COMMITMENTS AND CONTINGENCIES
Settlement agreement
In September 2011, the Company entered into a settlement agreement with its attorneys who rendered legal services to Company in connection with the Zuckerman Litigation (as more fully described in the 2011 Annual Report.) The Company and the attorneys agreed to reduce the outstanding balance of $454 to $200, which resulted in a gain on settlement of $254. As of March 31, 2012, the balance due was $75.
11. RELATED PARTY TRANSACTIONS
Inventek Collodial Cleaners, LLC (“Inventek”)
The Company purchased inventory from Inventek totaling $103 and $166 for the three months March 31, 2012 and 2011, respectively and $552 and $320 for the nine months ended March 31, 2012 and 2011, respectively. As of March 31, 2012 and June 30, 2011, amounts due to Inventek were $210 and $192, respectively. As of March 31, 2012, Inventek beneficially owned approximately 6.5% of the Company’s issued and outstanding shares of Common Stock.
13
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
Marketiquette, Inc (“Marketiquette”)
The Company paid Marketiquette a total of $111 and $123 for the three months ended March 31, 2012 and 2011, respectively and $520 and $399 for the nine months ended March 31, 2012 and 2011, respectively, which are included in selling, general and administrative expenses. As of March 31, 2012 and June 30, 2011, amounts due to Marketiquette were $116 and $194, respectively. The president and owner of Marketiquette is a director of the Company and its President (Principal Executive Officer). As of March 31, 2012, Marketiquette beneficially owned approximately 5.3% of the Company’s issued and outstanding shares of Common Stock.
Techtronics Industries North America Inc. (“TTI”)
For three months ended March 31, 2012 and 2011, approximately 46% and 58% of the Company’s revenues, respectively, were earned from TTI and for the nine months ending March 31, 2012 and 2011, approximately 33% and 58% of the Company’s revenues, respectively were earned from TTI. As of March 31, 2012 and June 30, 2011, amounts due to TTI, included in accounts payable and accrued expense, were $1,140 and $1,648, respectively. As of March 31, 2012 and June 30, 2011 advances received from TTI for future sales of cleaning and performance products was $806 and $380, respectively. As of March 31, 2012, TTI beneficially owned approximately 21.3% of the Company’s issued and outstanding shares of Common Stock.
Francesco Galesi (“Galesi”)
In December 2011 the Company entered into a ten-year limited exclusivity distribution agreement for G-branded products with E&B Green Solutions, L.P. (“E&B”) and a separate agreement with Green Planet (“Green Planet”). Both entities are owned and controlled by Galesi, who, as of March 31, 2012, beneficially owned approximately 17.5% of the Company’s issued and outstanding shares of Common Stock. In addition, the chief operating officer of Galesi’s real estate operations serves as the Company’s Chairman of the Board of Directors. For the three months ended March 31, 2012, the Company did not record any sales to E&B or Green Planet. For the three months ended March 31, 2011, approximately 1% of the Company’s revenues generated from sales to E&B and Green Planet. For the nine months ended March 31, 2012 and 2011, approximately 17% and 3% of the Company’s revenues, respectively, were generated from E&B and Green Planet. As of March 31, 2012, there were no amounts due from either E&B or Green Planet. As of June 30, 2011, amounts due from E&B and Green Planet totaled $7. As of March 31, 2012, the aggregate amounts due to E&B and Green Planet, included in accrued expense, was $29.
12. CONCENTRATIONS
Cash
The Company maintains cash balances at financial institutions that are insured by the Federal Deposit Insurance Corporation subject to certain limitations.
Accounts Receivable
The following customers represent the majority of the Company’s sales for the nine months ended:
March 31, 2012
|
March 31, 2011
|
|||||||
Sales
|
||||||||
TTI
|
33 | % | 58 | % | ||||
Menards
|
23 | % | - | |||||
Walmart
|
19 | % | 25 | % | ||||
Galesi
|
17 | % | 3 | % |
14
GREEN EARTH TECHNOLOGIES, INC.AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(in thousands, except share and per share data)
March 31, 2012
|
June 30, 2011
|
|||||||
Accounts Receivable
|
||||||||
Walmart
|
82 | % | 35 | % | ||||
Menards
|
- | 60 | % |
Inventory and Accounts Payable
The Company purchases all of its performance products from Delta Petroleum Company (“Delta”), its cleaning products from Inventek and its power washer equipment products from TTI. The Company’s inventory purchased from these vendors and accounts payable to these vendors is as follows:
Nine months ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Inventory purchased
|
||||||||
Delta
|
$ | 3,265 | $ | 2,698 | ||||
TTI
|
973 | - | ||||||
Inventek
|
552 | 320 | ||||||
March 31, 2012
|
June 30, 2011
|
|||||||
Accounts Payable
|
||||||||
Delta
|
$ | 1,444 | $ | 2,071 | ||||
TTI
|
370 | 1,587 | ||||||
Inventek
|
210 | 192 |
15
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note About Forward-Looking Statements
Certain statements in Management’s Discussion and Analysis (“MD&A”), other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933,as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”.) These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.
Overview of our Business
We market, sell and distribute an array of G-branded, environmentally-friendly, bio-based performance and cleaning products to the automotive aftermarket, outdoor power equipment, well service and marine markets. The “green” base of our performance products is comprised of animal fats and plant oils, while our cleaning and oil spill products use plant and vegetable oils. This biodegradable green base replaces traditional petroleum and chemical derived bases typically used to make motor oils, cleaning solutions and other consumer products without compromising performance or value. We believe our products deliver comparable or superior performance at competitive prices, thus giving consumers the ability to “do their part” in protecting the environment.
Our G-brand family of products includes G-OIL®, G-FUELTM, G-CLEAN™, G-GLASS™ and G-MARINE™. These products are offered in a wide range of automotive, outdoor power equipment, well service and marine categories, primarily performance and cleaning solutions. Our products are produced for us under supply and requirements contracts with domestic manufacturers. We sell the majority of our products through master distribution agreements with wholesalers and contractual arrangements with independent sales professionals. Our products are available at a number of national retail outlets and chain stores including Walmart, The Home Depot, Menards, ACE Hardware and Canadian Tire Corporation. We are actively pursuing relationships with other wholesalers and retailers to include additional major national consumer purchase locations in the household goods, automotive aftermarket, outdoor power equipment market, oil and gas market and marine market.
In December 2011 we entered into a ten-year limited exclusivity distribution agreement with E&B Green Solutions, L.P. (‘E&B”), an entity owned and controlled by Francesco Galesi (“Galesi”), a related party. E&B is a national independent oil and gas producer with subsidiaries in the oil and gas well service business who will be responsible for the distribution of our full range of G-CLEAN products specifically engineered for oil and gas fields. Our cleaning products for the oil and gas well service industry include: Well Wake Up!, Casing Cutter, Frac and Storage Tank Cleaner & Water Treatment and Rig & Equipment Cleaner. The proprietary base of our well servicing products is listed on the EPA's National Contingency Plan (NCP) for oil spill clean-ups.
In September 2011, our new formulas for both G-OIL® 5W-30 and 5W-20 ultimate biodegradable bio-based full synthetic GREEN motor oils had received API SM certifications. We filed patent applications for our formulations. G-OIL is the world's first API certified bio-based motor oil.
16
Results of Operations
(All dollar amounts referred to herein are in thousands, except as otherwise indicated.)
Three Months Ended March 31, 2012 and 2011
Our activities for the three months March 31, 2012 and 2011 essentially included product development, manufacturing, marketing and sales of our performance and cleaning products, development of mass market product distribution networks for the intended distribution of our products, development of an infrastructure and to support the planned business.
Our results of operations for the three months ended March 31, 2012 and 2011 are as follows:
Three Months Ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Net sales
|
$ | 1,520 | $ | 2,577 | ||||
Loss from operations
|
(2,428 | ) | (1,962 | ) | ||||
Settlement income (charges)
|
- | (2,067 | ) | |||||
Change in revaluation of derivatives
|
2,051 | - | ||||||
Interest expense, net
|
(234 | ) | (2 | ) | ||||
Net loss
|
$ | (611 | ) | $ | (4,031 | ) |
Net Sales
Net sales for the three months ended March 31, 2012 was $1,520, primarily attributed to sales of 4-cycle engine oils, 5W-30 motor oil and 2-cycle oil. Net sales for the three months ended March 31, 2011 was $2,577, primarily attributed to sales of 4-cycle oil, 5W-30 motor oil, 2-cycle oil and pressure washer cleaners. The decrease in net sales from 2011 to 2012 is due to delays in production and the fact that 2011 represented initial fulfillment (load-ins) of our outdoor power equipment engine oils at Home Depot and Walmart.
For the three months ended March 31, 2012, approximately 86% of our sales were from two customers, Techtronic Industries North America, Inc. (“TTI”) and Walmart. TTI is a related party. For the three months ended March 31, 2011, approximately 92% of our sales were from two customers, TTI and Walmart. Net sales are comprised as follows:
Three Months Ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Performance products
|
$ | 1,379 | $ | 2,180 | ||||
Cleaning products
|
141 | 397 | ||||||
Total
|
$ | 1,520 | $ | 2,577 |
17
Cost of Sales (exclusive of depreciation and amortization)
Cost of sales (exclusive of depreciation and amortization) primarily consists of the cost of obtaining bio solvents, plant oils, additives, packaging components and fees paid to our affiliates for the costs of salaries and benefits of operations employees. Cost of sales (exclusive of depreciation and amortization) for the three months March 31, 2012 and 2011 were approximately $1,380, and $2,099, respectively. The decrease in cost of sales (exclusive of depreciation and amortization) from 2011 to 2012 is primarily due to the decrease in net sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and benefits, product development and testing fees, advertising and marketing expenses, public relations, insurance and fees for professional services. Selling, general and administrative expenses for the three months March 31, 2012 and 2011 include the following:
Three Months Ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Salaries
|
$ | 272 | $ | 177 | ||||
Selling, marketing, public relations and related
|
821 | 684 | ||||||
Development, product release and testing
|
163 | 151 | ||||||
Management and operating fees
|
71 | 92 | ||||||
Legal and professional
|
97 | 89 | ||||||
Occupancy, communications and all other, net
|
116 | 150 | ||||||
Total selling, general and administrative expenses
|
$ | 1,540 | $ | 1,343 |
The increase in salaries is due to an increase in headcount, partially offset by the resignation of our former chief executive officer in May 2011. The increase in sales and marketing expenses is primarily due to marketing fees and print advertising fees.
Stock-based compensation
Stock-based compensation expense for the three months ended March 31, 2012 and 2011 was approximately $976 and $1,001, respectively. The decrease is primary due to prior year stock option expense for our former chief executive officer.
Depreciation and amortization
Depreciation and amortization expense for the three months March 31, 2012 and 2011 was approximately $52 and $96, respectively. Depreciation charges totaled $5 and $5 for the three months ended March 31, 2012 and 2011, respectively, and amortization expense for intangible assets totaled $47 and $91 for the three months ended March 31, 2012 and 2011, respectively. The decrease in amortization expense is primarily due to the change in useful life of the intangible assets. The depreciation and amortization expense is excluded from cost of sales.
18
Legal and settlement charges
In connection with the legal fees related to the Zuckerman case as more fully described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, we recorded a charge of $2,067 for the three months ending March 31, 2011.
Change in revaluation of derivatives
As of March 31, 2012 the change in the fair value of the conversion features of the convertible debentures was $2,051. The value of the conversion features as of March 31, 2012 was determined using the Black-Scholes method. For the three months ended March 31, 2012, we recorded an adjustment of $1,324 for the conversion feature on $2,250 aggregate principal amount of our 6.0% secured convertible debentures due March 31, 2014 (the “Debentures”) that were issued in December 2011 and $727 for the associated warrants.
Interest expense, net
Net interest expense for the three months ended March 31, 2012 and 2011 was approximately $234 and $2, respectively. Interest expense consists of $187 in connection with the amortization of the debt discount on the Debentures, $34 in connection with the accrued interest on the Debentures and $10 in connection with the deferred financing costs for the Debentures. Interest income consists of interest earned on bank deposits and deposits in an institutional money market fund.
Nine months ended March 31, 2012 and 2011
Our activities for the nine months ended March 31, 2012 and 2011 essentially included product development, manufacturing, marketing and sales of our performance and cleaning products, development of mass market product distribution networks for the intended distribution of our products, development of an infrastructure and to support the planned business.
Our results of operations for the nine months ended March 31, 2012 and 2011 are as follows:
2012
|
2011
|
|||||||
Net sales
|
$ | 4,940 | $ | 3,716 | ||||
Loss from operations
|
(7,175 | ) | (6,754 | ) | ||||
Settlement income (charges)
|
254 | (2,525 | ) | |||||
Change in revaluation of derivatives
|
934 | - | ||||||
Loss on issuance of convertible debt
|
(1,265 | ) | - | |||||
Interest expense, net
|
(311 | ) | (6 | ) | ||||
Net loss
|
$ | (7,563 | ) | $ | (9,285 | ) |
19
Net Sales
Net sales for the nine months ended March 31, 2012 was $4,940, primarily attributed to sales of 4-cycle engine oils, 5W-30 motor oil, G-CLEAN™ oil and gas well service cleaners, and G-CLEAN™ pressure washing equipment. Net sales for the nine months ended March 31, 2011 was $3,716, primarily attributed to sales of 4-cycle oil, 5W-30 motor oil, and 2-cycle oil and grill cleaner. The increase in net sales from 2011 to 2012 is a result of sales of the G-CLEAN™ pressure washing equipment, G-CLEAN™ oil and gas well service cleaners and higher shipments of our 5W-30 motor oil, partially offset by delays in production and the fact that 2011 represented initial fulfillment (load-ins) of our outdoor power equipment engine oils at Home Depot and Walmart.
For the nine months ended March 31, 2012, approximately 90% of our sales were from four customers, TTI, Menards, Inc, Walmart and Galesi. For the nine months ended March 31, 2011, approximately 83% of our sales were from two customers, TTI and Walmart. Net sales are comprised as follows:
Nine months ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Performance products
|
$ | 2,566 | $ | 2,926 | ||||
Cleaning products
|
2,374 | 790 | ||||||
Total
|
$ | 4,940 | $ | 3,716 |
Cost of Sales (exclusive of depreciation and amortization)
Cost of sales (exclusive of depreciation and amortization) primarily consists of the cost of obtaining bio solvents, plant oils, additives, packaging components and fees paid to our affiliates for the costs of salaries and benefits of operations employees. Cost of sales (exclusive of depreciation and amortization) for the nine months ended March 31, 2012 and 2011 were approximately $4,258, and $3,061, respectively. The increase in cost of sales (exclusive of depreciation and amortization) from 2011 to 2012 is primarily due to the increase in net sales.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries and benefits, product development and testing fees, advertising and marketing expenses, public relations, insurance and fees for professional services. Selling, general and administrative expenses for the nine months ended March 31, 2012 and 2011 include the following:
Nine months ended March 31,
|
||||||||
2012
|
2011
|
|||||||
Salaries
|
$ | 582 | $ | 615 | ||||
Selling, marketing, public relations and related
|
2,797 | 1,893 | ||||||
Development, product release and testing
|
369 | 431 | ||||||
Management and operating fees
|
282 | 291 | ||||||
Legal and professional
|
332 | 300 | ||||||
Occupancy, communications and all other, net
|
393 | 445 | ||||||
Total selling, general and administrative expenses
|
$ | 4,755 | $ | 3,975 |
The decrease in salaries is due to the resignation of our former chief executive officer in May 2011, partially offset by an increase in headcount. The increase in sales and marketing expenses is primarily due to higher print advertising fees, higher auto racing sponsorship fees and higher commission expense due to increased sales. The decrease in development, product release and testing is primarily due to prior year independent testing fees to obtain the SM rating from the American Petroleum Institute (API) for our 5W-30 and 5W-20 motor oil.
20
Stock-based compensation
Stock-based compensation expense for the nine months ended March 31, 2012 and 2011 was approximately $2,945 and $3,141, respectively. The decrease is primary due to prior year stock option expense for our former chief executive officer.
Depreciation and amortization
Depreciation and amortization expense for the nine months ended March 31, 2012 and 2011 was approximately $157 and $293, respectively. Depreciation charges totaled $17 and $20 for the nine months ended March 31, 2012 and 2011, respectively, and amortization expense for intangible assets totaled $140 and $273 for the nine months ended March 31, 2012 and 2011, respectively. The decrease in amortization expense is primarily due to the change in useful life of the intangible assets. The depreciation and amortization expense is excluded from cost of sales.
Legal and settlement charges
In connection with the legal fees related to the Zuckerman case as more fully described in our Annual Report on Form 10-K for the fiscal year ended June 30, 2011, we recorded a favorable adjustment of $254 for the nine months ended March 31,compared to a charge of $2,525 for the nine months ended March 31, 2011. The adjustment was due to a settlement agreement regarding the payment of legal fees related to the litigation.
Change in revaluation of derivatives
As of March 31, 2012 the change in the fair value of the conversion features of the convertible debenture was $934. The value of the conversion features as of March 31, 2012 was determined using the Black-Scholes method. For the three months ended March 31, 2012, we recorded an adjustment of $619 for the conversion feature on the Debentures and $315 for the associated warrants.
Loss on issuance of convertible debt
We recorded a charge of $1,265 in connection with the issuance of the Debentures and associated warrants.
Interest expense, net
Net interest expense for the nine months ended March 31, 2012 and 2011 was approximately $311 and $6, respectively. Interest expense consists of $250 in connection with the amortization of the debt discount on the Debentures, $42 in connection with the accrued interest on the Debentures and $10 in connection with the deferred financing costs for the Debentures. Interest income consists of interest earned on bank deposits and deposits in an institutional money market fund.
21
Seasonality
Although our various product lines are sold on a year-round basis, the appearance chemicals and outdoor power equipment markets are inherently seasonal. Seasonality impacts liquidity in that we generally record the majority of our annual sales in the quarters ending March and June.
Liquidity and Capital Resources
At March 31, 2012 and June 30, 2011, we had $714 and $772 in cash and an accumulated deficit of $65,009 and $57,446, respectively. At March 31, 2012 and June 30, 2011, we had a working capital deficit of $6,534 and $3,003, respectively.
Net cash used in operating activities was $3,467 and $2,047 for the nine months ended March 31, 2012 and 2011, respectively. The increase from 2011 to 2012 was primarily due to an increase in accounts payable and accounts payable related parties, partially offset by payments made to vendors in the nine months ended March 31, 2012.
Net cash provided by financing activities was $3,425 and $2,281 for the nine months ended March 31, 2012 and 2011, respectively. The increase in financing activities is primarily due to the issuance in December 2011 of the Debentures and proceeds from notes payable, related party, offset by the payment of notes payable, related party. The net proceeds from our financing activities were used to support our expansion, including purchases from suppliers, advertising and increased infrastructure costs.
We currently have no material commitments for capital expenditures. During nine months ended March 31, 2012 and 2011, our cash used in investing activities (capital requirements) was $16 and $0, respectively. In the foreseeable future, we will require capital for the growth of our business, including increases in personnel, sales and marketing, and purchasing finished goods to fulfill orders.
Losses from operations are continuing subsequent to March 31, 2012 and we anticipate that we will continue to generate losses from operations in the near future. Since inception, we have financed our operations by issuing securities (common stock and debt instruments) in various private placement transactions and from revenue generated by sales of our products. From July 1, 2011 through March 31, 2012, we sold 1,830,000 shares of our common stock to Lincoln Park Capital pursuant to an agreement more fully described in our Annual Report for the year ended June 30, 2011. Total aggregate gross proceeds from these sales were $400, offset by placement fees of $19. In addition, we issued an additional 23,000 shares of our common stock to LPC in connection with these sales as commitment fees.
In March 2012, we issued 139,000 shares of our restricted common stock for gross proceeds of $25 in private placement transaction.
Secured Convertible Debentures and Warrants
In December 2011, we realized gross proceeds of $2,250 from the sale of the Debentures and warrants to purchase up to 6,617,000 shares of our common stock (the “Warrants”) to three accredited investors (the “Investors”) in a private placement transaction. Interest on the Debentures is payable quarterly in arrears cash or equity at our discretion. The outstanding principal balance of the Debentures and all accrued but unpaid interest thereon may be converted, in whole or in part, at any time at the option of each Investor into shares of our common stock, based on an initial conversion price of $0.17 per share. The Debentures are due and payable on December 31, 2014. The Company may prepay the Debentures at any time without penalty or premium upon ten business days prior written notice to the Investors, provided there is, at that time, an effective registration statement covering the resale of the shares issuable upon conversion of the Debentures.
22
The Warrants are exercisable at any time on or before December 31, 2016. The exercise price is $0.21.
The Debentures and Warrants also provide for weighted average anti-dilution protection in the event that any shares of common stock, or securities convertible into common stock, are issued at less than the conversion or exercise price of the Debentures and Warrants, respectively, except in connection with the following issuances of our common stock, or securities convertible into common stock: (i) shares issuable under currently outstanding securities, including those authorized under stock plans, (ii) securities issuable upon the exchange or exercise of the Debenture or Warrants, or (iii) securities issued pursuant to acquisitions or strategic transactions.
Going Concern Consideration
Due to our limited amount of additional committed capital, recurring losses, negative cash flows from operations and our ability to pay outstanding liabilities, in their report for the fiscal year ended June 30, 2011 our independent auditors stated that there is substantial doubt about our ability to continue as a going concern. The consolidated financial statements included elsewhere in this report have been prepared in accordance with U.S. generally accepted accounting principles, assuming that we will continue as a going concern.
Since inception, we have incurred operating losses and negative cash flows from operations. As of March 31, 2012, we had an accumulated deficit of $65,009, with total stockholders’ deficit of $5,562. We had a working capital deficit of $6,534 at March 31, 2012.
We continue to have discussions with existing and potential new investors regarding an investment in us. Although we do not have any firm commitments, we intend to continue these discussions. Additionally, we believe revenues will increase as consumers learn of and experience the efficacy of our products. Increased revenues will reduce, or eliminate our operating losses and enable us to meet our financial obligations. However, there can be no assurances that we can attract new investment, increase revenues or attract new investment on terms acceptable to us. Failure to obtain sufficient equity financing would have substantial negative ramifications to us.
Contractual Arrangements
Significant contractual obligations as of March 31, 2012 are as follows:
Amount Due in
|
||||||||
Type of Obligation
|
Total Obligation
|
Less than 1 year
|
||||||
Facility Lease
|
$ | 167 | $ | 82 |
Off Balance Sheet Arrangements
We have no material off balance sheet arrangements that are likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.
23
Critical Accounting Policies
There have been no material changes in our critical accounting policies and estimates from those disclosed in Item 7 of our Annual Report on Form 10-K for the year ended June 30, 2011.
Summary of Significant Accounting Policies and New Accounting Pronouncements
There have been no new significant accounting policies or accounting pronouncements from those disclosed in our Annual Report on Form 10-K for the year ended June 30, 2011.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a smaller reporting company, we are not required to provide the information required by this item
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation under the supervision and with the participation of our management, including our President and our Chief Financial Officer, of effectiveness of the design and operation of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), as of the end of the period covered by this report (the “Evaluation Date”.) Based on this evaluation, our President and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the Evaluation Date, to ensure that all material information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to them as appropriate, to allow timely decisions regarding required disclosure and that all such information is recorded, processed, summarized and reported as specified in the SEC rules and forms and that such information is accumulated and communicated to our management, including our President and Chief Financial Officer, to allow timely decisions regarding required disclosure. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and can therefore only provide reasonable, not absolute, assurance that the design will succeed in achieving its stated goals.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2012 that have materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in routine litigation incidental to our business. Further, product liability claims may be asserted in the future relative to events not known to management at the present time. Management believes that our risk management practices, including our insurance coverage, are reasonably adequate to protect against potential material product liability losses. We are not a party to any material legal proceeding not in the ordinary course of business at this time.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. (ALL DOLLAR AMOUNTS ARE IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In March 2012, we issued 139,000 shares of our restricted common stock for gross proceeds of $25 in a private placement transaction. The shares were issued in reliance upon the exemption from the registration requirements of the Securities Act of 1933, as amended pursuant to Section 4(2) thereof. An appropriate restrictive legend was imprinted on the back of each issued stock certificate.
ITEM 6. – EXHIBITS
Exhibit Numbers
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Description
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Certification of President and Chief Marketing Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *
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||
Certification of Chief Operating Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes Oxley Act of 2002 *
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Certification of President and Chief Marketing Officer and Chief Operating 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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||
101.INS (1)
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XBRL Instance Document
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101.CAL (1)
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XBRL Taxonomy Extension Schema Document
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101.SCH (1)
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.LAB (1)
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE (1)
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XBRL Taxonomy Extension Presentation Linkbase Document
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101.DEF (1)
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XBRL Taxonomy Extension Definition Linkbase Document
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*
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Filed herewith.
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||
(1)
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Furnished with this report. In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.
GREEN EARTH TECHNOLOGIES, INC. | |||
Date: May 14, 2012
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By:
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/s/ Jeffrey Loch | |
Jeffrey Loch | |||
President and Chief Marketing Officer | |||
(Principal Executive Officer) |
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By:
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/s/ Greg D. Adams | |
Greg D. Adams | |||
Chief Operating Officer and Chief Financial Officer | |||
(Principal Financial Officer) |
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