UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal years ended June 30, 2006, June 30, 2007, June 30, 2008
[ ] 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 1-16165
GreenCore Technology, Inc.
(Formerly Aquacell Technologies, Inc.)
----------------------------------------------
(Name of small business issuer in its charter)
Delaware 33-0750453
------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10410 Trademark Street, Rancho Cucamonga, CA 91730
------------------------------------------------ -------------
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (909) 987-0456
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.001 per share
Check whether the issuer (1) 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 issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. Yes __ No X
Check if there is no disclosure of delinquent filers pursuant to Item 405
of Regulation S-B contained herein, and will not be contained, to the best of
issuer's knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-KSB or any amendment to this Form
10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $171,000.00
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes __ No X
As of September 30, 2008, the aggregate market value of the issuer's
Common Stock (based on its reported last sale price on the OTC Pink Sheets)
held by non-affiliates of the issuer was $4,475,000.
At September 30, 2008 34,632,888 shares of issuer's Common Stock were
outstanding.
EXPLANATORY NOTE
The accompanying Form 10-KSB reports the annual consolidated financial
statements for the years ended June 30, 2006, 2007 and 2008, in addition to
summary unaudited quarterly financial information for the quarterly periods of
2006, 2007 and 2008.
Table of Contents
Page
Part I
Item 1 Business 3
Item 2 Property 7
Item 3 Legal Proceedings 7
Item 4 Submission of Matters to a Vote of Security Holders 7
Part II
Item 5 Market for Common Equity and Related Stockholder Matters 8
Item 6 Management's Discussion and Analysis or Plan of Operation 10
Item 7 Financial Statements 19
Item 8 Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure 19
Item 8A(T) Controls & Procedures 20
Item 8B Other Information 21
Part III
Item 9 Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act 22
Item 10 Executive Compensation 24
Item 11 Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 28
Item 12 Certain Relationships and Related Transactions 30
Item 13 Exhibits and Reports on Form 8-K 30
Item 14 Principal Accountant Fees and Services 31
Signatures 32
Exhibit Index 33
2
PART I
ITEM 1. BUSINESS
Background
GreenCore Technology, Inc. formerly AquaCell Technologies, Inc. (the
"Company") was incorporated in Delaware on March 19, 1997, and historically
conducted business in the water industry.
In the calendar year ended June 2005, the Company's operations consisted of
two operating subsidiaries, Aquacell Media, Inc. and Aquacell Water, Inc.
AquaCell Media, operated in the out-of-home advertising segment of the
advertising industry. The Company had placed approximately 1400 of its patented
self-filling water coolers into retail locations and sold advertising on the
bottle label. Aquacell Water, Inc. (formerly Water Science Technologies, Inc.)
engaged in the manufacture and sale of products for water filtration and
purification, addressing various water treatment applications for municipal,
industrial, commercial, and institutional purposes.
On March 9, 2006, the Company separated it's wholly owned subsidiary
Aquacell Water, Inc. through a spinoff distribution to its shareholders,
registering the spinoff shares on a Form 10 registration statement. Holders of
record of the Company's common shares as of the close of business on March 9,
2006, which was the record date, received one share of Aquacell Water common
stock for every one share of AquaCell Technologies common stock held, provided
they had not sold the shares between the record date and distribution date of
April 3, 2006. On May 23, 2006 Aquacell Water began trading on the OTC Bulletin
Board as an independent public company.
The year ended June 2007 was a transition year for the Company. The Company
exited the out-of-home advertising business and in January 2007, embarked upon a
redirection of its business. In May 2007, the Company acquired GPM, Inc. a
patent holder and manufacturer of a solar powered air conditioner. Since
acquiring GPM, the Company has further developed the product to meet the needs
of specific niche market segments that the Company has selected to target.
For the year ended June 2008, the Company's focus has been solely on
environmentally friendly or "green" technologies, including the GreenCore solar
powered air conditioner and the repositioning of its self-filling water cooler
as an eco-friendly product.
Our Products
We manufacture and sell environmentally friendly or "green" products.
Unlike many products that are eco-friendly, our products have been designed to
save money in comparison to costs for similar traditional products.
Solar Air Conditioning
----------------------
Following the acquisition of GPM we redesigned and updated the solar
powered air conditioner through an aggressive development program, utilizing
the services of engineers that specialize in direct current electricity and in
refrigeration. We have designed two solar air conditioner models marketed
under the GreenCore Air name: GC10200-1, which is a free-standing unit with
options to allow for ducted installation or direct discharge; and GC10200-2
which is a mobile system. Our solar powered DC air conditioner provides air
conditioning without the high operating cost associated with even the most
efficient traditional AC powered air conditioners. These two systems are the
flagship products of our business.
Our GreenCore solar powered air conditioner is a 24-volt, all DC (direct
current) air conditioner, designed to be primarily powered by energy generated
by photovoltaic (solar) panels and stored in batteries. When power from the sun
is not available, the technology developed by the Company allows the systems to
automatically switch to utilize the energy stored within the batteries. For
complete grid-free applications, the solar array and battery storage is sized to
ensure the system will continue to run in the event the sun does not shine for
an extended period of time.
3
We have designed our solar powered air conditioner to be either grid-free,
or to operate as a hybrid system with AC (alternating current) battery charging
capability, allowing the solar array to be smaller. Our system can also be
interfaced with existing photovoltaic systems, or with other alternative energy
generators such as wind power.
The GreenCore 10200 solar air conditioner, which utilizes R134A
refrigerant, produces 10,200 BTUs and is capable of cooling areas up to 600
square feet. The SEER and EER standards for ratings associated with the energy
efficiency of air conditioners are not applicable to our DC air conditioner, as
these ratings are based upon the amount of electricity used from the electrical
grid for BTU exchange. Additionally, as an option, the GreenCore 10200 may be
configured to provide both air conditioning and heat, making it a complete
climate control system.
Environmentally Friendly "Bottled" Water
----------------------------------------
We have repositioned our self-filling Aquacell bottled water cooler system
as a "green" product, given that it replaces bottled water which is known to
have a negative environmental impact. Our self-filling cooler is connected to
a tap water source and filtered through an extensive filtration system which
includes ultra-violet light for disinfections. The water flows into the
permanently attached five-gallon bottle, which refills itself each time water is
dispensed, eliminating the need to replace the bottle.
Replacing bottled water with an Aquacell Bottled Water Cooler System can
provide significant savings to corporations and other users, in addition to
eliminating problems related to storing and handling heavy bottled water.
Environmental Sustainability and Responsibility - Trends in society
Pollution, climate change and depletion of natural energy resources are the
most significant environmental problems facing the world today.
According to the EPA, America is shifting to a "green culture" with more
and more businesses recognizing that environmental responsibility is everyone's
responsibility. While early eco-sensitive companies were often ridiculed, now
even the world's largest chemical companies are making bold transformations to
improve the environment.
Corporations are faced with developing corporate responsibility and
sustainability strategies while maximizing shareholder value, often a difficult
task. Their goal is to meet the needs of the present without compromising the
needs for future generations. Nearly every major corporation has a "green"
initiative, from facility departments, to manufacturing, transportation and
marketing.
Environmental Impacts
Environmental Impact of Air Conditioning
----------------------------------------
It has been estimated that approximately 16% of all electricity used in the
United States is for air conditioning. Despite new environmental standards for
efficiency ratings for air conditioning equipment, the demand for air
conditioning continues to increase. This increase is primarily due to the
increase in the need for cooling IT and data centers. Even as computing
equipment becomes smaller, it uses the same or even more electricity than the
equipment it replaced, generating as much or more heat in data centers that must
be removed in order for the equipment to operate.
According to an EPA report, it is estimated that in 2006, data centers
consumed 1.5 percent of the total U.S. electricity consumption, which is
expected to double by the year 2011. Fifty percent of the electricity used in
data centers is for cooling equipment.
4
Environmental Impact of Bottled Water
-------------------------------------
Recent reports show that the staggering increase in the sales of bottled
water have resulted in nearly 40 billion water bottles being deposited in land
fills every year. Cities such as San Francisco, New York and Salt Lake City are
restricting or eliminating the sales of bottled water by city offices, and
discouraging its use. In addition to the environmental impact of water bottles
filling land fills, the manufacturing of plastic water bottles has its own
environmental impact. In fact, nearly every step in the bottling process has
an environmental impact. The water treatment process often requires bottlers
to waste up to six gallons of water for each gallon it produces. A bottler in
California received significant fines for the amount of sewer water it generated
from its purification process, and acknowledged that their waste water was
perfectly suited for consumption. Other bottlers have been cited for the
disruption of natural pristine water sources to meet growing demands for bottled
water in urban regions. Many locales are refusing to allow water bottling
plants to operate in their towns or counties.
Further enhancing the negative environmental impact is the transportation
and unnecessary use of fossil fuels. Water is generally transported from the
source in tanker trucks to the bottling plant, and then the bottles are re-
transported via truck, rail, ship or sometimes even air. At more than eight
pounds per gallon, trucks that transport water generally are not able to carry a
full load of bottles.
According to the Pacific Institute, it is estimated that producing the
bottles for American consumption of bottled water in 2006 required the
equivalent of more than 17 million barrels of oil. Overall, the average energy
cost to make the plastic, fill the bottle, transport it to market and then deal
with the waste would be like filling up a quarter of every bottle with oil.
Marketing
For the initial introduction of our revolutionary solar powered air
conditioner, we participated in various solar related trade shows, and have
taken our off-grid mobile showroom to a number of location. The mobile
showroom, which utilities a 48 foot semi trailer, is outfitted with the
GreenCore solar powered air conditioner model 10200-1, as well as with the
earth-friendly Aquacell 1000 self-filling water cooler. All electricity for
the showroom is generated by solar panels mounted on the roof, powering the air
conditioner, water cooler, lights, computers and other items.
We were invited to participate in several Earth Day related events for
Universal Studios, 20th Century Fox, LA Community College and the Los Angeles
Metro Water District. Additionally, we provided off-grid air conditioning to
the American Idol Season Finale VIP Party.
Our target markets for the solar powered air conditioner include commercial
locations with a small footprint that requires cooling and my have limited
access to reliable electricity. The applications include modular classroom and
offices, construction trailers and telecommunication data centers.
We have placed our marketing emphasis on applications that traditionally
utilize Single Package Vertical Unit (SPVU) air conditioners. SPVUs are a
product classification of ASHRAE (American Society of Heating, Refrigeration and
Air Conditioning Engineers) which have been exempted from the Department of
Energy's efficiency requirements, allowing for an energy efficiency rating of
8.6. Replacing air conditioners of this low rating allows the Company to
provide significant reduction in operating costs. These air conditioners are
typically used in modular classrooms, construction trailers and
telecommunication data centers.
We have also set up distributors in the Baja region of Mexico and the State
of Texas. We have appointed agents to establish distribution networks in key
marketing areas, including the Middle East and Europe. Additionally, we are in
the process of reviewing applications and interviewing for distributors both
domestic and international.
Target markets for our Aquacell Bottled Water Cooler System include
commercial entities desiring to promote an eco-friendly workplace, while saving
money in comparison to delivered bottled water costs. The Company is looking to
establish a marketing partner for this product.
5
Aquacell Water, Inc.
In March 2002 the Company acquired Water Science Technologies (WST) and in
August 2005 changed its name to Aquacell Water, Inc. Aquacell Water
manufactures custom designed turnkey water purification and treatment systems
for municipal, industrial and commercial applications, with concentration and
expertise in arsenic removal systems for public drinking water providers.
Depending upon the source of the water - ground water, surface water or
seawater - its content and the required quality of the treated water, Aquacell
Water builds a custom system designed to meet the specifications of the end
user. We engineer and design the systems we produce to ensure that we meet the
needs of our customers, and provide installation, maintenance and training,
with an emphasis on arsenic removal for public drinking water systems.
In March 2006, Aquacell Water, Inc. was separated from the Company in a
distribution to the Company's shareholders.
Customers
Our GreenCore Air customers include various distributors established by the
Company, who have distributed our solar air conditioners to companies including
McDonald's and MetroPCS. We also have sold systems directly to the US
government's Naval Research Laboratories.
Our Aquacell Water Cooler customers include a broad range of corporations
and government entities,,
Production, Raw Materials and Supplies
Our products are manufactured in our 10,000 square foot manufacturing
facility located in Rancho Cucamonga, California,
Upon completion of manufacture, each product undergoes quality assurance
testing prior to shipping and installation. Many of the raw materials and
components used in our products are commonly available commodities such as
fittings, and tubing, while others are specifically manufactured to our
specifications in accordance with our proprietary technology. Our products are
fabricated from these materials and assembled together to form an integrated
product. Multiple vendors have been identified as sources for most parts and
supplies for our products and we do not anticipate any shortages of such
materials. We have dependence on certain single source suppliers for some of our
parts. If any supplier were to become unable to perform, we believe we could
readily find a substitute source for most products, while others may take longer
to find a suitable substitute source. We are not a party to any material long-
term fixed price supply contracts.
Government Regulation
The market for alternative energy products is strongly influenced by
federal, state and local government regulations and policies. In the United
States these regulations and policies are modified from time to time. Customer
purchases of alternative energy products could be deterred by these regulations
and policies and their modifications, which could affect the potential demand
for our products.
Any changes in applicable regulations or their enforcement may affect our
operations by imposing additional regulatory compliance costs on our customers,
requiring modification of our products or affecting the market for our products.
To the extent that demand for our products are created by the need to comply
with such enhanced standards or their enforcement, any modification of the
standards or their enforcement may reduce demand, thereby adversely affecting
our business, financial condition or results of operations. The relaxation or
repeal of any such laws or regulations or the strict enforcement thereof could
also adversely affect our business and prospects. Conversely, changes in
applicable environmental requirements imposing additional regulatory compliance
requirements or causing stricter enforcement of these laws or regulations could
increase the demand for our products.
6
Competition
While we believe that we can deliver our products on an economically
competitive basis, there can be no assurance in that regard. Consequently, we
may encounter significant competition in our efforts to achieve our strategic
goals. There can be no assurance that our competitors will not develop products
that are superior to ours or achieve greater market acceptance than our
products. Competition could have a material adverse effect on our ability to
consummate arrangements with customers or enter into strategic business
alliances. Moreover, in response to changes in the competitive environment, we
may make certain pricing, service or marketing decisions or enter into
acquisitions or new ventures that could have a material adverse effect on our
business, financial condition and results of operations.
Intellectual Property
We own a United States patent on solar powered air conditioning. We intend
to seek appropriate additional trademark or service mark registrations in
connection with our product and service offerings.
Employees
As of June 30, 2008 we had 12 employees. None of our employees are covered
under collective bargaining agreements although we do have employment agreements
with certain executives. Management believes we maintain a good relationship
with our employees.
ITEM 2. PROPERTIES
Our principal executive office and our 10,000 square foot manufacturing
facility are located in Rancho Cucamonga, California under a five-year lease
that commenced on January 1, 1999 and expires on December 31, 2009. That lease
has an annual base rent of $86,000. We believe that, if necessary, alternative
space is readily available at comparable rates and on comparable terms with
respect to all of our leased properties. We also believe that we can obtain
additional space necessary to support increases in our future operation. We
believe that the properties described above are currently protected by adequate
insurance.
ITEM 3. LEGAL PROCEEDINGS
The Company is a defendant, along with other parties, in an action in the
Superior Court of the State of California, San Bernardino County, commenced in
April 2008 by SolCool, LLC, a former distributor for the Company. The plaintiff
is claiming approximately $235,000 in damages arising from an alleged breach of
contract of a distribution agreement between the parties. The Company has
interposed a counterclaim in excess of the amount sought by the plaintiff for
breach of the aforesaid distribution agreement and trade name infringement. The
Company is vigorously defending the lawsuit, which is in its initial stages, and
accordingly, no firm prediction as to the outcome of the lawsuit can be made at
this time.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
In June 2008 the Company solicited the written consent of a majority of its
stockholders pursuant to the provisions of Delaware General Corporation Law
Section 228 to amend its Certificate of Incorporation changing the company name
to GreenCore Technology, Inc. and increasing the number of authorized common
shares from 75,000,000 to 200,000,000. A majority of stockholders consented to
amend the proposed amendment, which was filed with the Delaware Secretary of
State on June 30, 2008.
7
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock commenced quotation on the American Stock
Exchange on February 12, 2001 following its initial public offering. The
following table sets forth, for the periods indicated, the last sale prices for
the Common Stock as reported by American Stock Exchange:
Period High ($) Low ($)
------ -------- -------
Fiscal 2009
October 1 - October 15.............................$ 0.13 $ 0.06
First Quarter...................................... 0.22 0.13
Fiscal 2008
Fourth Quarter.....................................$ 0.35 $ 0.16
Third Quarter...................................... 0.32 0.17
Second Quarter..................................... 0.57 0.18
First Quarter...................................... 0.49 0.23
Fiscal 2007
Fourth Quarter.....................................$ 0.63 $ 0.35
Third Quarter...................................... 0.23 0.09
Second Quarter..................................... 0.30 0.01
First Quarter...................................... 0.08 0.05
Fiscal 2006
Fourth Quarter.....................................$ 0.28 $ 0.07
Third Quarter...................................... 0.33 0.16
Second Quarter..................................... 0.55 0.15
First Quarter...................................... 0.68 0.36
In March 2006, the Company separated it's wholly owned subsidiary Aquacell
Water, Inc. from itself through a distribution to its shareholders. In May 2006
Aquacell Water began trading as an independent public company.
On September 30, 2008 the last sale price of the Common Stock as reported
by Pink Sheets was $0.17. On September 30, 2008, there were approximately 135
holders of record of the Company's Common Stock and, the Company believes,
approximately 1300 beneficial owners of the Company's Common Stock.
Depending upon the Company's capital resources and needs, the Company has
no present plans to pay cash dividends in the future. The payment of dividends
on common stock, if any, in the future is within the discretion of the Board of
Directors and will depend upon the Company's earnings, its capital requirements
and financial condition, and other relevant factors, although this may change
based upon the foregoing factors.
8
Recent Sales of Unregistered Securities
During the year ended June 30, 2007 the Company made the following sales
of unregistered securities:
Exemption
Consideration Received and Description of From If Option, Warrant or
Date Title of Number Underwriting or Other Discounts to Registration Convertible Security,
of Sale Security Sold Market Price Afforded to Purchasers Claimed Terms of Exercise or Conversion
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
12/06 Common Stock 137,500 Issued upon exercise of warrants 4(2);
Cash received $25,625 less offering expenses 4(6)
of $3000
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
01/07 Common Stock 1,354,887 Issued upon exercise of warrants 4(2);
Cash received $127,231 less offering expenses 4(6)
of $9000
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
02/07 Common Stock 813,333 Issued upon exercise of warrants 4(2);
Cash received $32,000 less offering expenses 4(6)
of $3000
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
12/06 Warrants to 68,750 Issued in connection with repricing of 4(2); All exercisable at $0.50 per share
Purchase certain exercised warrants. No 4(6)
Common Stock consideration unless warrants are converted
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
01/07 Warrants to 412,859 Issued in connection with repricing of 4(2); All exercisable at $0.30 per share
Purchase certain exercised warrants 4(6)
Common Stock
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
01/07 Warrants to 942,028 Issued in connection with repricing of 4(2); All exercisable at $0.25 per share
Purchase certain exercised warrants 4(6)
Common Stock
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
02/07 Warrants to 813,333 Issued in connection with private placement 4(2); All exercisable at $0.40 per share
Purchase 4(6)
Common Stock
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
11/06 Common Stock 500,000 Issued in connection with a consulting 4(2);
agreement 4(6)
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
01/07 Common Stock 1,000,000 Issued in connection with an employment 4(2);
agreement 4(6)
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
03/07 Common Stock 500,000 Issued in connection with a placement agency 4(2);
agreement 4(6)
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
02/07 Notes 4,500,000 Issued in connection with Private Offering 4(2); Convertible at $0.20 per share
Convertible to Accredited Investors. Cash received 4(6)
to Common $900,000 less offering expenses of $54,000
Stock
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
04/07 Notes 500,000 Issued in connection with Private Offering 4(2); Convertible at $0.20 per share
Convertible to Accredited Investors. Cash received 4(6)
to Common $100,000
Stock
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
05/07 Notes 10,000,000 Issued in connection with Private Offering 4(2); Convertible at $0.20 per share
Convertible to Accredited Investors. Cash received 4(6)
to Common $2,000,000 less offering expenses of
Stock $200,000
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
06/07 Notes 5,500,000 Issued in connection with Private Offering 4(2); Convertible at $0.20 per share
Convertible to Accredited Investors. Cash received 4(6)
to Common $1,100,000 less offering expenses of
Stock $110,000
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
9
During the year ended June 30, 2008 the Company made the following sales of
unregistered securities:
Exemption
Consideration Received and Description of From If Option, Warrant or
Date Title of Number Underwriting or Other Discounts to Registration Convertible Security,
of Sale Security Sold Market Price Afforded to Purchasers Claimed Terms of Exercise or Conversion
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
03/08 Common Stock 540,000 Issued in connection with Consulting 4(2);
Agreement 4(6)
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
03/08 Warrants to 540,000 Issued in connection with Consulting 4(2); All exercisable at $0.75 per share
Purchase Agreement. No consideration unless warrants 4(6)
Common Stock are converted
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
06/08 Notes 1,810,000 Issued in connection with Private Offering 4(2); Convertible at $0.20 per share
Convertible to Accredited Investors. Cash received 4(6)
to Common $362,000 less offering expenses of $18,120
Stock
--------- ------------ ---------- --------------------------------------------- ------------ ----------------------------------
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
When used in this Form 10-KSB and in future filings by the company with the
Commission, statements identified by the words "believe", "positioned",
"estimate", "project", "target", "continue", "will", "intend", "expect",
"future", "anticipates", and similar expressions express management's present
belief, expectations or intentions regarding the company's future performance
within the meaning of the Private Securities Litigation Reform Act of 1995. The
safe harbor in the Private Securities Litigation Act of 1995 does not apply to
statements made in this document. Readers are cautioned not to place undue
reliance on any such forward-looking statements, each of which speaks only as of
the date made. Such statements are subject to certain risks and uncertainties
that could cause actual results to differ materially from historical earnings
and those presently anticipated or projected. The company has no obligations
to publicly release the result of any revisions which may be made to any
forward-looking statements to reflect anticipated or unanticipated events or
circumstances occurring after the date of such statements.
Overview
The following discussions and analysis should be read in conjunction with
the Company's consolidated financial statements and the notes presented
following the financial statements. The discussion of results, causes and
trends should not be construed to imply any conclusion that such results or
trends will necessarily continue in the future.
In the calendar year ended December 2005, the Company's operations
consisted of two operating subsidiaries, Aquacell Media, Inc. and Aquacell
Water, Inc. AquaCell Media, operated in the out-of-home advertising segment of
the advertising industry. The Company had placed approximately 1,400 of its
patented self-filling water coolers into retail locations and sold advertising
on the bottle label. Aquacell Water, Inc. (formerly Water Science
Technologies, Inc.) engaged in the manufacture and sale of products for water
filtration and purification, addressing various water treatment applications
for municipal, industrial, commercial, and institutional purposes.
On March 9, 2006, the Company separated it's wholly owned subsidiary
Aquacell Water, Inc. from itself through a distribution to its shareholders.
10
The year ended June 2007 was a transition year for the Company. The Company
exited the out-of-home advertising business and in January 2007, embarked upon a
redirection of its business. In May 2007, the Company acquired GPM, Inc. a
patent holder and manufacturer of a solar powered air conditioner. Since
acquiring GPM, the Company has further developed the product to meet the needs
of specific niche market segments that the Company has selected to target.
For the year ended June 2008, the Company's focus has been solely on
environmentally friendly or "green" technologies, including the GreenCore solar
powered air conditioner and the repositioning of its self-filling water cooler
as an eco-friendly product.
Following the Company's acquisition of GPM in May 2007 the DC solar powered
air conditioner has been in the engineering and development stage just recently
being marketed by the Company and installed in limited locations. As such, the
Company's revenue has been minimal during the years ended June 30, 2007 and 2008
with sales and marketing efforts commencing in July 2008.
The Registrant, a small business issuer with limited resources, has been
behind in filing its periodic reports since March 2006. In an effort to become
current the company has focused its attention and resources on completing its
past due financial audits by filing a comprehensive Form 10-KSB covering the
fiscal years ended 2006, 2007 and 2008.
Critical Accounting Policies
The accompanying discussion and analysis of our financial condition and
results of operations are based upon our financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America ("US GAAP"). The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, and expenses, and related disclosure
of contingent assets and liabilities. These estimates form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. We base our estimates and judgments on
historical experience and all available information. However, future events are
subject to change, and the best estimates and judgments routinely require
adjustment. US GAAP requires us to make estimates and judgments in several
areas, including those related to recording various accruals, income taxes, the
useful lives of long-lived assets, such as property and equipment and intangible
assets, and potential losses from contingencies and litigation. We believe the
policies discussed below are the most critical to our financial statements
because they are affected significantly by management's judgments, assumptions
and estimates.
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
net assets of a business acquired. The Company has adopted Statements of
Financial Accounting Standards No. 142 (SFAS 142), "Goodwill and Other
Intangible Assets". Fair value of the reporting unit is determined by comparing
the fair value of the unit with its carrying value, including goodwill.
Impairment tests are performed using discounted cash flow analysis and estimates
of sales proceeds. The annual evaluation of goodwill is performed at June 30th,
the end of the Company's fiscal year.
Based on impairment testing performed, the Company determined that there
was no impairment of the recorded amount of goodwill of $750,000 related to the
GPM acquisition at June 30, 2007 and 2008.
Income Taxes
The Company accounts for income taxes using the asset and liability method
described on SFAS No. 109, "Accounting For Income Taxes", the objective of which
is to establish deferred tax assets and liabilities for the temporary
differences between the financial reporting and the tax bases of Water's assets
and liabilities at enacted tax rates expected to be in effect when such amounts
are realized or settled. A valuation allowance related to deferred tax assets is
recorded when it is more likely than no that some portion or all of the deferred
tax assets will not be realized.
11
New Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" (FIN 48), an interpretation of SFAS 109,
"Accounting for Income Taxes." FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in accordance
with SFAS 109. FIN 48 prescribes a two-step process to determine the amount of
tax benefit to be recognized. First, the tax position must be evaluated to
determine the likelihood that it will be sustained upon examination. If the tax
position is deemed "more-likely-than-not" to be sustained, the tax position is
measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. FIN 48 was adopted by the Company in
fiscal 2008 and did not have any impact on its consolidated results of
operations and financial position.
In September 2006, the FASB issued SFAS 157, "Fair Market Measurements."
SFAS 157 clarifies the definition of fair value, establishes a framework for
measuring fair value and expands disclosure on fair value measurement. SFAS 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and will be applied on a prospective basis. The Company does
not expect the adoption of SFAS 157 to have a material impact on its
consolidated results of operations, financial position or cash flows.
In February 2007, the FASB issued SFAS 159, "The Fair Value Option for
Financial Assets and Financial Liabilities." SFAS 159 permits entities to
measure many financial instruments and certain other items at fair value at
specified election dates. Under SFAS 159, any unrealized holding gains and
losses on items for which the fair value option has been elected are reported in
earnings at each subsequent reporting date. If elected, the fair value option
(1) may be applied instrument by instrument, with a few exceptions, such as
investments otherwise accounted for by the equity method; (2) is irrevocable
(unless a new election date occurs); and (3) is applied only to entire
instruments and not to portions of instruments. SFAS 159 is effective as of an
entity's first fiscal year that begins after November 15, 2007. The Company is
currently evaluating the potential impact of SFAS 159 on its consolidated
results of operations and financial position.
In December 2007, the FASB issued SFAS 141 (revised 2007), "Business
Combinations". SFAS 141R is a revision to SFAS 141 and includes substantial
changes to the acquisition method used to account for business combinations
(formerly the "purchase accounting" method), including broadening the definition
of a business, as well as revisions to accounting methods for contingent
consideration and other contingencies related to the acquired business,
accounting for transaction costs, and accounting for adjustments to provisional
amounts recorded in connection with acquisitions. SFAS 141R retains the
fundamental requirement of SFAS 141 that the acquisition method of accounting be
used for all business combinations and for an acquirer to be identified for each
business combination. SFAS 141R is effective for periods beginning on or after
December 15, 2008, and will apply to all business combinations occurring after
the effective date. The Company is currently evaluating the potential impact of
SFAS 141R on its consolidated financial statements.
In December 2007, the FASB issued SFAS 160, "Non-controlling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51, Consolidated Financial Statements" ("ARB 51"). This Statement amends
ARB 51 to establish new standards that will govern the (1) accounting for and
reporting of non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries. Non-controlling
interest will be reported as part of equity in the consolidated financial
statements. Losses will be allocated to the non-controlling interest, and, if
control is maintained, changes in ownership interests will be treated as equity
transactions. Upon a loss of control, any gain or loss on the interest sold will
be recognized in earnings. SFAS 160 is effective for periods beginning after
December 15, 2008. The Company is currently evaluating the potential impacts of
SFAS 160 on its consolidated results of operations and financial position.
In March 2008, the FASB issued ASAS No. 161, "Disclosure about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which establishes, among other things, the disclosure requirements
for derivative instruments and hedging activities. SFAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative agreements. SFAS 161 is effective for fiscal periods and interim
period beginning after November 15, 2008. The Company does not expect the
adoption of SFAS 161 to have a material impact on its consolidated results of
operations, financial position or cash flows.
12
Results of Operations
For the year ended June 30, 2008 revenues were $171,000 representing an
increase of $24,000, or 16%, over the preceding year. This increase was minimal
and related primarily to the continued sale of water coolers and peripheral
water cooler filters as the Company works down product in its inventory. Sales
and marketing efforts related to the DC solar powered air conditioner began in
late fiscal 2008 at the completion of the engineering and development effort on
the product, which effort did not result in any material product sales during
fiscal 2008.
Operating expenses for the year ended June 30, 2008 totaled $2,483,000 as
compared to the $2,107,000 for the preceding year. This increase is primarily
due to stock based compensation.
Net loss for the year ended June 30, 2008 was $4,284,000, an increase of
$1,985,000 from the net loss incurred for the year ended June 30, 2007 of
$2,299,000. This increase in net loss of $1,795,000 was due almost entirely to
the increase in interest expense of $1,601,000 related to the Company's
financing which began in late fiscal 2007 of its 9% Convertible Promissory
Notes.
For the year ended June 30, 2007 revenues were $147,000, approximately the
same as the $203,000 in revenue for the preceding fiscal year. The minimal
amount in revenue during fiscal 2007 was the result of the Company's decision to
transition from the out-of-home advertising business and in January 2007 and
concentrate on the engineering and development of its DC solar powered air
conditioner related to the May 2007 acquisition of GPM, the patent holder and
manufacturer of a solar powered air conditioner.
Operating expenses totaled $2,107,000 representing a decrease of
$1,391,000, or 40%, from the preceding year. This decrease was due primarily to
the full amortization in fiscal 2006 of the fair value of certain Warrants to
purchase common stock issued in fiscal 2003 and 2004 in connection with
marketing and consulting agreements related to the Company's out-of-home
advertising and water cooler sale business. Due to the Company's decision to
transition from this business the fair value of these Warrants were deemed fully
impaired and the resulting charge of approximately $1,300,000 is included in
stock based compensation expense in the June 30, 2006 consolidated statement of
operations.
Net loss for the year ended June 30, 2007 was $2,299,000 representing a
decrease of $3,373,000 from the preceding year. This decrease was due almost
entirely to the Company's March 9, 2006 separation from its wholly owned
subsidiary Aquacell Water, Inc. and the resulting loss on disposal of assets,
loss from discontinued operations and loss from Form 10 spin-off recorded during
the year ended June 30, 2006 of $684,000, $650,000 and $750,000, respectively.
QUARTERLY FINANCIAL INFORMATION (Unaudited)
The following tables contain the 2008 and 2007 unaudited consolidated
balance sheets as of September 30, December 31 and March 31 and the consolidated
statements of operations for the three month periods ended September 30,
December 31, March 31 and June 30 of 2008 and 2007. Management believes that the
following information reflects all normal recurring adjustments necessary for a
fair presentation of the information for the periods presented.
Unaudited quarterly results are as follows:
13
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Unaudited Quarterly Consolidated Balance Sheets-Fiscal 2008
September 30, December 31, March 31,
2007 2007 2008
(in thousands) (Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------- ------------- ------------- -------------
Assets
Current assets:
Cash $ 858 $ 95 $ 3
Accounts receivable, net of allowance 36 36 38
Inventories 48 54 50
Prepaid expenses and other current assets 54 55 54
Receivables from related parties, net 357 546 40
------------- ------------- -------------
Total current assets 1,353 786 185
Property and equipment, net 26 24 22
Patents, net 1,083 1,067 1,051
Goodwill 750 750 750
Other assets 12 12 12
------------- ------------- -------------
$ 3,224 $ 2,639 $ 2,020
============= ============= =============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities 1,253 1,212 1,184
Accrued officer compensation 439 401 401
Convertible notes payable 4,100 4,898 4,898
Customer deposits 261 261 254
Preferred stock dividend payable - Class A 6 6 6
Warranty reserve 157 157 157
Acquisition costs payable 750 750 750
------------- ------------- -------------
Total current liabilities 6,966 7,685 7,650
Commitments and contingencies
Stockholders' equity (deficiency):
Preferred stock, par value $.001; 20,000,000 shares
authorized; no shares issued and outstanding - - -
Common stock, par value $.001; 100,000,000 shares
authorizied; 32,227,848, 32,345,975 and 33,134,690
shares issued and outstanding at September 30, 2007,
December 31, 2007, and March 31,2008, respectively 32 32 32
Additional paid-in capital 27,087 27,180 27,371
Unearned deferred compensation (740) (627) (514)
------------- ------------- -------------
Accumulated deficit (30,121) (31,631) (32,519)
------------- ------------- -------------
Total stockholders' equity (deficit) (3,742) (5,046) (5,630)
------------- ------------- -------------
$ 3,224 $ 2,639 $ 2,020
============= ============= =============
14
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Unaudited Quarterly Consolidated Balance Sheets-Fiscal 2007
September 30, December 31, March 31,
2006 2006 2007
(in thousands) (Unaudited) (Unaudited) (Unaudited)
----------------------------------------------------- ------------- ------------- -------------
Assets
Current assets:
Cash $ - $ - $ 4
Accounts receivable, net of allowance 7 - 3
Inventories 59 59 59
Receivables from related parties, net 170 163 -
------------- ------------- -------------
Total current assets 236 222 66
Property and equipment, net 12 10 7
Other assets 12 12 12
------------- ------------- -------------
$ 260 $ 244 $ 85
============= ============= =============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities 1,496 1,648 874
Accrued officer compensation 360 360 431
Advances from related parties, net - - -
Preferred stock dividend payable - Class A 2 5 9
Convertible notes payable - - 900
Customer deposits 8 3 195
------------- ------------- -------------
Total current liabilities 1,866 2,016 2,361
Commitments and contingencies
Stockholders' equity (deficiency):
Preferred stock, par value $.001; 20,000,000 shares
authorized; no shares issued and outstanding - - -
Common stock, par value $.001; 100,000,000 shares
authorized; 27,909,408, 28,546,908 and 32,215,128
shares issued and outstanding at September 30, 2006,
December 31, 2006, and March 31,2007, respectively 28 28 32
Additional paid-in capital 25,807 25,828 26,272
Unearned deferred compensation - - (86)
------------- ------------- -------------
Accumulated deficit (27,441) (27,628) (28,494)
------------- ------------- -------------
Total stockholders' equity (deficit) (1,606) (1,772) (2,276)
------------- ------------- -------------
$ 260 $ 244 $ 85
============= ============= =============
15
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Unaudited Quarterly Consolidated Statements of Operations-Fiscal 2008
Quarterly Period Ended
-------------------------------------------------------
September 30, December 31, March 31, June 30,
2007 2007 2008 2008
------------- ------------ ------------ ------------
(in thousands, except per share amounts) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------------------------------------------- ------------- ------------ ------------ ------------
Sales $ 60 $ 24 $ 35 $ 52
Cost of sales 107 34 41 84
------------- ------------ ------------ ------------
Gross profit (47) (10) (6) (32)
Operating expenses
Salaries and wages 160 167 198 238
Legal, accounting and other professional expenses 132 54 55 75
Stock based compensation - - - 383
Depreciation and amortization 18 18 18 19
Selling, general and administrative expenses 236 236 337 139
------------- ------------ ------------ ------------
Total operating expenses 546 475 608 854
------------- ------------ ------------ ------------
Operating income (loss) (593) (485) (614) (886)
Other income (expense):
Other income - - - -
Interest expense, net (108) (1,025) (274) (299)
------------- ------------ ------------ ------------
Total other income (expense) (108) (1,025) (274) (299)
Income (loss) before provision for income taxes $ (701) $ (1,510) $ (888) $ (1,185)
Provision for (benefit from) income taxes - - - -
------------- ------------ ------------ ------------
Net loss for the period $ (701) $ (1,510) $ (888) $ (1,185)
============= ============ ============ ============
Net loss per common share $ (0.02) $ (0.04) $ (0.02) $ (0.03)
============= ============ ============ ============
Weighted average common shares outstanding
- basic and diluted 39,587,058 39,181,443 39,542,511 40,365,490
============= ============ ============ ============
16
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Unaudited Quarterly Consolidated Statements of Operations-Fiscal 2007
Quarterly Period Ended
-------------------------------------------------------
September 30, December 31, March 31, June 30,
2006 2006 2007 2007
------------- ------------ ------------ ------------
(in thousands, except per share amounts) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
--------------------------------------------------- ------------- ------------ ------------ ------------
Sales $ 68 $ 18 $ 24 $ 37
Cost of sales 53 31 36 114
------------- ------------ ------------ ------------
Gross profit (15) (13) (12) (77)
Operating expenses
Salaries and wages 61 62 215 315
Legal, accounting and other professional expenses 22 20 162 291
Stock based compensation 129 9 - -
Depreciation and amortization 2 1 2 1
Selling, general and administrative expenses 118 77 469 151
------------- ------------ ------------ ------------
Total operating expenses 332 169 848 758
------------- ------------ ------------ ------------
Operating income (loss) (317) (182) (860) (835)
Other income (expense):
Other income - - - -
Interest expense, net (3) (5) (6) (91)
------------- ------------ ------------ ------------
Total other income (expense) (3) (5) (6) (91)
Income (loss) before provision for income taxes $ (320) $ (187) $ (866) $ (926)
Provision for (benefit from) income taxes - - - -
------------- ------------ ------------ ------------
Net loss for the period $ (320) $ (187) $ (866) $ (926)
============= ============ ============ ============
Net loss per common share $ (0.01) $ (0.01) $ (0.03) $ (0.03)
============= ============ ============ ============
Weighted average common shares outstanding
- basic and diluted 27,909,408 29,334,299 31,825,880 34,506,794
============= ============ ============ ============
17
Liquidity and Capital Resources
Year Ended June 30, 2008
GreenCore has developed a plan to address liquidity, in connection with its
ability to continue as a going concern in several ways. It intends to raise
capital through the sale or exercise of equity securities as needed for working
capital. GreenCore presently has no agreement or understanding with any party
to market, sell or purchase its equity securities. Any future equity offering
undertaken will be predicated upon the price of the stock and cash flows
generated from operations. GreenCore will strive to pursue the increase of its
revenues through the sale of its DC solar powered air conditioner through its
sales and marketing effort. It is our policy to require a 50% deposit on all
custom product sales providing a significant cash flow as our revenues increase.
It is not possible to quantify such amounts at this time.
Cash used by operations during the year ended June 30, 2008 amounted to
$2,076,000. Net loss of $4,284,000 was reduced by non-cash deferred
compensation interest amortization of $454,000, interest payments settled with
stock issuances of $1,167,000, compensation expense of $383,000, expenses
settled with common stock issuances of $100,000, and depreciation and
amortization of $73,000.
Cash provided by financial activities was approximately $370,000, primarily
from the sale convertible notes payable.
Management believes that its anticipated borrowings, equity raise and cash
flows expected to be generated from future operations will be sufficient to meet
presently anticipated needs for working capital and capital expenditures through
at least the next 12 months; however, there can be no assurance in that regard.
Water presently has no material commitments for future capital expenditures and
internally generated cash flows expected from future operations.
Year Ended June 30, 2007
Cash used by operations during the year ended June 30, 2007 amounted to
$1,983,000. Cash provided by financing activities was approximately $4,287,000,
primarily from the sale of convertible promissory notes.
Management believes that its anticipated borrowings, equity raise and cash
flows expected to be generated from future operations will be sufficient to meet
presently anticipated needs for working capital and capital expenditures through
at least the next 12 months; however, there can be no assurance in that regard.
Water presently has no material commitments for future capital expenditures and
internally generated cash flows expected from future operations.
Year Ended June 30, 2006
Cash used by operations during the year ended June 30, 2006 amounted to
$1,893,000. Net loss of $5,672,000 was reduced by non cash loss on disposal of
assets, depreciation and amortization, compensation expense, loss from spin-off
of Aquacell Water totaling approximately $3,000,000.
Cash provided by financing activities was approximately $1,801,000,
primarily from the sale of equity common stock.
Management believes that its anticipated borrowings, equity raise and cash
flows expected to be generated from future operations will be sufficient to meet
presently anticipated needs for working capital and capital expenditures through
at least the next 12 months; however, there can be no assurance in that regard.
Water presently has no material commitments for future capital expenditures and
internally generated cash flows expected from future operations.
18
ITEM 7. FINANCIAL STATEMENTS
See Financial Statements beginning on page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
On May 2, 2007 the Company received notification that the Company's former
accountant Wolinetz, Lafazan & Company, P.C. resigned as of April 30, 2007. The
audit report of the former accountant on the financial statements of the
Registrant for the last fiscal year reported, June 30, 2005, did not contain an
adverse opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles, except that the former
accountant's report on the registrant's financial statements expressed
substantial doubt with respect to the Registrant's ability to continue as a
going concern for the fiscal year ended June 30, 2005. The decision to resign
was solely that of the former accountant into which the Board of Directors had
no input.
There were no disagreements, whether or not resolved, with the former
accountant on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure, which, if not resolved to
the former accountant's satisfaction, would have caused it to make reference to
the subject matter of the disagreement(s).
On May 8, 2007, KMJ Corbin & Company LLP ("KMJ") was engaged as the
independent registered public accounting firm to audit the registrant's
financial statements. During the Registrant's two most recent fiscal years and
through May 8, 2007, neither the Registrant nor anyone on its behalf has
consulted with KMJ regarding either (i) the application of accounting principles
to a specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Registrant's financial statements, and
neither a written report was provided to the Registrant nor oral advice was
provided by KMJ that was an important factor considered by the Registrant in
reaching a decision as to any accounting, auditing or financial reporting
issue; or (ii) any matter that was the subject of a disagreement, as that term
is defined in Item 304 (a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304 (a)(1)(v) of Regulation S-K.
On February 25, 2008, the audit committee of the Company's Board of
Directors dismissed its former independent registered public accounting firm KMJ
Corbin & Company LLP ("KMJ"). KMJ was retained by the Company in May 2007 and
never issued any report on the Company's financial statements. There were no
disagreements, whether or not resolved, with the former accountant on any matter
of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which, if not resolved to KMJ's satisfaction, would
have caused it to make reference to the subject matter of the disagreement(s).
As of February 25, 2008, PS Stephenson & Co. PC has been engaged as the
principal accountant to audit the Company's financial statements. During the
Registrant's two most recent fiscal years and through February 25, 2008, neither
the Registrant nor anyone on its behalf has consulted with PS Stephenson & Co.,
PC regarding either (i) the application of accounting principles to a specified
transaction, either completed or proposed; or the type of audit opinion that
might be rendered on the Registrant's financial statements, and neither a
written report was provided to the Registrant nor oral advice was provided by
PS Stephenson & Co., PC that was an important factor considered by the
Registrant in reaching a decision as to any accounting, auditing or financial
reporting issue; or (ii) any matter that was the subject of a disagreement, as
that term is defined in Item 304 (a)(1)(iv) of Regulation S-K and the related
instructions to Item 304 of Regulation S-K, or a reportable event, as that term
is defined in Item 304 (a)(1)(v) of Regulation S-K.
19
ITEM 8A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our Principal Executive Officer
and our Principal Financial Officer, conducted an evaluation of the
effectiveness of our disclosure controls and procedures as of the end of the
periods covered by this Annual Report (June 30, 2008, June 30, 2007 and June 30,
2006), as is defined in Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934, as amended. Our disclosure controls and procedures are intended to
ensure that the information we are required to disclose in the reports that we
file or submit under the Securities Exchange Act of 1934 is (i) recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms and (ii) accumulated and
communicated to our management, including the Principal Executive Officer and
Principal Financial Officer to allow timely decisions regarding required
disclosures.
Based on that evaluation, our Principal Executive Officer and Principal
Financial Officer concluded that, as of the end of the period covered by this
Annual Report, our disclosure controls and procedures were ineffective. The
failure to file annual reports for 2006 and 2007 and the failure to timely file
this annual report for 2008 leads to the conclusion that the disclosure controls
and procedures were not effective. As of the date of this report, the Company
has added the further step of fully discussing with its outside advisors whether
they are aware of any new SEC rules and regulations affecting our disclosure
requirements and whether each report being filed is compliant with current rules
and regulations. Our management has concluded that the financial statements
included in this Form 10-KSB present fairly, in all material respects our
financial position, results of operations and cash flows for the periods
presented in conformity with generally accepted accounting principles.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the system will be met. In addition, the design of any control
system is based in part upon certain assumptions about the likelihood of future
events.
Management's Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate
internal control over our financial reporting (as defined in Rule 13a-15(f) and
15d-15(f) of the Exchange Act). Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with accounting principles generally accepted in the
United States of America.
Our internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of our
assets, (ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and
that our receipts and expenditures are being made only in accordance with
authorizations of our management and directors, and (iii) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition,
use or disposition of our assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate. Our
management, with the participation of our Principal Executive Officer and
Principal Financial Officer, conducted an evaluation of the effectiveness of our
internal control over financial reporting based on the framework in Internal
Control - Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, our
Principal Executive Officer and Principal Financial Officer concluded that, as
of the end of the period covered by this Annual Report, our internal control
over financial reporting was effective.
20
This Annual Report does not include an attestation report of our
independent registered public accounting firm regarding internal control over
financial reporting. Management's report was not subject to attestation by our
independent registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit us to provide only management's
report in this Annual Report.
Changes in Internal Control Over Financial Reporting
During our most recent fiscal quarter, there have been no changes in our
internal control over financial reporting that have materially affected, or are
reasonably likely to materially affect our internal control over financial
reporting.
ITEM 8B. OTHER INFORMATION
None.
21
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Director
Name Age Position Since Term Expires
------------------------- --- ------------------------- --------- -------------
James C. Witham 67 Chairman of the Board and 1998 December 2009
Chief Executive Officer
Kevin Spence 52 President and N/A N/A
Chief Financial Officer
Karen B. Laustsen 48 Chief Operating Officer, 1998 December 2009
Secretary and Director
Dr. William DiTuro (1) 53 Director 1998 December 2009
Glenn A. Bergenfield (1) 55 Director 1998 December 2009
James Barton (1) 57 Director 2005 December 2009
(1) Member of Audit Committee and Compensation Committee
James C. Witham founded AquaCell Technologies/GreenCore Technology and has
served as its Chairman and Chief Executive Officer since the Company's
inception. Mr. Witham also serves as Chairman of the Board and Chief Executive
Officer of Aquacell Water, Inc. From April, 1987 through May, 1996, Mr. Witham
founded and served as Chairman, Chief Executive Officer and President of U.S.
Alcohol Testing. Mr. Witham also served as Chairman and Chief Executive Officer
of U.S. Alcohol's two publicly held subsidiaries, U.S. Drug Testing, Inc. and
Good Ideas Enterprises, Inc. Mr. Witham is the husband of Karen B. Laustsen,
Chief Operating Officer of GreenCore.
Kevin L. Spence was appointed President and Chief Financial Officer of
AquaCell Technologies/GreenCore Technology effective January 2007. Mr. Spence
also serves as President and Chief Financial Officer of Aquacell Water, Inc.
From January, 2004 through January 2007 he served as President of Citation
Publishing, Inc. a privately held company. From June, 2001 through June, 2003
Mr. Spence served as Chief Financial Officer of Swiftcomm, Inc. a privately held
company. From 1992 to 2000 Mr. Spence was Executive Vice President and Chief
Financial Officer of US Filter Corporation, a Fortune 500 global provider of
water and wastewater treatment systems and services. Prior to his employment at
US Filter, Mr. Spence was an audit partner at KPMG Peat Marwick.
Karen B. Laustsen was a founder of AquaCell Technologies/GreenCore
Technology. She served as its President, Chief Operating Officer, Secretary,
and as a Director until January 2007, and currently serves as its Chief
Operating Officer, Secretary, and as a Director. Ms. Laustsen also served as
President, Chief Operating Officer, Secretary and as a Director of Aquacell
Water, Inc. until January 2007, and currently serves as Chief Operating Officer,
Secretary, and as a Director. From April, 1987 through May, 1996, Ms. Laustsen
served as Executive Vice President and a Director of U.S. Alcohol Testing of
America, Inc. Ms. Laustsen also served on the Board of Directors of U.S. Drug
Testing, Inc. and Good Ideas Enterprises, Inc. Ms. Laustsen is the wife of
James C. Witham, Chairman of GreenCore.
William DiTuro has been a Director of AquaCell Technologies/GreenCore
Technology since 1998. Dr. DiTuro was self-employed as a sole practitioner of
general pediatrics from 1986 through 2005 and has served as a clinical
instructor of pediatrics at the Robert Wood Johnson Medical School. Dr. DiTuro
currently serves as a Director of Aquacell Water, Inc. Dr. DiTuro previously
served as a Director of U.S. Alcohol, U.S. Drug Testing, Inc. and Good Ideas
Enterprises, Inc.
22
Glenn A. Bergenfield has been a Director of AquaCell Technologies/GreenCore
Technology since 1998. Since 1983, Mr. Bergenfield has been self-employed as a
sole practitioner of law in the State of New Jersey. Mr. Bergenfield currently
serves as a Director of Aquacell Water, Inc. Mr. Bergenfield previously served
as a Director of U.S. Alcohol, and as a Director of U.S. Drug Testing, Inc. and
Good Ideas Enterprises, Inc.
James Barton was appointed as a Director of AquaCell Technologies/GreenCore
Technology in 2005. He is presently a Manager of Michigan Ornamental Metals, a
privately held company. Mr. Barton currently serves as a Director of Aquacell
Water, Inc.
Independence of Directors
The Board of Directors consults with counsel to ensure that the Board's
determinations are consistent with those rules and relevant securities and
other laws regarding director independence. Consistent with these
considerations, the Board of Directors has affirmatively determined that Glenn
Bergenfield, William DiTuro and James Barton will be independent directors for
the ensuing year. The remaining directors are not independent because they are
employed by the company. The independent directors constitute the audit,
nominating and compensation committees.
Compensation Committee Interlocks and Insider Participation
The Company's independent directors act as the compensation committee of
the Company.
Audit Committee and Audit Committee Financial Expert
The Company's audit committee was established in July 2005 and is currently
comprised of Glenn Bergenfield, William DiTuro and James Barton.
Our Board has determined that it does not have a member of its Audit
Committee that qualifies as an "audit committee financial expert" as defined in
Item 401(e) of Regulation S-B, and is "independent" as the term is used in Item
7(d)(3)(iv) of Schedule 14A under the Exchange Act.
We believe that retaining an independent director who would qualify as an
"audit committee financial expert" would be overly costly and burdensome and is
not warranted in our current circumstances.
Code of Ethics
The Board adopted a Code of Ethics in 2004 that applies to, among other
persons, Board members, officers including our Chief Executive Officer and Chief
Financial Officer, contractors, consultants and advisors. Our Code of Ethics
sets forth written standards designed to deter wrongdoing and to promote:
1) honest and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest between personal and professional relationships;
2) full, fair, accurate, timely and understandable disclosure in reports
and documents that we file with or submit to the SEC and in other public
communications made by us;
3) compliance with applicable governmental laws, rules and regulations;
4) the prompt internal reporting of violations of the Code of Ethics to an
appropriate person or persons identified in the Code of Ethics; and
5) accountability for adherence to the Code of Ethics.
A copy of the Code of Ethics is filed as an exhibit to this report. A copy
of this report may be obtained upon written request.
23
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires our executive officers,
directors and persons who beneficially own more than ten percent of the common
stock to file reports of ownership and changes in ownership with the SEC, as
well as providing us with copies of those reports. For the years ended June 30,
2006 and June 30, 2007 all such reports were timely filed. For the year ended
June 30, 2008, each of the persons set forth in the table above failed to file
one report on Form 4 related to an option grant in February, 2008. Each of those
persons subsequently filed a corrective report on Form 5. As of the date of this
filing, we believe that our executive officers and directors are current in
their Section 16 filings.
ITEM 10. EXECUTIVE COMPENSATION
Mr. Witham and Ms. Laustsen entered into five year employments which expire
in November, 2010. Mr. Spence entered into an employment agreement which
expires in December 2011.
Name and Principal Position Annual Compensation Long-Term Compensation
--------------------------- ---------------------------------- --------------------------
Options
Salary ($) Granted All Other
Year (1)(2)(3) Bonus ($)(4) (5)(6)(7) Compensation
--------------------------- ---- ------------ ------------ ------------ ------------
James C. Witham............ 2008 144,766 17,553 200,000 --
Chairman of the Board 2007 132,500 -- 200,000 --
and Chief Executive Officer 2006 133,018 -- 200,000 --
Kevin L Spence............. 2008 165,000 17,553 200,000 --
President and 2007 82,500 -- 500,000 --
Chief Financial Officer 2006 -- -- - --
Karen B. Laustsen (8)...... 2008 80,000 8,776 100,000 --
Chief Operating Officer, 2007 80,000 -- 100,000 --
Secretary and Director 2006 80,313 -- 100,000 --
Gary S. Wolff.............. 2007 21,836 -- - --
Former Treasurer, 2006 71,260 -- 100,000 --
Chief Financial Officer
and Director
(1) For the fiscal year ended 2006 aggregate salaries accrued but not paid
amounted to $100,537.
(2) For the fiscal year ended 2007 aggregate salaries accrued but not paid
amounted to $128,086.
(3) For the fiscal year ended 2008 aggregate salaries accrued but not paid
amounted to $47,304.
(4) For the fiscal year ended 2008 aggregate bonuses accrued but not paid
amounted to $43,882.
(5) 400,000 option were issued in February 2006 and vest at the rate of 33% per
year over a period of 10 years
(6) 800,000 options were issued in January 2007 and vest at the rate of 33% per
year over period of 7-10 years.
(7) 500,000 options were issued in February 2008 and vest at the rate of 33%
per year over a 7 year period.
(8) Ms. Laustsen is the wife of Aquacell's Chief Executive Officer.
24
The following table summarizes the number of options granted to the
executive officers named above during the fiscal year ended June 30, 2006.
Options / SAR Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------------------------------------------------------------
Potential
Realizable
Value at Assumed
Annual Rates
% of Total of Stock Price
Options/Shares Appreciation For
Granted to Option Term ($)(1)
Options/Shares Employees Exercise Price -------- -------- Expiration
Name Granted (#) in Fiscal Year ($/Share) 5% ($) 10% ($) Date
------------------------ -------------- -------------- -------------- -------- -------- ----------
James C. Witham......... 200,000 (2) 34.2% $0.21 $17,000 $40,000 2/23/2013
Chairman of the Board
Gary S. Wolff........... 100,000 (2) 17.1% $0.21 $ 9,000 $20,000 2/23/2013
President/
Chief Financial Officer
Karen B. Laustsen....... 100,000 (2) 17.1% $0.20 $ 8,000 $19,000 2/23/2013
Chief Operating Officer
(1) The above information concerning five percent and ten percent assumed
annual rates of compounded stock price appreciation is mandated by the
Securities and Exchange Commission. There is no assurance provided to any
executive officer or to any other optionee that there will be appreciation
of the stock price over the option term or that the optionee will realize
any gains with respect to the options.
(2) Represents seven year options granted from the 2005 Incentive Stock Plan
that vest 33.3% per year over a three year period.
The following table summarizes the number of options granted to the
executive officers named above during the fiscal year ended June 30, 2007.
Options / SAR Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------------------------------------------------------------
Potential
Realizable
Value at Assumed
Annual Rates
% of Total of Stock Price
Options/Shares Appreciation For
Granted to Option Term ($)(1)
Options/Shares Employees Exercise Price -------- -------- Expiration
Name Granted (#) in Fiscal Year ($/Share) 5% ($) 10% ($) Date
------------------------ -------------- -------------- -------------- -------- -------- ----------
James C. Witham......... 200,000 (2) 22.9% $0.10 $ 8,000 $19,000 1/12/2014
Chairman of the Board
Kevin L. Spence......... 500,000 (3) 57.1% $0.09 $28,000 $72,000 1/02/2017
President/
Chief Financial Officer
Karen B. Laustsen....... 100,000 (2) 11.4% $0.10 $ 4,000 $ 9,000 1/12/2014
Chief Operating Officer
(1) The above information concerning five percent and ten percent assumed
annual rates of compounded stock price appreciation is mandated by the
Securities and Exchange Commission. There is no assurance provided to any
executive officer or to any other optionee that there will be appreciation
of the stock price over the option term or that the optionee will realize
any gains with respect to the options.
(2) Represents seven year options granted from the 2005 Incentive Stock Plan
that vest 33.3% per year over a three year period.
(3) Represents ten year options granted from the 2005 Incentive Stock Plan that
vest 33.3% per year over a three year period.
25
The following table summarizes the number of options granted to the
executive officers named above during the fiscal year ended June 30, 2008.
Options / SAR Grants in Last Fiscal Year
Individual Grants
-------------------------------------------------------------------------------------------------------------
Potential
Realizable
Value at Assumed
Annual Rates
% of Total of Stock Price
Options/Shares Appreciation For
Granted to Option Term ($)(1)
Options/Shares Employees Exercise Price -------- -------- Expiration
Name Granted (#) in Fiscal Year ($/Share) 5% ($) 10% ($) Date
------------------------ -------------- -------------- -------------- -------- -------- ----------
James C. Witham......... 200,000 (2) 33.4% $0.18 $15,000 $34,000 2/08/2015
Chairman of the Board
Kevin L. Spence......... 200,000 (2) 33.4% $0.18 $15,000 $34,000 2/08/2015
President/
Chief Financial Officer
Karen B. Laustsen....... 100,000 (2) 18.2% $0.18 $ 8,000 $19,000 2/08/2015
Chief Operating Officer
(1) The above information concerning five percent and ten percent assumed
annual rates of compounded stock price appreciation is mandated by the
Securities and Exchange Commission. There is no assurance provided to any
executive officer or to any other optionee that there will be appreciation
of the stock price over the option term or that the optionee will realize
any gains with respect to the options.
(2) Represents seven year options granted from the 2005 Incentive Stock Plan
that vest 33.3% per year over a three year period.
The following table summarizes the number of exercisable and unexercisable
options held by the executive officers named above at June 30, 2006, and their
value at that date if such options were in-the-money.
2006 Year End Option Values
--------------------------------------------------------------------------------
Value of
Number of securities underlying
securities underlying unexercised
unexercised options in-the-money options
Name at June 30, 2006 at June 30, 2006 (1)
--------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------ ----------- ------------- ----------- -------------
James C. Witham....... 120,000 530,000 -0- -0-
Karen B. Laustsen..... 60,000 265,000 -0- -0-
Gary S. Wolff......... 60,000 530,000 -0- -0-
(1) At June 30, 2006, the closing price of the stock was less than the price of
the options.
The executive officers named above did not exercise any options during the
fiscal year ended June 30, 2006.
26
The following table summarizes the number of exercisable and unexercisable
options held by the executive officers named above at June 30, 2007, and their
value at that date if such options were in-the-money.
2007 Year End Option Values
--------------------------------------------------------------------------------
Value of
Number of securities underlying
securities underlying unexercised
unexercised options in-the-money options
Name at June 30, 2007 at June 30, 2007
--------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------ ----------- ------------- ----------- -------------
James C. Witham....... 260,000 590,000 $ 9,600 $ 38,400
Kevin L. Spence....... -0- 500,000 -0- $ 120,000
Karen B. Laustsen..... 130,000 295,000 $ 4,800 $ 19,200
The executive officers named above did not exercise any options during the
fiscal year ended June 30, 2007.
The following table summarizes the number of exercisable and unexercisable
options held by the executive officers named above at June 30, 2008, and their
value at that date if such options were in-the-money.
2008 Year End Option Values
--------------------------------------------------------------------------------
Value of
Number of securities underlying
securities underlying unexercised
unexercised options in-the-money options
Name at June 30, 2008 at June 30, 2008
--------------------------- ---------------------------
Exercisable Unexercisable Exercisable Unexercisable
------------------ ----------- ------------- ----------- -------------
James C. Witham....... 466,667 583,333 $ 8,800 $ 25,200
Kevin L. Spence....... 166,667 533,333 $21,710 $ 51,290
Karen B. Laustsen..... 233,334 291,666 $ 4,400 $ 12,600
The executive officers named above did not exercise any options during the
fiscal year ended June 30, 2008.
27
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
June 30, 2006
Shares of Percentage of
Common Stock Common Stock,
Name and Address Beneficially Owned Warrants and Options
---------------------------------- ------------------ --------------------
James C. Witham................... 2,137,030 (1)(2) 7.62%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Karen B. Laustsen (9)............. 636,172 (3) 2.27%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Gary S. Wolff..................... 548,367 (3) 1.96%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Glenn A. Bergenfield.............. 846,700 (4)(5) 2.99%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Dr. William DiTuro................ 618,291 (4)(6) 2.19%
10410 Trademark Street
Rancho Cucamonga, CA 91730
James Barton...................... 145,000 (7)(8) *
10410 Trademark Street
Rancho Cucamonga, CA 91730
All officers and directors as
a group (six persons)........... 4,931,560 17.67%
Henry Smith....................... 2,103,536 7.54%
* Less than 1%.
(1) Includes an aggregate of 480,000 shares owned of record by Witham Group,
LLC and JW Acquisitions, LLC which are entities in which Mr. Witham
controls 100% of the outstanding equity.
(2) Includes 120,000 options exercisable within 60 days.
(3) Includes 60,000 options exercisable within 60 days.
(4) Includes 185,000 options exercisable within 60 days.
(5) Includes 266,667 warrants to purchase common stock exercisable within 60
days.
(6) Includes 163,334 warrants to purchase common stock exercisable within 60
days.
(7) Includes 65,000 options exercisable within 60 days.
(8) Includes 40,000 warrants to purchase common stock exercisable within 60
days.
(9) Ms. Laustsen is the wife of Aquacell's Chief Executive Officer, James
Witham.
28
June 30, 2007
Shares of Percentage of
Common Stock Common Stock,
Name and Address Beneficially Owned Warrants and Options
---------------------------------- ------------------ --------------------
James C. Witham................... 2,267,030 (1)(2) 6.98%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Karen B. Laustsen (9)............. 734,505 (3) 2.27%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Kevin Spence...................... 1,000,000 (4) 3.10%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Glenn A. Bergenfield.............. 866,700 (5)(6) 2.65%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Dr. William DiTuro................ 638,291 (5)(7) 1.96%
10410 Trademark Street
Rancho Cucamonga, CA 91730
James Barton...................... 165,000 (8) *
10410 Trademark Street
Rancho Cucamonga, CA 91730
Henry Smith....................... 2,103,536 6.53%
All officers and directors as
a group (six persons)........... 5,671,526 17.12%
* Less than 1%.
(1) Includes an aggregate of 480,000 shares owned of record by Witham Group,
LLC and JW Acquisitions, LLC which are entities in which Mr. Witham
controls 100% of the outstanding equity.
(2) Includes 250,000 options exercisable within 60 days.
(3) Includes 158,333 options exercisable within 60 days.
(4) Includes 205,000 options exercisable within 60 days.
(5) Includes 266,667 warrants to purchase common stock exercisable within 60
days.
(6) Includes 163,334 warrants to purchase common stock exercisable within 60
days.
(7) Includes 85,000 options exercisable within 60 days.
(8) Includes 40,000 warrants to purchase common stock exercisable within 60
days.
(9) Ms. Laustsen is the wife of Aquacell's Chief Executive Officer, James
Witham.
29
June 30, 2008
Shares of Percentage of
Common Stock Common Stock,
Name and Address Beneficially Owned Warrants and Options
---------------------------------- ------------------ --------------------
James C. Witham................... 2,463,697 (1)(2) 7.04%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Karen B. Laustsen (9)............. 832,838 (3) 2.39%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Kevin Spence...................... 1,166,667 (4) 3.36%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Glenn A. Bergenfield.............. 941,700 (5)(6) 2.68%
10410 Trademark Street
Rancho Cucamonga, CA 91730
Dr. William DiTuro................ 638,291 (5)(7) 1.83%
10410 Trademark Street
Rancho Cucamonga, CA 91730
James Barton...................... 165,000 (8) *
10410 Trademark Street
Rancho Cucamonga, CA 91730
Henry Smith....................... 2,103,536 6.09%
All officers and directors as
a group (six persons)........... 6,208,191 17.04%
* Less than 1%.
(1) Includes an aggregate of 480,000 shares owned of record by Witham Group,
LLC and JW Acquisitions, LLC which are entities in which Mr. Witham
controls 100% of the outstanding equity.
(2) Includes 446,667 options exercisable within 60 days.
(3) Includes 256,666 options exercisable within 60 days.
(4) Includes 166,667 options exercisable within 60 days.
(5) Includes 205,000 options exercisable within 60 days.
(6) Includes 316,667 warrants to purchase common stock exercisable within 60
days.
(7) Includes 163,334 warrants to purchase common stock exercisable within 60
days.
(8) Includes 85,000 options exercisable within 60 days.
(9) Ms. Laustsen is the wife of Aquacell's Chief Executive Officer, James
Witham.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
ITEM 13. EXHIBITS
See Exhibit Index.
30
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
For the fiscal year ended June 30, 2006, there were no fees billed for
professional services rendered for the audit of the Company's annual financial
statements and the reviews of its financial statements included in the Company's
quarterly reports. For our fiscal year ended June 30, 2005, those fees were
approximately $60,000.
For the fiscal year ended June 30, 2007, there were no fees billed for
professional services rendered for the audit of the Company's annual financial
statements and the reviews of its financial statements included in the Company's
quarterly reports. For our fiscal year ended June 30, 2006, there were no fees
billed.
For the fiscal year ended June 30, 2008, the aggregate fees billed for
professional services rendered for the audit of the Company's annual financial
statements and the reviews of its financial statements included in the Company's
quarterly reports totaled approximately $71,000. For our fiscal year ended June
30, 2007, there were no fees billed.
Tax Fees
For the fiscal years ended June 30, 2006 and June 2005, there were no fees
billed for tax compliance, tax advice or tax planning.
For the fiscal years ended June 30, 2007 and June 2006, there were no fees
billed for tax compliance, tax advice or tax planning.
For the fiscal year ended June 30, 2008, there was $2200 in fees billed for
tax compliance, tax advice or tax planning and for the fiscal year ended June
2007, there were no fees billed for tax compliance, tax advice or tax planning.
All Other Fees
For the fiscal years ended June 30, 2006, June 30, 2007 and June 30, 2008,
there were no other fees billed by the Company's independent auditors.
31
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 3, 2008 GREENCORE TECHNOLOGY, INC.
(Registrant)
By: /s/ JAMES C. WITHAM
---------------------------------
Name: James C. Witham
Title: Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this Report has
been signed below by the following persons on behalf of the Registrant and in
the capacities and on the dates indicated.
Signatures Title Date
/s/ James C. Witham Chairman of the Board of Directors November 3, 2008
---------------------- and Chief Executive Officer
James C. Witham (Principal Executive Officer)
/s/ Kevin L. Spence President and Chief Financial Officer November 3, 2008
---------------------- (and Principal Accounting Officer)
Kevin L. Spence
/s/ Karen Laustsen Director and Chief Operating Officer November 3, 2008
----------------------
Karen Laustsen
/s/ Glenn Bergenfield Director November 3, 2008
----------------------
Glenn Bergenfield
/s/ Dr. William DiTuro Director November 3, 2008
----------------------
Dr. William DiTuro
/s/ James Barton Director November 3, 2008
----------------------
James Barton
32
EXHIBIT INDEX
3.1 Certificate of Amendment filed with Delaware Secretary of State on
June 30, 2008
3.2 Certificate of Correction filed with Delaware Secretary of State on
September 22, 2008
10.1 Employment Contract with Kevin Spence
14.0 Code of Ethics
31.1 Chief Executive Officer's Certification Pursuant to Rule 13A-14 and
15D-14 Under the Securities Exchange Act of 1934, As Amended
31.2 Chief Financial Officer's Certification Pursuant to Rule 13A-14 and
15D-14 Under the Securities Exchange Act of 1934, As Amended
32.1 Certification Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1 GPM, Inc. Financial Statements
33
GREENCORE TECHNOLOGY, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.....................F-1
FINANCIAL STATEMENTS
Consolidated Balance Sheets, June 30, 2008, 2007 and 2006...................F-2
Consolidated Statements of Operations for the years ended
June 30, 2008, 2007 and 2006...........................................F-3
Consolidated Statements of Stockholders' Equity (Deficit)
for the year ended June 30, 2006.......................................F-4
Consolidated Statements of Stockholders' Equity (Deficit)
for the year ended June 30, 2007.......................................F-5
Consolidated Statements of Stockholders' Equity (Deficit)
for the year ended June 30, 2008.......................................F-6
Consolidated Statements of Cash Flows for the years ended
June 30, 2008, 2007 and 2006...........................................F-7
Notes to Consolidated Financial Statements..................................F-8
Report of Independent Registered Public Accounting Firm
To The Board of Directors of
GreenCore Technology, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of GreenCore
Technology, Inc. (formerly known as Aquacell Technologies, Inc.) and
Subsidiaries as of June 30, 2008, 2007 and 2006, and the related consolidated
statements of operations, stockholders' deficit, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
as established by the U.S. Auditing Standards Board and in accordance with the
auditing standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the 2008, 2007 and 2006 consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of GreenCore Technology, Inc. and Subsidiaries as of June 30, 2008,
2007 and 2006, and the results of its operations and its cash flows for the
years then ended in conformity with accounting principles generally accepted in
the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has suffered recurring losses
from operations that raise substantial doubt about its ability to continue as a
going concern. Management's plans regarding these matters are described in
Note 1. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ PS Stephenson & Co. PC
Wharton, Texas
November 3, 2008
F-1
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
June 30,
--------------------------------------
(in thousands, except share amounts) 2008 2007 2006
---------- ---------- ----------
Assets
Current assets:
Cash $ 100 $ 1,806 $ -
Accounts receivable, net of allowance 11 19 7
Inventories 24 39 59
Prepaid expenses and other current assets 19 54 -
Receivables from related parties, net - - 247
---------- ---------- ----------
Total current assets 154 1,918 313
Property and equipment, net 19 27 13
Patents, net of accumulated amortization of
$65 and $0, respectively 1,034 1,099 -
Goodwill 750 750 -
Other assets 12 12 10
---------- ---------- ----------
$ 1,969 $ 3,806 $ 336
========== ========== ==========
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities $ 1,084 $ 1,123 $ 1,387
Accrued officer compensation 508 456 360
Advances from related parties, net 74 60 -
Convertible notes payable 5,260 4,100 -
Accrued interest payable - 43 -
Customer deposits 251 262 2
Preferred stock dividend payable-Class A 4 6 2
Warranty reserves 157 157 -
Acquisition costs payable 750 750 -
---------- ---------- ----------
Total current liabilities 8,088 6,957 1,751
========== ========== ==========
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock-Class A, par value $.001;
5,000,000 shares authorized; 70,000 shares
issued and outstanding - - -
Preferred stock-Class B, par value $.001;
5,000,000 shares authorized; no shares
issued and outstanding - - -
Common stock, par value $.001;
75,000,000 shares authorized;
34,557,888, 32,215,128 and 27,909,408 shares
issued and outstanding at June 30, 2008,
2007, and 2006, respectively 34 32 28
Additional paid-in capital 27,981 27,090 25,678
Unamortized deferred compensation (430) (853) -
Accumulated deficit (33,704) (29,420) (27,121)
---------- ---------- ----------
Total stockholders' equity (deficit) (6,119) (3,151) (1,415)
---------- ---------- ----------
$ 1,969 $ 3,806 $ 336
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-2
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
Years Ended June 30,
--------------------------------------
(in thousands, except share amounts) 2008 2007 2006
---------- ---------- ----------
Sales $ 171 $ 147 $ 203
Cost of sales 266 234 252
---------- ---------- ----------
Gross profit (loss) (95) (87) (49)
Operating expenses
Salaries and wages 763 653 573
Legal, accounting and other
professional expenses 316 495 454
Stock based compensation 383 138 1,396
Depreciation and amortization 73 6 173
Selling, general and administrative expenses 948 815 902
---------- ---------- ----------
Total operating expenses 2,483 2,107 3,498
---------- ---------- ----------
Operating income (loss) (2,578) (2,194) (3,547)
Other income (expense):
Loss on disposal of assets - - (684)
Other income - - -
Interest income 12 12 -
Interest expense (1,718) (117) (41)
---------- ---------- ----------
Total other income (expense) (1,706) (105) (725)
Loss from continuing operations before provision
for income taxes (4,284) (2,299) (4,272)
Provision for (benefit from) income taxes - - -
---------- ---------- ----------
Loss from continuing operations (4,284) (2,299) (4,272)
Discontinued operations
Loss from discontinued operations of
Aquacell Water - - (650)
Loss from Form 10 spin-off of Aquacell Water - - (750)
---------- ---------- ----------
Total discontinued operations - - (1,400)
---------- ---------- ----------
Net loss $ (4,284) $ (2,299) $ (5,672)
========== ========== ==========
Net loss per common share $ (0.11) $ (0.07) $ (0.23)
========== ========== ==========
Weighted average common shares
outstanding - basic and diluted 39,724,038 31,070,410 24,195,459
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-3
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficiency)
Year Ended June 30, 2006
Preferred Stock
----------------------------------
Class A Class B Common Stock
---------------- ---------------- ----------------- Additional Unamortized
(in thousands, except Number Par Number Par Number Par Paid-in Accumulated Deferred
per share amounts) of Shares Value of Shares Value of Shares Value Capital Deficit Compensation Total
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Balances, June 30, 2005 70,000 $ - 718,000 $ 1 18,880,465 $ 19 $ 22,566 $ (21,449) $ (1,228) $ (91)
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Sale of 200,000 shares of
Class B preferred stock 200,000 - 68 68
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Dividends of Class A
preferred stock (4) (4)
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Dividends on Class B
preferred stock (16) (16)
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Issuance of common shares
upon exercise of common
stock warrants, net 5,278,282 5 1,197 1,202
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Sale of common shares in
connection with
private placements, net 2,820,833 3 649 652
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Issuance of 918,000 shares
of common stock on
conversion of 918,000
shares of Class B
preferred stock (918,000) (1) 918,000 1 -
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Issuance of 11,828 common
shares as payment of =
dividends on Class A
preferred stock 11,828 - 4 4
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Compensation expense in
connection with stock
options issued 168 168
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Legal fees incurred with
registration statement (8) (8)
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Issuance of common stock
warrants 4 4
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Amortization of deferred
costs 1,228 1,228
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Write-off of investment
arising from the
Form 10 spin-off of
Aquacell Water 1,050 1,050
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Net loss for the year
ended June 30, 2006 (5,672) (5,672)
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Balances, June 30, 2006 70,000 $ - - $ - 27,909,408 $ 28 $ 25,678 $ (27,121) $ - $(1,415)
============================ ========== ===== ========= ===== ========== ===== ========== =========== ============ ========
The accompanying notes are an integral part of these financial statements.
F-4
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficiency)
Year Ended June 30, 2007
Preferred Stock
----------------------------------
Class A Class B Common Stock
---------------- ---------------- ----------------- Additional Unamortized
(in thousands, except Number Par Number Par Number Par Paid-in Accumulated Deferred
per share amounts) of Shares Value of Shares Value of Shares Value Capital Deficit Compensation Total
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Balances, June 30, 2006 70,000 $ - - $ - 27,909,408 $ 28 $ 25,678 $ (27,121) $ - $(1,415)
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Issuance of common shares
upon exercise of common
stock warrants, net 2,305,720 2 185 187
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Issuance of common stock
in consideration
for services 2,000,000 2 193 195
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Issuance of common stock
warrants in connection
with private debt
offering 900 (900) -
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Compensation expense in
connection with stock
warrants issued with
consulting agreement 8 8
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Compensation expense in
connection with stock
options issued 130 130
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Amortization of deferred
costs 47 47
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Dividends of Class A
preferred stock (4) (4)
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Net loss for the year
ended June 30, 2007 (2,299) (2,299)
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Balances, June 30, 2007 70,000 $ - - $ - 32,215,128 $ 32 $ 27,090 $ (29,420) $ (853) $(3,151)
============================ ========== ===== ========= ===== ========== ===== ========== =========== ============ ========
The accompanying notes are an integral part of these financial statements.
F-5
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity (Deficiency)
Year Ended June 30, 2008
Preferred Stock
----------------------------------
Class A Class B Common Stock
---------------- ---------------- ----------------- Additional Unamortized
(in thousands, except Number Par Number Par Number Par Paid-in Accumulated Deferred
per share amounts) of Shares Value of Shares Value of Shares Value Capital Deficit Compensation Total
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Balances, June 30, 2007 70,000 $ - - $ - 32,215,128 $ 32 $ 27,090 $ (29,420) $ (853) $(3,151)
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Issuance of common shares
for the payment of
interest on convertible
notes 1,765,040 1 368 369
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Issuance of common stock
in consideration
for services 540,000 1 99 100
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Common stock issued in
connection with notes
payable 25,000 - 8 8
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Issuance of 12,720 shares
of common stock as
payment of dividends on
Class A preferred stock 12,720 - 6 6
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Issuance of common stock
warrants in connection
with private debt
offering 31 (31) -
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Compensation expense in
connection with stock
options issued 214 214
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Compensation expense in
connection with stock
warrants issued with
consulting agreement 169 169
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Amortization of deferred
costs 454 454
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Dividends of Class A
preferred stock (4) (4)
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Net loss for the year
ended June 30, 2008 (4,284) (4,284)
---------------------------- --------- ----- --------- ----- ---------- ----- ---------- ----------- ------------ --------
Balances, June 30, 2008 70,000 - - - 34,557,888 $ 34 $ 27,981 $ (33,521) $ (430) $(5,936)
============================ ========== ===== ========= ===== ========== ===== ========== =========== ============ ========
The accompanying notes are an integral part of these financial statements.
F-6
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years Ended June 30,
--------------------------------------
(in thousands, except share amounts) 2008 2007 2006
---------- ---------- ----------
Cash flows from operating activities:
Net loss $ (4,284) $ (2,299) $ (5,672)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Loss on disposal of assets - - 684
Depreciation and amortization 73 6 173
Compensation expense 383 138 1,396
Loss from spin-off of Aquacell water - - 750
Deferred compensation interest amortization 454 47 -
Interest payments settled from stock issuances 1,167 - -
Expenses settled from stock issuances 100 195 (20)
Changes in:
Accounts receivable 8 (12) 10
Subscription receivable - - 148
Related party receivables - 259 190
Inventories 15 20 (140)
Prepaid expenses and other current assets 35 (54) 34
Deposits - (2) 1
Accounts payable and accrued liabilities (39) (439) 202
Related party payables 14 60 -
Accrued officer compensation 52 96 360
Accrued interest payable (43) 43 -
Customer deposits (11) (1) (9)
---------- ---------- ----------
Net cash used by operating activities (2,076) (1,943) (1,893)
Cash flows from investing activities:
Cash paid in GPM acquisition - (538) -
---------- ---------- ----------
Net cash used by investing activities - (538) -
Cash flows from financing activities:
Dividend payments - - (21)
Proceeds from issuance of stock, net 8 187 1,922
Proceeds from issuance of debt 362 4,100 -
Repayment on notes payable - - (100)
---------- ---------- ----------
Net cash provided from financing activities 370 4,287 1,801
---------- ---------- ----------
Increase (decrease) in cash (1,706) 1,806 (92)
Cash, beginning of period 1,806 - 92
---------- ---------- ----------
Cash, end of period $ 100 $ 1,806 $ -
========== ========== ==========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 97 $ - $ 13
========== ========== ==========
Cash paid for federal income taxes $ - $ - $ -
========== ========== ==========
The accompanying notes are an integral part of these financial statements.
F-7
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Organization
Description of Business:
GreenCore Technology, Inc. ("GreenCore") (formerly known as AquaCell
Technologies, Inc.) was incorporated in Delaware on March 19, 1997. The
Company's principal business activity is the manufacture and sale of DC solar
power air conditioning systems utilizing patented technologies. The Company
markets its product primarily to distributors in the alternative energy
marketplace.
Through June 2006, its Aquacell Media, Inc. subsidiary placed coolers into
various locations and sold targeted advertising on the bottle band of the
permanently attached five-gallon bottle. During fiscal 2007 the Company
transitioned away from placing the coolers in retail locations and selling
advertising space on the water cooler and concentrated on selling the patented
self-filling water coolers.
In May 2007, GreenCore formed a wholly-owned subsidiary GreenCore Air, Inc.
("GreenCore Air") for the purpose of acquiring GPM, Inc. ("GPM"), the patent
holder and manufacturer of a direct current solar powered air conditioner. On
May 24, 2007, GreenCore acquired 100% of the outstanding equity interests of
GPM, and GPM was effectively merged into GreenCore Air (Note 4). The
accompanying financial statements of GreenCore Technology, Inc. and subsidiaries
include the operations of GPM since May 24, 2007.
GreenCore and its wholly owned subsidiaries (the "Company") conduct
substantially all of its business in the United States.
Going Concern:
The Company has incurred net losses aggregating $12,255,000 during the three
years ended June 30, 2008. In addition, the Company has a working capital
deficiency of $7,934,000 and a stockholder's deficiency of $6,119,000 at June
30, 2008. These factors, amongst others, raise substantial doubt about the
Company's ability to continue as a going concern.
There can be no assurance that sufficient funds required during the next year or
thereafter will be generated from operations or that funds will be available
from external sources such as debt or equity financings or other potential
sources. The lack of additional capital resulting from the inability to generate
cash flow from operations or to raise capital from external sources would force
the Company to substantially curtail or cease operations and would, therefore,
have a material adverse effect on its business. Further, there can be no
assurance that any such required funds, if available, will be available on
attractive terms or that they will not have a significant dilutive effect on the
Company's existing stockholders.
The accompanying financial statements do not include any adjustments related to
the recoverability or classification of asset carrying amounts or the amounts
and classification of liabilities that may result should the Company be unable
to continue as a going concern.
During the years ended June 30, 2008, 2007 and 2006, and in addition to
internally generated funds, the Company had obtained financing through the sale
of equity securities, issuance of notes payable, and advances from related
parties.
The Company has developed a plan to address liquidity in the following ways:
* To raise capital through the sale or exercise of equity securities
* Increase revenue through the sale of DC solar powered air conditioners and
related products.
F-8
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
2. Summary of Significant Accounting Policies
Principles of consolidation:
The accompanying consolidated financial statements include the accounts of
GreenCore and its wholly owned subsidiaries. Such subsidiaries are Global Water
Aquacell, Inc., currently an inactive company, incorporated December 21, 1998,
Aquacell Media, Inc., formed on September 10, 2001 and GPM, Inc., acquired on
May 24, 2007 (See Note 4). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S.
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include cash on hand, cash in banks and all highly
liquid investments with a purchased maturity of less than three months. The
Company maintains cash balances at financial institutions insured up to $100,000
by the Federal Deposit Insurance Corporation. Balances may exceed these insured
amounts throughout a fiscal year.
Fair Value of Financial Instruments
The Company's financial instruments consist primarily of cash and cash
equivalents, accounts receivable, accounts payable and convertible debts.
Management believes that the carrying values of these assets and liabilities are
representative of their respective fair values based on their short-term nature.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is
determined on a first-in, first-out basis. At each balance sheet date, the
Company evaluates its ending inventories for excess quantities and obsolescence.
This evaluation includes an analysis of sales levels by product type. Among
other factors, the Company considers historical and forecasted demand in
relation to the inventory on hand, competitiveness of product offerings, market
conditions and product life cycles when determining the net realizable value of
the inventory. Provisions are made to reduce excess or obsolete inventories to
their estimated net realizable values. Once established, write-downs are
considered permanent adjustments to the cost basis of the excess or obsolete
inventories.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is recognized using
the straight-line method over the estimated useful lives of the related assets,
generally five years for equipment, seven years for office furniture and
equipment and the lesser of the term of the lease or the useful life for
leasehold improvements. Maintenance and repairs are expensed as incurred while
expenditures that extend the useful life of an asset are capitalized.
Goodwill
Goodwill represents cost in excess of fair value on the net assets acquired.
Under SFAS No. 142, goodwill and intangible assets with indefinite lives are no
longer amortized but are reviewed annually (or more frequently if impairment
indicators arise) for impairment. Separable intangible assets that are not
deemed to have indefinite lives will continue to be amortized over their useful
lives (but with no maximum life).
F-9
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Impairment of Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. To determine recoverability of a long-lived asset,
management evaluates whether the estimated future undiscounted net cash flows
from the asset are less than its carrying amount. If impairment is indicated,
the long-lived asset would be written down to its fair value. Fair value is
determined by an evaluation of available price information at which assets could
be bought or sold, including quoted market prices, if available, or the present
value of the estimated future cash flows based on reasonable and supportable
assumptions.
Customer Deposits
The Company requires a cash deposit of 50% when customers order the product.
This deposit is recorded as a customer deposit until the product is delivered to
the customer, at which time, the Company recognizes the deposit as revenue.
Revenue Recognition
The Company's revenues primarily consist of the sale of DC solar power air
conditioning systems utilizing patented technologies. The Company recognizes
revenues when there is persuasive evidence of an arrangement, product delivery
and acceptance have occurred, the sales price is fixed and determinable, and
collectability of the resulting receivable is reasonably assured. Such
conditions are typically met upon delivery of the product to the customers.
The Company classifies amounts billed for shipping and handling as revenue in
accordance with Emerging Issues Task Force ("EITF") Issue No. 00-10, Accounting
for Shipping and Handling Fees and Costs. Costs incurred for shipping and
handling are included in cost of sales.
Stock based compensation
Prior to the adoption of SFAS 123R on July 1, 2006, the Company accounted for
stock-based compensation using the intrinsic value method prescribed in APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Because the stock option grant price equaled the market price
on the date of grant, no compensation expense was recognized by the Company for
stock-based compensation. As permitted by SFAS No. 123, stock-based compensation
was included as a pro forma disclosure in the notes to the consolidated
financial statements.
Effective July 1, 2006, the Company adopted the fair value recognition
provisions of SFAS 123R, using the modified prospective transition method. Under
this transition method, stock-based compensation expense is recognized in the
consolidated financial statements for granted, modified or settled stock
options. Results for prior periods have not been restated, as provided for under
the modified prospective method.
Before the adoption of SFAS 123R, the Company presented all tax benefits
resulting from the exercise of stock options as operating cash inflows in the
consolidated statements of cash flows, in accordance with the provisions of the
Emerging Issues Task Force ("EITF") Issue No. 00-15, "Classification in the
Statement of Cash Flows of the Income Tax Benefit Received by a Company upon
Exercise of a Nonqualified Employee Stock Option." SFAS 123R requires the
benefits of tax deductions in excess of the compensation cost recognized for
those options to be classified as financing cash inflows rather than operating
cash inflows, on a prospective basis. The impact of this change was not material
to the Company.
F-10
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table shows the effect on net income and earnings per share had
compensation cost been recognized based upon the estimated fair value on the
grant date of stock options in accordance with SFAS 123, as amended by SFAS
No. 148 "Accounting for Stock Based Compensation - Transition and Disclosure":
Year Ended
June 30, 2006
-------------
Net loss, as reported $ (5,672)
Add: Stock based employee compensation
included in net loss, net of tax effects -
Deduct: Stock based employee compensation
expense determined under fair value
method, net of tax effects (125)
-------------
Net loss, pro forma (5,797)
=============
Net loss per share, actual: $ (0.23)
Net loss per share, pro forma: $ (0.24)
Disclosures for the period ended June 30, 2007 are not present because the
amounts are recognized in the financial statements.
The fair value of stock options is estimated for using the Black-Scholes option
valuation model. Assumptions relative to volatility and anticipated forfeitures
are determined at the time of grant with the following weighted average
assumptions:
Years Ended June 30,
2008 2007 2006
-------- -------- --------
Expected life in years 3-5 5-6 6-7
Stock price volatility 158% 208% 114%
Risk free interest rate 1.65% - 4.68% - 3.93% -
3.20% 4.76% 4.60%
Dividends during term None None None
Forfeiture rate 10% 10% N/A
The expected life of the options represents the estimated period of time until
exercise and is based on historical experience, giving consideration to the
contractual terms, vesting schedules and expectations of future employee
behavior. The expected stock price volatility is based on historical volatility
of the Company's stock for the related vesting periods. The risk-free interest
rate is based on the implied yield available on U.S. Treasury zero-coupon issues
with an equivalent remaining term. The Company has not paid dividends in the
past and does not plan to pay any dividends in the near future. The forfeiture
rate is estimated at the date of grant based on the longevity of current
employees and their expected future tenure. At the end of each year, the
estimated forfeitures are agreed to the actual forfeitures for that year.
F-11
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Net Loss per Common Share
Basic earnings per share ("EPS") is computed by dividing net loss by the
weighted average number of common shares outstanding for the period. Diluted EPS
reflects the potential dilution from the exercise or conversion of securities
into common stock, including stock options and warrants. In accordance with
SFAS 128, "Earnings Per Share", included in the basic weighted average number
of common shares are 6,875,000 shares issuable as consideration for the GPM
acquisition (Note 4). For the years ended June 30, 2008, 2007and 2006, there
were no dilutive effects of such securities as the Company incurred a net loss
in each period. Common shares issuable upon the exercise of outstanding options,
warrants and convertible notes aggregated 41,884,929, 34,400,596 and 11,770,595
as of June 30, 2008, 2007 and 2006 respectively.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of
credit risk consists principally of cash in banks and trade receivables. The
Company manages this risk by maintaining all deposits in high quality financial
institutions and periodically performing evaluations of the relative credit
standing of the financial institutions that are considered in the Company's
investment strategy. The Company grants unsecured credit to its customers during
the normal course of business and performs ongoing credit evaluations of its
customers to minimize any potential loss.
Income Taxes
The Company and its subsidiaries file consolidated federal income tax returns.
Income taxes are accounted for under the asset and liability method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
assets and liabilities and their respective tax basis and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences or operating loss and tax credit carryforwards
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in the period that includes
the enactment date.
In accordance with SFAS 109, "Accounting for Income Taxes," the Company has
recorded a valuation allowance against its deferred tax assets. The valuation
allowance is based on management's estimates and analysis, which includes
provisions of tax laws that may limit the Company's ability to utilize its net
operating loss carryforwards.
Recently Issued Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" (FIN 48), an interpretation of SFAS 109,
"Accounting for Income Taxes." FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in accordance
with SFAS 109. FIN 48 prescribes a two-step process to determine the amount of
tax benefit to be recognized. First, the tax position must be evaluated to
determine the likelihood that it will be sustained upon examination. If the tax
position is deemed "more-likely-than-not" to be sustained, the tax position is
measured at the largest amount of benefit that is greater than 50 percent likely
of being realized upon ultimate settlement. FIN 48 was adopted by the Company in
fiscal 2008 and did not have any impact on its consolidated results of
operations and financial position.
In September 2006, the FASB issued SFAS 157, "Fair Market Measurements." SFAS
157 clarifies the definition of fair value, establishes a framework for
measuring fair value and expands disclosure on fair value measurement. SFAS 157
is effective for financial statements issued for fiscal years beginning after
November 15, 2007, and will be applied on a prospective basis. The Company does
not expect the adoption of SFAS 157 to have a material impact on its
consolidated results of operations, financial position or cash flows.
F-12
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In February 2007, the FASB issued SFAS 159, "The Fair Value Option for Financial
Assets and Financial Liabilities." SFAS 159 permits entities to measure many
financial instruments and certain other items at fair value at specified
election dates. Under SFAS 159, any unrealized holding gains and losses on items
for which the fair value option has been elected are reported in earnings at
each subsequent reporting date. If elected, the fair value option (1) may be
applied instrument by instrument, with a few exceptions, such as investments
otherwise accounted for by the equity method; (2) is irrevocable (unless a new
election date occurs); and (3) is applied only to entire instruments and not to
portions of instruments. SFAS 159 is effective as of an entity's first fiscal
year that begins after November 15, 2007. The Company is currently evaluating
the potential impact of SFAS 159 on its consolidated results of operations and
financial position.
In December 2007, the FASB issued SFAS 141 (revised 2007), "Business
Combinations". SFAS 141R is a revision to SFAS 141 and includes substantial
changes to the acquisition method used to account for business combinations
(formerly the "purchase accounting" method), including broadening the definition
of a business, as well as revisions to accounting methods for contingent
consideration and other contingencies related to the acquired business,
accounting for transaction costs, and accounting for adjustments to provisional
amounts recorded in connection with acquisitions. SFAS 141R retains the
fundamental requirement of SFAS 141 that the acquisition method of accounting be
used for all business combinations and for an acquirer to be identified for each
business combination. SFAS 141R is effective for periods beginning on or after
December 15, 2008, and will apply to all business combinations occurring after
the effective date. The Company is currently evaluating the potential impact of
SFAS 141R on its consolidated financial statements.
In December 2007, the FASB issued SFAS 160, "Non-controlling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51, Consolidated Financial Statements" ("ARB 51"). This Statement amends
ARB 51 to establish new standards that will govern the (1) accounting for and
reporting of non-controlling interests in partially owned consolidated
subsidiaries and (2) the loss of control of subsidiaries. Non-controlling
interest will be reported as part of equity in the consolidated financial
statements. Losses will be allocated to the non-controlling interest, and, if
control is maintained, changes in ownership interests will be treated as equity
transactions. Upon a loss of control, any gain or loss on the interest sold will
be recognized in earnings. SFAS 160 is effective for periods beginning after
December 15, 2008. The Company is currently evaluating the potential impacts of
SFAS 160 on its consolidated results of operations and financial position.
In March 2008, the FASB issued ASAS No. 161, "Disclosure about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133"
(SFAS 161), which establishes, among other things, the disclosure requirements
for derivative instruments and hedging activities. SFAS 161 requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of and gains and losses on derivative
instruments, and disclosures about credit-risk-related contingent features in
derivative agreements. SFAS 161 is effective for fiscal periods and interim
period beginning after November 15, 2008. The Company does not expect the
adoption of SFAS 161 to have a material impact on its consolidated results of
operations, financial position or cash flows.
Inventories
Inventories consist of raw materials and service parts aggregating $24,000,
$39,000, and $59,000 at June 30, 2008, 2007 and 2006, respectively.
F-13
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
3. Accounts payable and accrued liabilities:
Accounts payable and accrued liabilities consist of the following
(in thousands):
2008 2007 2006
-------- -------- --------
Trade accounts payable $ 619 $ 596 $ 523
Accrued payroll and payroll taxes 289 305 595
Sales tax payable - 1 2
Credit cards payable 1 62 29
Other accrued liabilities 175 159 238
-------- -------- --------
$ 1,084 $ 1,123 $ 1,387
======== ======== ========
4. Acquisition of GPM, Inc.
On May 24, 2007, the Company acquired all of the outstanding equity interests in
GPM, Inc. ("GPM") for approximately $1,288,000, consisting of 6,250,000 shares
of Company common stock, the payment of $538,000 in cash, and the payment of
$125,000 of GPM's shareholder debt by issuance of common shares of the Company
at $0.20 per share, or 625,000 shares. The fair value of the 6,250,000 shares
of common stock was determined to be $625,000, or $0.10/share. The fair value
per share was based on the average quoted closing market prices of the Company's
common stock for a reasonable time before and after the date the Letter of
Intent was consummated and the public announcement of the acquisition was
released. Due to an ongoing dispute between the Company and a former GPM
distributor the 6,875,000 common shares have not been issued to the GPM equity
shareholders but have been reserved for issuance until the conclusion of the
dispute. As such, the purchase price and liability payable in common stock of
$750,000 has been classified as a current liability in the accompanying
consolidated balance sheet.
In accordance with SFAS No. 141, the Company allocated the total purchase price
to the tangible and identifiable intangible assets acquired and liabilities
assumed based on their estimated fair values as of the date of acquisition,
using the purchase method of accounting. The components of the purchase price
allocation are as follows (in thousands):
Allocation:
Net tangible assets acquired
Accounts receivable $ 12
Property and equipment 20
Identifiable intangible assets acquired
Patents 1,099
Goodwill 750
---------
Total assets acquired 1,881
---------
Less liabilities assumed:
Accounts payable and accrued expenses 175
Customer deposits 261
Warranty reserve 157
---------
Total liabilities assumed 593
---------
Total purchase price $ 1,288
=========
F-14
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The results of operations for the Company's financial statements included the
results of GPM's operations since May 2007. The following table represents the
unaudited pro-forma combined results of operations of the Company as if GPM had
been acquired on July 1, 2007, with comparable results for the prior year (in
thousands):
2007 2006
---------- ----------
Revenues $ 229 $ 786
Gross profit (loss) $ (156) $ 67
Operating loss $ (2,602) $ (3,762)
Net loss $ (2,733) $ (5,898)
Net loss per share $ (0.09) $ (0.24)
5. Loan Receivable - Related Party
Related party balances consist of the following at June 30, 2008, 2007 and 2006
(in thousands):
2008 2007 2006
-------- -------- --------
Receivable from (payable to)
Aquacell Water, Inc., net $ (56) $ (60) 259
Advances from officers (18) - (12)
-------- -------- --------
Net related party receivable (payable) $ (74) $ (60) $ 247
======== ======== ========
The Company was the former parent of Aquacell Water, Inc ("Water"). The Company
completed the spin-off of Water on March 13, 2006. The Company shares its
corporate offices with Water and both Water and the Company operate under the
same executive management team, although each member of management has a
separate and distinct employment agreement with the Company and Water. The
Company also has an informal agreement with Water for the utilization of
personnel, whereby various employees' salary expenses are shared by both
companies.
6. Property and Equipment and Billboard Coolers
Property and equipment is summarized as follows at June 30:
2008 2007 2006
-------- -------- --------
Furniture, fixtures and office equipment $ 78 $ 78 $ 78
Machinery and equipment 97 97 80
Leasehold improvements 12 12 12
Vehicles 15 15 12
-------- -------- --------
Total property and equipment 202 202 182
Accumulated depreciation (183) (175) (169)
-------- -------- --------
Property and equipment, net $ 19 $ 27 $ 13
======== ======== ========
Depreciation expense for the years ended June 30, 2008, 2007 and 2006, was
approximately $8,000, $6,000 and $173,000, respectively.
F-15
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Concurrent with the Company's transition away from placing billboard coolers in
retail locations and selling advertising space on the water cooler, and while
focusing on selling the patented self-filling water coolers and developing the
newly acquired DC air conditioner patents and technology, the Company elected to
dispose of all billboard coolers at retail locations and retract from actively
promoting its media advertising on the coolers. Concurrent with this
transition, the Company, thru its subsidiary Global Water Aquacell, was
relieved of a deferred payable to a private company for the return and
cancellation of all exclusive distribution and marketing rights previously held
under a distribution agreement. The unpaid balance of $473,000 was payable
solely from 5% of the future revenues generated by our Global Water-Aquacell
subsidiary, which became an inactive company during fiscal 2005. At the date
of determination of the disposal in fiscal 2006, the Company had a recorded
value in its billboard coolers of $1,040,000, inventories of raw material of
$85,000 and impaired patents of $32,000. Accordingly, the Company recorded a
loss on the disposal of assets of $684,000, net of the gain on relief of the
deferred payable.
7. Convertible Promissory Notes
Convertible debt outstanding as of June 30, 2008 and 2007 is (in thousands):
2008 2007
-------- --------
Convertible debt, bearing interest at 9%, convertible
into common stock at $0.20 per share (4,500,000 shares
at full converison), interest due quarterly by cash or
stock payment, due on or before February 2012 $ 900 $ 900
Convertible debt, bearing interest at 9%, convertible
into common stock at $0.20 per share (500,000 shares
at full converison), interest due quarterly by cash or
stock payment, due on or before April 2012 100 100
Convertible debt, bearing interest at 9%, convertible into
common stock at $0.20 per share (10,000,000 shares at
full converison), interest due quarterly by cash or
stock payment, due on or before May 2012 2,245 2,000
Convertible debt, bearing interest at 9%, convertible into
common stock at $0.20 per share (5,500,000 shares at
full converison), interest due quarterly by cash or
stock payment, due on or before June 2012 1,653 1,100
Convertible debt, bearing interest at 9%, convertible into
common stock at $0.20 per share (1,810,000 shares at
full converison), interest due quarterly by cash or
stock payment, due on or before June 2013 362 -
-------- --------
$ 5,260 $ 4,100
F-16
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During the period February through June 2007 the Company completed a private
placement of Convertible Promissory Notes consisting of a promissory note
bearing interest at 9%, due within 2 years, with interest payable quarterly in
cash or stock, convertible at any time at the option of the holder to convert
all or any portion of the promissory notes into shares of the Company's common
stock at a conversion price of $0.20 per share (20,500,000 shares assuming full
conversion). The Company realized gross proceeds of $4,100,000 and expenses were
$295,000 in connection with the private placement.
Additionally, the 2007 private placement consisted of 2,050,000 warrants to
purchase common stock at $0.50 per share with a term of five years. The Company
estimated the fair market value of these warrants to be $900,000 utilizing the
Black-Scholes valuation method using the following assumptions: a risk free
interest rate of 4.77% to 4.98%, volatility of 213%, dividend rate of zero and a
term of three years. The company recorded the warrant issuance as unamortized
deferred compensation and the warrants are being amortized to interest expense
over the term of the convertible note agreements. In addition, the Company
issued 500,000 common stock purchase warrants exercisable at $0.50 per share to
the placement agent over a five year period. The Company estimated the fair
market value of these warrants to be $8,000 utilizing the Black-Scholes
valuation method using the following assumptions: a risk free interest rate of
4.52%, volatility of 213%, dividend rate of zero and a term of three years.
During fiscal 2008, the Company recorded an additional $798,000 in principal due
under the Convertible Note agreements issued in May and June 2007, as stipulated
in the agreements, as the Company did not complete the registration of its
common shares on or before November 15, 2007. The penalty was charged to
interest expense in the period the penalty was incurred (Note 10).
During the period April through June 2008 the Company completed a private
placement of Convertible Promissory Notes consisting of a promissory note
bearing interest at 9%, due within 2 years, with interest payable quarterly in
cash or stock, convertible at any time at the option of the holder to convert
all or any portion of the promissory notes into shares of the Company's common
stock at a conversion price of $0.20 per share (1,810,000 shares assuming full
conversion). The Company realized gross proceeds of $362,000 and expenses were
$12,000 in connection with the private placement.
Additionally, the 2008 private placement consisted of 181,000 warrants to
purchase common stock at $0.50 per share with a term of five years. The Company
estimated the fair market value of these warrants to be $31,000 utilizing the
Black-Scholes valuation method using the following assumptions: a risk free
interest rate of 2.31% to 2.92%, volatility of 158%, dividend rate of zero and
a term of three years. The company recorded the warrant issuance as unamortized
deferred compensation and the warrants are being amortized to interest expense
over the term of the convertible note agreements.
8. Equity Transactions
Series B Convertible Preferred Stock
During August 2005 the Company completed a private placement of 200,000 shares
of its newly designated Series B Convertible Preferred Stock. The offering
consisted of 200,000 shares of Class B Convertible Preferred Stock at a price
of $0.34 per share and 50,000 Class B common stock purchase warrants exercisable
at $0.50 per share. The Series B Convertible Preferred Stock carries a $.08 per
share annual dividend and is convertible into the Company's common stock on a
one for one basis. In connection with this offering the Company received net
proceeds of $52,000 after dividends paid of $16,000. During the year ended June
30, 2006 all of the 918,000 shares of Series B Convertible Preferred Stock were
converted into 918,000 shares of the Company's common stock.
F-17
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Increase in Authorized Capitalization
On July 19, 2005 the Board of Directors approved an amendment to the Company's
Certificate of Incorporation to permit the Company to issue up to 75,000,000
shares of common stock. This amendment was approved by the stockholders at the
December 7, 2005 annual meeting.
On June 30, 2008 the Board of Directors approved an amendment to the Company's
Certificate of Incorporation to permit the Company to issue up to 200,000,000
shares of common stock. This amendment was approved by the stockholders
consent.
Issuances of common stock
In connection with a three-year service agreement the Company issued 100,000
shares of its common stock valued at $82,000. Amortization amounted to $66,000
for the year ended June 30, 2006.
During August 2004 the Company amended a February 2004 consulting agreement to
provide for additional compensation of 100,000 common shares. These shares were
valued at $66,000 based upon closing market price at the date of issuance.
Amortization amounted to $49,000 for the year ended June 30, 2006.
During November 2004 the Company amended an August 2003 consulting agreement to
provide for additional compensation of 300,000 common shares. These shares were
valued at $177,000 based upon closing market price at the date of issuance.
Amortization amounted to $107,000 for the year ended June 30, 2006.
During July 2005 the Company issued 533,333 shares of its common stock in
connection with the exercise of 533,333 common stock warrants. Warrants with
exercise prices ranging from $0.75 to $1.00 were repriced to $.30. The Company
realized gross proceeds of $160,000 and expenses were $16,000 in connection with
the exercise. New common stock purchase warrants were issued for 583,333 shares
of common stock at exercise prices ranging from $0.50 to $0.55 per share.
During August 2005 the Company completed a private placement of 900,000 shares
of its common stock. The offering consisted of one share of common stock at a
price of $.30 per share and one-half common stock purchase warrant exercisable
at $.60 per share. The Company received proceeds of $270,000 and there were no
expenses incurred. The offering also consisted of one half common stock
purchase warrant in the Company's Aquacell Water subsidiary exercisable at $5.00
per share.
During August 2005 the Company completed a private placement of 200,000 shares
of Series B Convertible Preferred Stock. The offering consisted of 200,000
shares of Class B convertible preferred stock exercisable at $.34 and 50,000
Class B common stock purchase warrants exercisable at $.50 per share. The first
year annual dividend of $.08 per share was prepaid in full at the time of the
placement. The Series B convertible preferred stock is convertible into the
Company's common stock on a share for share basis. In connection with this
offering the Company received net proceeds of $52,000 after dividends paid of
$16,000. There were no expenses in connection with this offering.
During September 2005 the Company issued an aggregate of 1,841,512 shares of
common stock in connection with the exercise of 1,841,512 common stock warrants.
Warrants with exercise prices ranging from $.50 to $2.00 were repriced to prices
ranging from $.30 to $.45. The Company realized gross proceeds of $673,000 and
expenses were $75,000 in connection with the exercises. New common stock
purchase warrants were issued for 524,512 shares of common stock exercisable at
$.70 per share, 868,333 exercisable at $.50 per share, 365,000 exercisable at
$.55 per share and 83,667 exercisable at $.65 per share.
F-18
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During September 2005 the Company completed a private placement for 333,333
shares of its common stock. The offering consisted of one share of common stock
at a price of $.30 per share and one common stock purchase warrants exercisable
at $.50 per share. The Company realized gross proceeds of $100,000 and expenses
of the offering amounted to $10,000. In addition the Company issued 13,333
common stock purchase warrants, exercisable at $.50 per share, to the placement
agent.
During September 2005 the Company completed a private placement for 150,000
shares of its common stock. The offering consisted of one share of common stock
at a price of $.38 per share and one common stock purchase warrant exercisable
at $.75. The Company realized gross proceeds of $57,000 and there were no
offering expenses.
During November 2005 the Company issued an aggregate of 277,845 shares of common
stock in connection with the exercise of 277,845 common stock warrants. Warrants
with an exercise price of $.70 were repriced to $.40. The Company realized gross
proceeds of $111,000 and expenses were $11,000 in connection with the exercises.
New common stock purchase warrants were issued for 277,845 shares of common
stock exercisable at $.60 per share. In addition 277,845 common stock purchase
warrants were issued in the Company's Aquacell Water subsidiary exercisable at
$5.00 per share.
During December 2005 the Company issued an aggregate of 400,000 shares of common
stock in connection with the exercise of 400,000 common stock warrants. Warrants
with exercise prices of $.55 and $.50 were repriced to $.12. The Company
realized gross proceeds of $48,000 and there were no expenses in connection with
the exercise. New common stock purchase warrants were issued for 400,000 shares
of common stock exercisable at $.20 per share.
During January 2006 the Company issued an aggregate of 11,828 common shares in
payment of accrued dividends on the Class A Preferred Stock.
During January 2006 the Company issued an aggregate of 1,250,453 shares of
common stock in connection with the exercise of 1,250,453 common stock warrants.
Warrants with exercise prices ranging from $.50 to $4.00 were repriced to prices
ranging between $.10 and $.125. The Company realized gross proceeds of $148,000
and expenses were $11,000 in connection with the exercises. New common stock
purchase warrants were issued for 1,500,453 shares of common stock exercisable
at $.35 per share.
During January 2006 the Company completed a private placement for 500,000 shares
of its common stock. The offering consisted of 500,000 shares of common stock at
a price of $.20 per share and 250,000 common stock purchase warrants exercisable
at $.35 per share. The Company realized gross proceeds of $100,000 and there
were no offering expenses.
During February 2006 the Company issued an aggregate of 223,473 shares of common
stock in connection with the exercise of 223,473 common stock warrants. Warrants
with exercise prices ranging from $.35 to $1.75 were repriced to $.20. The
Company realized gross proceeds of $45,000 and expenses were $5,000 in
connection with the exercises. New common stock purchase warrants were issued
for 223,473 shares of common stock exercisable at $.40 per share.
During March 2006 the Company completed a private placement for 937,500 shares
of its common stock. The offering consisted of 937,500 shares of common stock at
a price of $.16 per share and 468,750 common stock purchase warrants exercisable
at $.40 per share. The Company realized gross proceeds of $150,000 and expenses
were $15,000 in connection with the placement. In addition, the Company issued
20,000 common stock purchase warrants exercisable at $.40 pre share to the
placement agent.
F-19
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During March 2006 the Company issued an aggregate of 751,666 shares of common
stock in connection with the exercise of 751,666 common stock warrants. Warrants
with exercise prices ranging from $.55 to $1.75 were repriced to $.20. The
Company realized gross proceeds of $150,000 and expenses were $15,000 in
connection with the exercises. New common stock purchase warrants were issued
for 751,666 shares of common stock exercisable at $.40 per share.
During November 2006 the Company issued 500,000 shares of common stock and
issued warrants to purchase 500,000 shares of common stock to be exercisable at
a price of $0.20 per share in connection with a consulting agreement. These
shares were valued at $15,000 based upon the closing market price at the date
of issuance. Such amount was amortized to expense in 2007.
During December 2006 the Company issued an aggregate of 137,500 shares of common
stock in connection with the exercise of 137,500 common stock warrants. Warrants
with exercise prices ranging from $0.85 to $1.30 were repriced to $0.15 to
$0.20. The Company realized gross proceeds of $26,000 and expenses were $3,000
in connection with the exercises. New common stock purchase warrants were issued
for 137,500 shares of common stock exercisable at prices ranging from $0.50 to
$0.70 per share.
During January 2007 the Company issued an aggregate of 1,354,887 shares of
common stock in connection with the exercise of 1,354,887 common stock warrants.
Warrants with exercise prices ranging from $0.50 to $1.90 were repriced to $0.08
to $0.10. The Company realized gross proceeds of $127,000 and expenses were
$9,000 in connection with the exercises. New common stock purchase warrants were
issued for 1,354,887 shares of common stock exercisable at prices ranging from
$0.25 to $0.30 per share.
In January 2007, the Company issued an aggregate 1,000,000 shares of common
stock in connection with the hiring of the Company President/Chief Financial
Officer. These shares were valued at $0.09 per share or $90,000, based upon the
closing market price at the date of issuance. The issuance was expensed at the
date of issuance.
During February 2007 the Company issued an aggregate of 813,333 shares of common
stock in connection with the exercise of 813,333 common stock warrants. Warrants
with exercise prices ranging from $0.40 to $1.60 were repriced to $0.08 to
$0.10. The Company realized gross proceeds of $32,000 and reduced amounts
accrued liabilities $17,000 and expenses were $3,000 in connection with the
exercises. New common stock purchase warrants were issued for 813,333 shares of
common stock exercisable at $0.40 per share.
In connection with a placement agency agreement, the Company issued 500,000
shares of its common stock valued at $90,000. This amount was expensed in the
year ended June 30, 2007.
During August 2007 the Company issued an aggregate of 12,720 common shares in
payment of accrued dividends on the Class A Preferred Stock.
In connection with a consulting service agreement, the Company issued 540,000
shares of its common stock and issued warrants to purchase 540,000 shares of
common stock to be exercisable at a price of $0.75 per share. This value of the
service of $100,000 was expensed in the year ended June 30, 2008.
In June 2008 the Company issued 25,000 shares of its common stock in connection
with a convertible debt agreement valued at $8,000. The amount was expensed in
the year ended June 30, 2008.
During the year ended June 30, 2008, the Company issued an aggregate of
1,765,040 shares of its common stock for payment of interest on the convertible
notes payable agreements. The amount of interest paid was $369,000.
F-20
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Issuances of common stock purchase warrants
In connection with marketing and consulting agreements with five separate
entities, entered into in August 2003, the Company issued warrants to purchase
1,250,000 shares of common stock to be exercisable at $ .01 per share. The
Company estimated the fair value of these warrants to be $2,564,000 utilizing
the Black-Scholes valuation method using the following assumptions: a risk-free
interest rate of 3.1%, volatility of 33.33% and a term of five years. During
2006 the Company determined, based on its decision to transition from the water
cooler advertising and sales market, that the remaining fair value of these
warrants was fully impaired. Accordingly, the Company amortized the remaining
$977,000 to expense in the year ended June 30, 2006.
In connection with a three year consulting agreement, entered into in February
2004, the Company issued a warrant to purchase 150,000 shares of common stock to
be exercisable for a five-year period at $1.22 per share. The Company estimated
the fair value of this warrant to be $143,000 utilizing the Black-Scholes
valuation method using the following assumptions: a risk free interest rate of
3.1%, volatility of 106.9 % and a term of five years. Amortization amounted to
$78,000 for the year ended June 30, 2006.
During August 2004 the Company issued 50,000 common stock purchase warrants at
a price of $.66 per share in connection with performance under an existing
consulting agreement. The Company estimated the fair value of these warrants to
be $25,000 utilizing the Black-Scholes valuation method using the following
assumptions; a risk-free interest rate of 3.1%, volatility of 98.71% and a term
of five years. Amortization amounted to $16,000 for the year ended June 30,
2006.
During December 2004 the Company issued 100,000 common stock purchase warrants
at a price of $.40 per share in connection with two consulting agreements. The
Company estimated the fair value of these warrants to be $30,000 utilizing the
Black Scholes valuation method using the following assumptions; a risk-free
interest rate of 3.1%, volatility of 98.71% and a term of 5 years. Amortization
amounted to $28,000 for the year ended June 30, 2006.
During June 2005 the Company issued 100,000 common stock purchase warrants at a
price of $.37 per share in connection with an investor relations agreement. The
Company estimated the fair value of these warrants to be $19,000 utilizing the
Black-Scholes valuation method using the following assumptions; a risk-free
interest rate of 3.1%, volatility of 50.06% and a term of 5 years. Amortization
amounted to $19,000 during the year ended June 30, 2006.
In connection with a private placement of Class B preferred stock, completed in
August 2005, the Company issued Class B common stock purchase warrants for
329,500 shares of its common stock exercisable at $.50 per share and an
additional 24,891 shares of its common stock exercisable at $.50 per share to
the placement agent.
In connection with a warrant repricing, completed in July 2005, the Company
issued common stock purchase warrants for 533,333 shares of its common stock
exercisable at $.50 per share.
In connection with a private placement of common stock, completed in August
2005, the Company issued common stock purchase warrants for 450,000 shares of
its common stock exercisable at $.60 per share. The Company also issued common
stock purchase warrants for 450,000 shares of the common stock of its Aquacell
Water subsidiary exercisable at $5.00 per share.
In connection with a warrant repricing, completed in September 2005, the Company
issued common stock purchase warrants for 524,512 shares of its common stock
exercisable at $.70 per share, for 868,333 shares exercisable at $.50 per share,
for 365,000 shares exercisable at $.55 per share and for 83,667 shares
exercisable at $.65 per share.
F-21
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with a private placement of common stock, completed in September
2005, the Company issued common stock purchase warrants for 333,333 shares of
its common stock exercisable at $.50 per share and an additional 13,333 shares
of its common stock exercisable at $.50 per share to the placement agent.
In connection with a private placement of common stock, completed in September
2005, the Company issued common stock purchase warrants for 150,000 shares of
its common stock exercisable at $.75 per share.
In connection with a warrant repricing, completed in November 2005, the Company
issued common stock purchase warrants for 277,845 shares of its common stock
exercisable at $.60 per share. The Company also issued common stock purchase
warrants for 277,845 shares of the common stock of its Aquacell Water subsidiary
exercisable at $5.00 per share.
In connection with a warrant repricing, completed in December 2005, the Company
issued common stock purchase warrants for 400,000 shares of its common stock
exercisable at $.20 per share.
In connection with a warrant repricing, completed in January 2006, the Company
issued common stock purchase warrants for 1,500,453 shares of its common stock
exercisable at $.35 per share.
In connection with a warrant repricing, completed in February 2006, the Company
issued common stock purchase warrants for 223,473 shares of its common stock
exercisable at $.40 per share.
In connection with a warrant repricing, completed in March 2006, the Company
issued common stock purchase warrants for 751,666 shares of its common stock
exercisable at $.40 per share.
In connection with a private placement, completed in March 2006, the Company
issued common stock purchase warrants for 468,750 shares of its common stock
exercisable at $.40 per share.
In connection with a private placement, completed in November 2006, the Company
issued common stock purchase warrants for 500,000 shares of its common stock
exercisable at $.20 per share.
In connection with a warrant repricing, completed in December 2006, the Company
issued common stock purchase warrants for 137,500 shares of its common stock
exercisable at $.50-$.70 per share.
In connection with a warrant repricing, completed in January 2007, the Company
issued common stock purchase warrants for 1,354,887 shares of its common stock
exercisable at $.25-$.30 per share.
In connection with a consulting agreement in January 2007, the Company issued
common stock purchase warrants for 20,000 shares of its common stock exercisable
at $.40 per share.
In connection with a warrant repricing, completed in February 2007, the Company
issued common stock purchase warrants for 813,333 shares of its common stock
exercisable at $.40 per share.
Between February and June 2007, the Company issued an aggregate 2,050,000
warrants to purchase common stock at $0.50 per share with a term of five years
in connection with the Convertible Notes payable issuances. The Company
estimated the fair market value of these warrants to be $900,000 utilizing the
Black-Scholes valuation method using the following assumptions: a risk free
interest rate of 4.77% to 4.98%, volatility of 213%, dividend rate of zero and a
term of three years. Amortization to interest for the years ended June 30,
2008 and 2007 amounted to $453,000 and $47,000, respectively (Note 10).
F-22
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During April and June 2008, the Company issued an aggregate 181,000 warrants to
purchase common stock at $0.50 per share with a term of five years in connection
with the Convertible Notes payable issuances. The Company estimated the fair
value of these warrants to be $31,000 utilizing the Black-Scholes valuation
method using the following assumptions: a risk-free interest rate of 2.31%-
2.92%, volatility of 158%, dividend rate of zero and a term of three years.
Amortization for the year ended June 30, 2008 amounted to $1,000 (Note 10).
At June 30, 2008, the Company had warrants outstanding as follows:
Exercise Price Shares Expiration Date (Mo/Yr)
-------------- ---------- -----------------------
0.01 150,000 Aug 2008
0.20 900,000 Dec 2010 - Nov 2011
0.25 942,028 Jan 2012
0.30 412,859 Jan 2012
0.35 1,500,453 Jan 2013
0.37 100,000 June 2010
0.40 2,402,222 June 2010 - Feb 2012
0.50 3,096,417 July 2010 - June 2013
0.60 584,033 Aug 2010 - Nov. 2010
0.66 50,000 Aug 2009
0.70 68,750 Dec 2011
0.75 1,066,667 Dec 2009 - Mar 2013
0.90 147,000 Sept 2009
1.16 685,000 Mar 2013
1.22 150,000 Feb 2009
4.00 130,000 Sept 2008 - June 2009
-----------
12,385,429
At June 30, 2008, the weighted average exercise price of the outstanding
warrants was $0.52 and the weighted average remaining contractual life of the
warrants was 3.03 years.
Stock Based Compensation
The Company adopted SFAS No. 123 (revised 2004), Share-Based Payment ("SFAS
123(R)") in fiscal year 2006. The Company adopted SFAS 123(R) using the modified
prospective method, and, accordingly, consolidated financial statements for
prior periods have not been restated to reflect the effect of SFAS 123(R). In
March 2005, the SEC issued SEC SAB No. 107 ("SAB 107") relating to SFAS 123(R).
The Company has applied SAB 107 in its adoption of SFAS 123(R). The Company
previously applied APB Opinion No. 25, Accounting for Stock Issued to Employees
("APB 25"), and related interpretations and had adopted the disclosure-only
provisions of SFAS No. 123, Accounting for Stock-Based Compensation ("SFAS 123")
and SFAS No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure - an Amendment of FASB Statement No. 123.
F-23
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
During August 1998, the Company adopted the 1998 Incentive Stock Plan (the
"Plan") under which options (either incentive or nonqualified), stock
appreciation rights, stock and other awards, covering an aggregate amount of
1,000,000 shares of common stock, may be granted to officers, directors,
employees and consultants of the Company. The exercise price established for
any awards granted under the Plan, shall be determined by a Compensation
Committee appointed by the Company's Board of Directors. The exercise price of
incentive stock options cannot be less than 100% (110% for 10% or greater
shareholder employees) of the fair market value ("FMV") at the date of grant and
the exercise price of nonqualified options cannot be less than 85% of the FMV at
the date of grant. The exercise period of incentive options cannot extend
beyond 10 years from the date of grant and nonqualified options cannot extend
beyond 15 years from the date of grant. At the December 2, 2003 annual meeting
the stockholders approved the increase in issuable shares to 2,000,000 and at
the December 7, 2005 annual meeting the stockholders approved the increase in
issuable shares to 3,000,000 in the plan.
During January 2002, the Board of Directors adopted a Director's Option Plan
covering an aggregate amount of 500,000 shares of common stock. At the December
7, 2005 annual meeting the stockholders approved the increase in issuable shares
to 1,000,000 in the plan. As of June 30, 2008, 2007 and 2006, 495,000, 495,000
and 435,000 options have been granted under this plan.
A summary of stock option activity under both plans is as follows:
Weighted-
Weighted- Average Aggregate
Average Remaining Intrinsic
Exercise Contractual Value
Options Price Life (Years) (000)
---------- ---------- ------------ -----------
Outstanding at July 1, 2005 1,935,500 $ 0.80 6.30 $ 0
Granted 660,000 0.26
Forfeited (191,000) 0.69
----------
Outstanding at June 30, 2006 2,404,500 0.66 5.74 0
Granted 935,000 0.09
Forfeited (630,000) 0.58
----------
Outstanding at June 30, 2007 2,709,500 0.49 5.60 466
Granted 550,000 0.18
Forfeited (60,000) 0.55
----------
Outstanding at June 30, 2008 3,199,500 0.45 4.96 203
Vested and expected to vest
at June 30, 2008 3,037,733 0.40 5.00 172
==========
Exercisable at June 30, 2008 1,581,833 0.61 4.49 80
==========
The aggregate intrinsic value in the table above is before applicable income
taxes and is calculated based on the difference between the exercise price of
the options and the quoted price of the common stock as of the reporting date.
F-24
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the status of the Company's nonvested options as of June 30, 2008
and 2007 and changes during the fiscal years then ended is presented below.
Weighted Average
Shares Grant Date Fair Value
------------ ---------------------
Unvested at July 1, 2006 1,438,400 $0.33
Granted 935,000 $0.09
Vested (315,000) $0.31
Forfeited (461,400) $0.34
------------
Unvested at June 30, 2007 1,597,000 $0.21
Granted 550,000 $0.18
Vested (529,333) $0.36
------------
Unvested at June 30, 2008 1,617,667 $0.25
============
As of June 30, 2008, total unrecognized stock-based compensation expense related
to nonvested stock options was approximately $381,000, which is expected to be
recognized over a weighted average period of approximately 2.73 years. There was
no intrinsic value of stock options exercised as there were no exercises in
2008, 2007 or 2006.
The weighted average grant date fair value of options granted during the years
ended June 30, 2008, 2007 and 2006 was $0.18, $0.09 and $0.26, respectively.
The following table summarizes information about stock options and warrants
outstanding and exercisable at June 30, 2008:
Weighted Weighted Weighted
Average Average Exercisable Average
Number of Remaining Exercise Number of Exercise
Exercise Price Shares Life (Years) Price Shares Price
----------------- ----------- ------------ -------- ----------- --------
$0.09 - 0.10 935,000 5.53 $ 0.09 348,333 $ 0.10
0.18 550,000 6.40 0.18 - 0.18
0.21 445,000 5.07 0.21 223,000 0.21
0.37 - 0.49 50,000 6.40 0.39 46,000 0.40
0.55 - 0.65 624,500 3.57 0.56 424,500 0.56
0.86 - 1.16 190,000 4.21 1.11 190,000 1.11
1.24 - 1.45 405,000 3.36 1.26 350,000 1.27
----------- -----------
3,199,500 1,581,833
=========== ===========
F-25
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
9. Spin-off of Subsidiary and Discontinued Operations
On July 19, 2005 the Board of Directors approved that management reincorporate
its Water Science Technologies subsidiary in Delaware and change its name to
Aquacell Water, Inc.
On November 8, 2005 the Company filed a Form 10 on behalf of its Aquacell Water
subsidiary in connection with the spin-off. On March 13, 2006 the Form 10 of
Aquacell Water that registered all 27,809,408 issued and outstanding shares of
its common stock to be distributed to the Aquacell Technologies, Inc. common
stockholders on a share for share basis was declared effective. This report has
reclassified the assets, liabilities and operations of the Aquacell Water
subsidiary to reflect discontinued operations based on the March 9, 2006 record
date.
The Financial Accounting Standards Board's SFAS No. 144, " Accounting for the
Impairment or Disposal of Long-Lived Assets, " addresses financial accounting
and reporting for the disposal of a component of an entity that has been
disposed of in a distribution to owners.
The Company has disposed of its Aquacell Water, Inc. subsidiary through a
distribution of common shares to its stockholders. Consequently, the
accompanying condensed consolidated financial statements reflect operations of
Aquacell Water, Inc. as discontinued operations in accordance with SFAS No. 144.
Results of operations and cash flows of Aquacell Water have been classified as
"Loss from discontinued operations".
Summarized below are the results of discontinued operations:
Year Ended
June 30,
----------------------------
2006* 2005
------------ ------------
Net sales $ 555,000 $ 619,000
============ ============
Discontinued operations:
Loss from discontinued operations of subsidiary ($650,000) ($471,000)
Write-off goodwill attributable to Company's
investment in Aquacell Water, Inc. (750,000) -
------------ ------------
Loss from discontinued operations ($1,400,000) ($471,000)
============ ============
*Includes operations to March 9, 2006
10. Interest Expense
Included in interest expense in fiscal 2008 is a charge of $798,000 related to
the Convertible Promissory Notes payable share registration penalty and $367,000
of interest paid on the Convertible Notes payable. Also included in interest
expense is interest amortization charges related to warrants issued in
connection with the Convertible Promissory Notes payable of $454,000 and $47,000
for the years ended June 30, 2008 and 2007, respectively. The balance of
interest expense, in the amounts of $97,000, $70,000 and $41,000 for the years
ended June 30, 2008, 2007 and 2006, respectively, represents penalties and
interest on accrued payroll taxes.
F-26
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
11. Income Taxes
The provision for income taxes consists of the following:
June 30,
--------------------------------------------
2008 2007 2006
------------ ------------ ------------
Current:
Federal $ - $ - $ -
------------ ------------ ------------
- - -
------------ ------------ ------------
Deferred:
Federal 1,184 719 1,696
------------ ------------ ------------
1,184 719 1,696
------------ ------------ ------------
Less change in valuation allowance (1,184) (719) (1,696)
------------ ------------ ------------
Net deferred tax asset (liability) $ - $ - $ -
============ ============ ============
Deferred income taxes are provided for the tax effects of temporary differences
in the reporting of income for financial statement and income tax reporting
purposes and arise principally from net operating loss carry-forwards, accrued
expenses and basis differences in fixed assets.
The Company's effective tax rate differs from the Federal statutory rates due to
the valuation allowance recorded for the unused net operating loss carry-
forwards deferred tax asset. An allowance has been provided for by the Company
which reduced the tax benefits accrued by the Company for its net operating
losses to zero, as it cannot be determined when, or if, the tax benefits derived
from these operating losses will materialize.
At June 30, 2008, the Company had available federal net operating loss carry
forwards to reduce future taxable income, if any, of approximately $24,000,000.
The net operating loss carry forwards expire at various dates through 2028.
Under Section 382 of the Internal Revenue Code certain significant changes in
ownership of the Company may restrict the future utilization of these tax loss
carry forwards.
12. Subsequent Events
Subsequent to June 30, 2008 the Company received additional proceeds from the
sale of its 9% Convertible Promissory Notes of approximately $700,000 (which
brought the total proceeds of the 9% Convertible Promissory Note subsequent to
the year ended June 30, 2007 to approximately $1,062,000). The conversion rate
of these Notes was $0.15 per common share which will result in a amending the
conversion rates on certain of the outstanding Convertible Promissory Notes from
$.20 to the revised $0.15 during fiscal 2009.
F-27
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
13. Commitments and Contingencies
Lease Commitments
As of June 30, 2008, future minimum commitments under office and equipment
operating leases are $139,000 through December 31, 2010, of which $93,000 is
committed in fiscal 2009. Rent expense under office leases amounted to
approximately $83,000, $122,000 and $111,000 for the years ended June 30, 2008,
2007 and 2006, respectively.
Contingency Related to Convertible Notes
Subsequent to June 30, 2008, the Company was advised by certain holders of
Convertible Notes issued in fiscal 2007 that the holders consider the Company in
default of certain terms and conditions of the Convertible Note Agreements and
the Registration Rights Agreement and intend to demand repayment in full of all
outstanding principal, accrued interest, and registration penalties. The
Company believes any defaults that may have occurred have been cured, and does
not consider the Convertible Notes in default at June 30, 2008. As of June 30,
2008, the Company has accrued all unpaid interest and registration penalties
(Note 7). The Convertible Notes are reflected as currently due on the
accompanying consolidated balance sheets.
Legal Proceedings
From time to time, the Company is named in legal actions in the normal course of
business. In the opinion of management, the outcome of these matters, if any,
will not have a material impact on the financial condition or results of
operations of the Company.
14. Statement of Cash Flows Supplemental Disclosure of Non-Cash Transactions
The following schedule summarizes the Company's supplemental disclosure of non-
cash transactions for the Consolidated Statements of Cash Flows for the years
ended June 30, 2008, 2007, and 2006 (in thousands):
Years Ended June 30,
--------------------------------------------
(in thousands) 2008 2007 2006
------------ ------------ ------------
Supplemental Disclosure of Cash Flow Information
Purchase of GPM, Inc.
Receivables from related parties, net $ - $ 12 $ -
Property and equipment, net - 20 -
Patents - 1,099 -
Goodwill - 750 -
Accounts payable and accrued liabilities - (175) -
Customer deposits - (261) -
Warranty reserves - (157) -
------------ ------------ ------------
Net purchase price $ - $ 1,288 $ -
============ ============ ============
Spin-off of Aquacell Water subsidiary
Current assets, net $ - $ - $ 57
Property and equipment, net - - 7
Other assets - - 5
Liabilities, net - - (1,119)
------------ ------------ ------------
Net investment in subsidiary $ - $ - $ (1,050)
============ ============ ============
F-28
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
15. Consulting and Employment Agreements
Consulting agreements
During August 2003 the Company entered into marketing and consulting agreements
with five separate entities. Consideration for one of these agreements included
cash fees of $45,000 paid over a three-month period. In addition, 1,250,000
warrants to purchase common stock of the Company exercisable for five years at a
price of $.01 per share, were issued for all these agreements (See Note 8).
During February 2004 the Company entered into a three year consulting agreement.
Consideration for this agreement was 150,000 warrants to purchase shares of
common stock of the Company exercisable for five years at a price of $1.22 per
share (See Note 8).
During June 2004 the Company entered into a three-year service agreement. The
agreement calls for a cash payment of $6,000 per month over the term of the
agreement, and the issuance of 100,000 shares of the Company's common stock
(See Note 8).
During December 2004 the Company entered into five year consulting agreements
with two separate entities. Consideration for these agreements was 100,000
warrants to purchase shares of common stock of the Company exercisable for five
years at a price of $.40 per share (See Note 8).
During June 2005 the Company entered into a month-to-month investor relations
agreement, effective July 1, 2005. Consideration for the agreement was $5,500
per month and 100,000 warrants to purchase shares of common stock of the
Company exercisable for five years at a price of $.37 per share (See Note 8).
The agreement will automatically renew on a monthly basis, unless terminated by
either party in writing upon 30 days notice. The agreement was canceled during
the year ended June 30, 2006.
During February 2007 the Company entered into a placement agency agreement.
Consideration for this agreement was 500,000 shares of the Company common stock
(see Note 8).
Employment agreements
The Company has employment agreements with various executives and employees of
the Company which expire at various dates through January, 2012. These
agreements provide for aggregate minimum salaries of $550,000 for the year
ending June 30, 2009. The agreements also provide for incentive bonuses based
upon achievement of certain milestones.
F-29
GREENCORE TECHNOLOGY, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
16. Selected Quarterly Financial Results (unaudited)
Year ended June 30, 2008
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
(in thousands, except per share) -------- -------- -------- -------- --------
Revenues $ 60 $ 24 $ 35 $ 52 $ 171
Gross profit (47) (10) (6) (32) (95)
Operating income (loss) (593) (485) (614) (886) (2,578)
Other income (loss) (108) (1,025) (274) (299) (1,706)
-------- -------- -------- -------- --------
Net income (loss) $ (701) $(1,501) $ (888) $(1,185) $(4,284)
======== ======== ======== ======== ========
Net loss per common share
Basic and diluted $ (0.02) $ (0.04) $ (0.02) $ (0.03) $ (0.11)
======== ======== ======== ======== ========
Year ended June 30, 2007
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
(in thousands, except per share) -------- -------- -------- -------- --------
Revenues $ 68 $ 18 $ 24 $ 37 $ 147
Gross profit 15 (13) (12) (77) (87)
Operating income (loss) (317) (182) (860) (835) (2,194)
Other income (loss) (3) (5) (6) (91) (105)
-------- -------- -------- -------- --------
Net income (loss) $ (320) $ (187) $ (866) $ (926) $(2,299)
======== ======== ======== ======== ========
Net loss per common share
Basic and diluted $ (0.01) $ (0.01) $ (0.03) $ (0.03) $ (0.07)
======== ======== ======== ======== ========
F-30