Edgar Filing: GREENMAN TECHNOLOGIES INC

Prospectus Supplement
Filed Pursuant to
Rule 424(b)(3) of the
Securities Act of 1933
Registration No. 333-140225

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Supplement to Prospectus
dated
February 6, 2007

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GREENMAN TECHNOLOGIES, INC.

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4,140,426 Shares of
Common Stock

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This prospectus supplement relates to 4,140,426 shares of Common Stock,
par value $.01 per share, of GreenMan Technologies, Inc. (the "Company").

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR
DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

No dealer, salesman or any other person has been authorized to give any
information or to make any representations in connection with this offering
other than those contained in this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the company or by any other person. All information contained in this
Prospectus is as of the date of this Prospectus. This Prospectus does not
constitute any offer to sell or a solicitation of any offer to buy any security
other than the securities covered by this Prospectus, nor does it constitute an
offer to or solicitation of any person in any jurisdiction in which such offer
or solicitation may not be lawfully made. Neither the delivery of this
Prospectus nor any sale or distribution made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof.

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February 16, 2007

CHANGE IN CERTIFYING ACCOUNTANT

On February 12, 2007, GreenMan Technologies, Inc.'s Board of Directors
dismissed Wolf & Company, P.C. and selected the firm of Schechter, Dokken,
Kanter, Andrews & Selcer, Ltd., independent certified public accountants, to
serve as auditors for the fiscal year ending September 30, 2007. Schechter,
Dokken, Kanter, Andrews & Selcer, Ltd., based in Minneapolis, Minnesota, has
assisted our former auditor, Wolf & Company, P.C., in our annual audits during
the past eight years. Given the relocation of corporate headquarters from
Massachusetts to Minnesota during fiscal 2006, our Board deemed it appropriate
to select a local firm to serve as our auditor commencing fiscal 2007.

The report of Wolf & Company, P.C. on our financial statements for the
fiscal year ended September 30, 2005 (but not the fiscal year ended September
30, 2006) indicated a substantial doubt about our ability to continue as a going
concern. Except for this "going concern" qualification, Wolf & Company, P.C.'s
reports with respect to our last two fiscal years did not contain any adverse
opinion or a disclaimer of opinion and were not qualified or modified as to
uncertainty, audit scope or accounting principles. During the two most recent
fiscal years and the subsequent interim period we had no disagreements with Wolf
& Company, P.C. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure which, if not resolved to
the satisfaction of Wolf & Company, P.C. would have caused Wolf & Company, P.C.
to make reference to the matter in its report.

As indicated, Schechter, Dokken, Kanter, Andrews & Selcer, Ltd. has
assisted Wolf & Company, P.C. in our annual audits during the past eight years.
During the two most recent fiscal years, and any subsequent interim period prior
to engaging Schechter, Dokken, Kanter, Andrews & Selcer, Ltd., however, neither
we (nor anyone on our behalf) consulted Schechter, Dokken, Kanter, Andrews &
Selcer, Ltd. regarding (i) either the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on our financial statements; or (ii) any matter
that was either the subject of a disagreement or a reportable event.

Wolf & Company, P.C. has furnished us with a letter addressed to the
Securities and Exchange Commission stating that it agrees with the above
statements. A copy of such letter, dated February 16, 2007, is filed as Exhibit
16 to our Current Report on Form 8-K/A dated February 16, 2007 and filed with
the Commission on February 16, 2007.

FINANCIAL RESULTS FOR THE QUARTER ENDED DECEMBER 31, 2006

GREENMAN TECHNOLOGIES, INC.
Consolidated Balance Sheets

December 31, September 30,
2006 2006
------------ ------------

ASSETS
Current assets:
Cash and cash equivalents ............................................... $ 267,659 $ 639,014
Accounts receivable, trade, less allowance for doubtful
accounts of $208,604 and $185,206 as of December 31, 2006
and September 30, 2006 ............................................... 1,954,979 2,056,928
Product inventory ....................................................... 406,834 113,336
Other current assets .................................................... 694,457 653,423
Assets related to discontinued operations ............................... -- 7,291
------------ ------------
Total current assets ................................................ 3,323,929 3,469,992
------------ ------------
Property, plant and equipment, net ........................................ 5,700,987 5,807,119
------------ ------------
Other assets:
Customer relationship intangibles, net .................................. 77,697 85,434
Other ................................................................... 199,284 146,982
------------ ------------
Total other assets .................................................. 276,981 232,416
------------ ------------
$ 9,301,897 $ 9,509,527
============ ============

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Notes payable, current .................................................. $ 496,619 $ 493,572
Notes payable, related party, current ................................... 10,000 30,000
Accounts payable ........................................................ 1,673,815 1,786,130
Accrued expenses, other ................................................. 1,534,045 1,549,071
Obligations under capital leases, current ............................... 192,006 185,940
Obligations due under lease settlement, current ......................... 86,675 --
Liabilities related to discontinued operations .......................... 3,350,448 3,414,834
------------ ------------
Total current liabilities ........................................... 7,343,608 7,459,547
Notes payable, non-current portion ...................................... 10,263,011 10,339,590
Notes payable, related parties, non-current portion ..................... 534,320 534,320
Obligations under capital leases, non-current portion ................... 1,630,000 1,615,692
Deferred gain on sale leaseback transaction ............................. 334,077 343,185
Obligations due under lease settlement, non-current portion ............. 562,383 630,000
------------ ------------
Total liabilities ................................................... 20,667,399 20,922,334
------------ ------------

Stockholders' deficit:
Preferred stock, $1.00 par value, 1,000,000 shares authorized,
none outstanding ..................................................... -- --
Common stock, $.01 par value, 40,000,000 shares authorized,
21,514,430 shares and 21,408,966 shares issued and
outstanding at December 31, 2006 and September 30, 2006 .............. 215,144 214,089
Additional paid-in capital .............................................. 35,866,388 35,811,086
Accumulated deficit ..................................................... (47,447,034) (47,437,982)
------------ ------------
Total stockholders' deficit ......................................... (11,365,502) (11,412,807)
------------ ------------
$ 9,301,897 $ 9,509,527
============ ============

See accompanying notes to unaudited consolidated financial statements.

GREENMAN TECHNOLOGIES, INC.
Consolidated Statements of Operations

Three Months Ended
December 31,
2006 2005
------------ ------------

Net sales ............................................. $ 4,886,730 $ 4,276,351
Cost of sales ......................................... 3,403,370 2,971,493
------------ ------------
Gross profit .......................................... 1,483,360 1,304,858
Operating expenses:
Selling, general and administrative ................ 967,942 775,659
------------ ------------
Operating income from continuing operations ........... 515,418 529,199
------------ ------------
Other income (expense):
Interest and financing costs ....................... (523,141) (279,285)
Non-cash interest and financing costs .............. -- (656,271)
Other, net ......................................... (11,154) (21,973)
------------ ------------
Other (expense), net ............................ (534,295) (957,529)
------------ ------------
Loss from continuing operations before income taxes ... (18,877) (428,330)
Provision for income taxes ............................ -- --
------------ ------------
Loss from continuing operations ....................... (18,877) (428,334)
------------ ------------
Discontinued operations:
Gain (loss) from discontinued operations ........... 9,825 (977,995)
------------ ------------
9,825 (977,995)
------------ ------------
Net loss .............................................. $ (9,052) $ (1,406,325)
============ ============

Loss from continuing operations per share -basic ...... $ -- $ (0.02)
Loss from discontinued operations per share -basic .... -- (0.05)
------------ ------------
Net loss per share -basic ............................. $ -- $ (0.07)
============ ============

Weighted average shares outstanding ................... 21,466,625 19,225,352
============ ============

See accompanying notes to unaudited consolidated financial statements.

GREENMAN TECHNOLOGIES, INC.
Unaudited Consolidated Statement of Changes in Stockholders' Deficit
Three Months Ended December 31, 2006

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

Balance, September 30, 2006 ................................ 21,408,966 $214,089 $35,811,086 $(47,437,982) $(11,412,807)
Common stock issued for fees and expenses due .............. 26,828 269 10,526 -- 10,795
Common stock issued for services rendered .................. 13,636 136 4,364 -- 4,500
Common stock issued in connection with lease settlement .... 65,000 650 31,850 -- 32,500
Compensation expense associated with stock options ......... -- -- 8,562 -- 8,562
Net loss for the quarter ended December 31, 2006 ........... -- -- -- (9,052) (9,052)
---------- -------- ----------- ------------ ------------
Balance, December 31, 2006 ................................. 21,514,430 $215,144 $35,866,388 $(47,447,034) $(11,365,502)
========== ======== =========== ============ ============

See accompanying notes to unaudited consolidated financial statements.

GREENMAN TECHNOLOGIES, INC.
Unaudited Consolidated Statements of Cash Flow

Three Months Ended December 31,
2006 2005
----------- -----------

Cash flows from operating activities:
Net loss .................................................................... $ (9,052) $(1,406,325)
Adjustments to reconcile net loss to net cash (used) provided by
operating activities:
Loss on disposal of property, plant and equipment ........................... 3,988 55,806
Depreciation ................................................................ 373,618 405,818
Amortization of non-cash financing costs .................................... -- 654,847
Amortization of customer relationships ...................................... 7,737 3,699
Amortization of stock option compensation expense ........................... 8,562 --
Amortization of deferred gain on sale leaseback transaction ................. (9,108) (9,111)
Decrease (increase) in assets:
Accounts receivable ...................................................... 101,949 1,615,741
Product inventory ........................................................ (293,498) (181,379)
Equipment held for sale .................................................. -- 39,332
Other current assets ..................................................... (33,743) 45,980
Other assets ............................................................. (52,302) 12,053
Increase (decrease) in liabilities:
Accounts payable ......................................................... (168,684) (22,905)
Accrued expenses and other ............................................... 43,810 (169,183)
----------- -----------
Net cash (used) provided by operating activities ....................... (26,723) 1,044,373
----------- -----------
Cash flows from investing activities:
Purchase of property and equipment .......................................... (217,601) (46,754)
Proceeds from the sale of property and equipment ............................ 13,546 60,000
----------- -----------
Net cash (used) provided by investing activities ....................... (204,055) 13,246
----------- -----------
Cash flows from financing activities:
Net payments under line of credit ........................................... -- (162,262)
Proceeds from notes payable ................................................. 24,529 --
Repayment of notes payable .................................................. (98,061) (246,882)
Repayment of notes payable, related party ................................... (20,000) --
Repayment of convertible notes payable ...................................... -- (125,000)
Net payments on convertible notes payable, line of credit ................... -- (705,229)
Principal payments on obligations under capital leases ...................... (47,045) (54,020)
----------- -----------
Net cash used by financing activities .................................. (140,577) (1,293,393)
----------- -----------
Net (decrease) in cash and cash equivalents .................................... (371,355) (235,774)
Cash and cash equivalents at beginning of period including $31
and $0, respectively, of cash related to discontinued operations ............. 639,014 365,216
----------- -----------
Cash and cash equivalents at end of period, $0 cash related to
discontinued operations ...................................................... $ 267,659 $ 129,442
=========== ===========

Supplemental cash flow information:
Machinery and equipment acquired under capital leases ........................ $ 67,419 $ --
Shares issued in lieu of cash for fees, expenses and service rendered ........ 15,295 --
Shares issued for lease settlement ........................................... 32,500 --
Interest paid ................................................................ 371,297 304,921
Taxes paid ................................................................... 35,300 --

See accompanying notes to unaudited consolidated financial statements.

GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2006 and 2005
(Unaudited)

1. Business

GreenMan Technologies, Inc. (together with its subsidiaries "we", "us" or
"our") was originally founded in 1992 and has operated as a Delaware corporation
since 1995. Today, we comprise two operating locations that collect, process and
market scrap tires in whole, shredded or granular form. We are headquartered in
Savage, Minnesota and currently have tire processing operations in Iowa and
Minnesota.

Our tire processing operations are paid a fee to collect, transport and
process scrap tires (i.e., collection/processing revenue) in whole or into two
inch or smaller rubber chips which are then sold (i.e., product revenue).

2. Basis of Presentation

The consolidated financial statements include the accounts of GreenMan
Technologies, Inc. and our wholly-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

In September 2005, due to the magnitude of continued operating losses, our
Board of Directors approved separate plans to divest the operations of our
Georgia and Tennessee subsidiaries and dispose of their respective assets. In
addition, due to continuing operating losses, in July 2006 we sold our
California subsidiary. Accordingly, we have classified all three respective
entities' assets, liabilities and results of operations as discontinued
operations for all periods presented in the accompanying consolidated financial
statements.

The accompanying interim financial statements are unaudited and should be
read in conjunction with the financial statements and notes thereto for the year
ended September 30, 2006 included in our Annual Report on Form 10-KSB. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted pursuant to the
Securities and Exchange Commission rules and regulations, although we believe
the disclosures which have been made herein are adequate to ensure that the
information presented is not misleading. The results of operations for the
interim periods reported are not necessarily indicative of those that maybe
reported for a full year. In our opinion, all adjustments which are necessary
for a fair statement of operating results for the interim periods presented have
been made. Certain reclassifications have been made to the 2006 interim
consolidated financial statements to conform to the current period presentation.

Nature of Operations, Risks, and Uncertainties

As of December 31, 2006, we had $267,659 in cash and cash equivalents and
a working capital deficiency of $4,019,679 of which $3,350,448 or 83% of the
total is associated with our discontinued Georgia subsidiary. We understand our
continued existence is dependent on our ability to generate positive operating
cash flow, achieve profitable status on a sustained basis and settle existing
obligations. We believe our efforts to achieve these goals, as evidenced by the
significant reduction in our quarterly losses have been positively impacted by
the June 30, 2006 restructuring of our Laurus Credit facility (see Note 6) and
our divestiture of historically unprofitable operations during fiscal 2006 and
2005 (see Note 4). However, in the fourth quarter of fiscal 2008, our principal
payments due Laurus are scheduled to increase substantially. If we are unable to
obtain additional financing or restructure our remaining principal payments with
Laurus, our ability to maintain our current level of operations could be
materially and adversely affected and we may be required to adjust our operating
plans accordingly. We believe the June 15, 2006 delisting of our stock by the
American Stock Exchange as a result of our non compliance with their minimum
stockholders' equity requirement of $4 million (for companies incurring losses
in three of their most recent fiscal years) could substantially limit our
stock's future liquidity and impair our ability to raise capital.

GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2006 and 2005
(Unaudited)

2. Basis of Presentation - (Continued)

We have invested substantial amounts of capital during the past several
years, including approximately $950,000 in Iowa during our fourth quarter of
fiscal 2006 in new equipment to increase processing capacity at our Iowa and
Minnesota locations, as well as consolidating our Wisconsin location into our
Minnesota operations to substantially reduce operating costs and maximize our
return on assets. Our future operating plan focuses on maximizing the
performance of these two operations through our continuing efforts to increase
overall quality of revenue (revenue per passenger tire equivalent) while
remaining diligent with our ongoing cost reduction initiatives. In addition, we
continue to identify, and are currently selling product into several new,
higher-value markets as evidenced by a 16% increase in end product revenue
during the quarter ended December 31, 2006 as compared to the prior year. We
continue to experience strong demand for our end products.

3. Net Loss Per Share

Basic earnings per share represents income available to common
stockholders divided by the weighted average number of common shares outstanding
during the period. Diluted earnings per share reflects additional common shares
that would have been outstanding if potentially dilutive common shares had been
issued, as well as any adjustment to income that would result from the assumed
conversion. Potential common shares that may be issued by us relate to
outstanding stock options and warrants (determined using the treasury stock
method) and convertible debt. Basic and diluted net loss per share are the same
for the three months ended December 31, 2006 and 2005, since the effect of the
inclusion of all outstanding options, warrants and convertible debt would be
anti-dilutive.

4. Discontinued Operations

Due to the magnitude of the continuing operating losses incurred by our
Georgia ($3.4 million) and Tennessee ($1.8 million) subsidiaries during fiscal
2005 and our California ($3.2 million since inception) subsidiary in fiscal 2006
our Board of Directors determined it to be in the best interest of our company
to discontinue all Southeastern and West coast operations and dispose of their
respective operating assets. A majority of the Tennessee operating losses were
due to rapid market share growth within the state necessitating us to transport
an increasing number of Tennessee scrap tires to our Georgia facility for
processing at significant transportation and processing costs. A majority of the
Georgia operating losses were due to (1) the negative impact of processing a
significant number of Tennessee sourced tires; (2) a change in the
specifications of our primary end market customers requiring a smaller product
resulting in reduced processing capacity and significantly higher operating
costs and (3) equipment reliability issues resulting from aging equipment
processing an increasing number of scrap tires. A majority of the California
operating losses were due to significantly higher operating costs resulting from
rapid market share growth and equipment reliability issues resulting from aging
equipment.

In September 2005 we assigned all Tennessee scrap tire collection
contracts and certain other contracts with suppliers of waste tires and
contracts to supply whole tires to certain cement kilns in the southeastern
region of the United States to a company owned by a former employee. We received
no cash consideration for these assignments and recorded a $1,334,849 loss
(including a non-cash loss of $918,450 associated with goodwill written off) on
disposal of the operations at September 30, 2005. The aggregate net losses
including the loss on disposal associated with the discontinued operations of
our Tennessee subsidiary included in the results for year ended September 30,
2005 were approximately $3.1 million. We accrued $165,000 of estimated costs
associated with the Tennessee closure at September 30, 2000. During fiscal 2006
we incurred and charged against the accrual approximately $109,000. In addition,
$56,000 was reversed into income as a result of a reduction in certain plant
closure accruals and an agreement with our former Tennessee landlord.
Additionally, we recognized $70,000 associated with insurance credits. In
aggregate, we recognized approximately $126,000 of income from discontinued
Tennessee operations during the year ended September 30, 2006.

GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2006 and 2005
(Unaudited)

4. Discontinued Operations - (Continued)

In September 2005, we adopted a plan to dispose of all Georgia operations
and during the quarter ended December 31, 2005, we substantially curtailed
operations at our Georgia subsidiary. As a result, we wrote down all Georgia
operating assets to their estimated fair market value at September 30, 2005 and
recorded a loss on disposal of $4,631,102 (including a non-cash loss of
$1,253,748 associated with goodwill written off) net of a gain on settlement of
our Georgia facility lease of $586,137. We completed the divestiture of all
Georgia operating assets as of March 1, 2006. During the quarter ended December
31, 2006 several vendors issued credits relating to past due amounts, we
recovered some bad debts and reduced certain accrued expenses which offset a
$19,058 increase in our lease settlement reserve (see discussion of our Georgia
lease below) resulting in approximately $9,800 of income from discontinued
Georgia operations. The aggregate net losses incurred during the quarter ended
December 31, 2005 associated with our discontinued Georgia operation was
approximately $746,000.

In February 2006, we sold and assigned to Tires Into Recycled Energy and
Supplies, Inc. ("TIRES"), a leading crumb rubber processor in the United States,
certain assets, including (a) certain truck tire processing equipment located at
our Georgia facility; (b) certain rights and interests in our contracts with
suppliers of scrap truck tires; and (c) certain intangible assets. TIRES assumed
all of our rights and obligations under these contracts. As additional
consideration, TIRES terminated several material supply agreements and a
December 2005 letter of intent containing an exclusive option to acquire certain
operating assets of TIRES. In addition, TIRES entered into a sublease agreement
with us with respect to part of the premises located in Georgia. Pursuant to the
terms of the sublease agreement, TIRES received an initial six months of free
rent after which they are required to pay $4,650 per month. The lease can be
terminated anytime with six months' notice. In December 2006, we received notice
that TIRES would be terminating their lease effective June 5, 2007. We are
currently working to indentify a new sublessee.

In March 2006, we sold and assigned to MTR of Georgia, Inc. ("MTR"), a
company co-owned by a former employee, certain assets, including (a) certain
passenger tire processing equipment located at our Georgia facility; (b) certain
rights and interests in our contracts with suppliers of scrap passenger tires;
and (c) certain intangible assets. MTR assumed all of our rights and obligations
under these contracts. We received $250,000 from MTR for these assets. As
additional consideration, MTR assumed financial responsibility for disposing of
all scrap tires and scrap tire processing residual at the Georgia facility as of
the closing of this sale. In addition, MTR entered into a sublease agreement
with us with respect to part of the premises located in Georgia. Pursuant to the
terms of the sublease agreement, MTR received an initial six months of free rent
after which they are required to pay $6,570 on a triple net basis per month. The
initial term of the lease is three years but can be terminated anytime with six
months' notice.

We agreed with TIRES and MTR not to compete in the business of providing
whole tire waste disposal services or selling crumb rubber material (except to
our existing customers) within certain Southeastern states for a period of three
years.

In February 2006, we amended our Georgia lease agreement to obtain the
right to terminate the original lease which had a remaining term of
approximately 15 years, by providing the landlord with six months notice. In the
event of termination, we will be obligated to continue to pay rent until the
earlier to occur of (1) the sale by the landlord of the premises; (2) the date
on which a new tenant takes over; or (3) three years from the date on which we
vacate the property. As a result of the amendment and our decision to dispose of
our Georgia operations, we wrote off the unamortized balance of $1,427,053
associated with the leased land and buildings and improvements as a cost of
disposal of discontinued operations at September 30, 2005. This loss was
partially offset by a $586,137 gain on settlement of the remaining capital lease
obligations due and is included in the loss on disposal of discontinued
operations at September 30, 2005. In addition, on August 28, 2006 we received
notice from the Georgia landlord indicating that the Georgia subsidiary was in
default under the lease due to its insolvent financial condition. The landlord
agreed to waive the default in return for a $75,000 fee to be paid upon
termination of the lease and required that all current and future rights and
obligations under the lease be assigned to GreenMan Technologies, Inc. pursuant

GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2006 and 2005
(Unaudited)

4. Discontinued Operations - (Continued)

to a March 29, 2001 guaranty agreement. The $75,000 is included in loss from
discontinued operations for the fiscal year ended September 30, 2006 and is
included in Obligations due under lease settlement at December 31, 2006. The net
present value of the lease settlement obligation increased by $19,058 during the
quarter ended December 31, 2006 and is included in discontinued operations. The
increase is primarily result of the additional liability assumed by us due to
the TIRES lease termination notice.

In July 2006 we sold our California subsidiary, which had lost
approximately $3.2 million since inception to a third party for $1,000 in a
stock purchase agreement. GreenMan Technologies of California was formed in 2002
to acquire all of the outstanding common stock of Unlimited Tire Technologies,
Inc. an Azusa, California scrap tire recycling company of which the third party
was the majority owner. The aggregate net losses associated with our California
subsidiary included in the results for the three months ended December 31, 2005
was approximately $232,000. The aggregate net losses including the loss on
disposal associated with the discontinued operations of our California
subsidiary included in the results of operations for year ended September 30,
2006 were approximately $1,005,000.

The major classes of assets and liabilities associated with discontinued
operations were:

December 31, September 30,
2006 2006
---------- ----------

Assets related to discontinued operations:
Cash $ -- $ 31
Other current assets -- 7,260
---------- ----------
Total assets related to discontinued operations $ -- $ 7,291
========== ==========

Liabilities related to discontinued operations:
Accounts payable $2,518,762 $2,575,133
Notes payable, current 394,887 394,887
Accrued expenses, other 110,004 118,019
Capital leases, current 326,795 326,795
---------- ----------
Total liabilities related to discontinued operations $3,350,448 $3,414,834
========== ==========

Net sales and (loss) from discontinued operations were as follows:

December 31, December 31,
2006 2005
---------- ----------

Net sales from discontinued operations $ -- $ 1,164,865
Gain (loss) from discontinued operations 9,825 (977,995)

5. Property, Plant and Equipment

Property, plant and equipment consists of the following:

December 31, September 30, Estimated
2006 2006 Useful Lives
------------ ------------ -------------

Buildings and improvements $ 1,741,943 $ 1,741,943 10-20 years
Machinery and equipment 7,294,512 7,188,119 5-10 years
Furniture and fixtures 123,118 164,025 3-5 years
Motor vehicles 3,547,196 3,586,457 3-10 years
------------ ------------
12,706,769 12,680,544
Less accumulated deprecation and (7,005,782) (6,873,425)
------------ ------------
amortization
Property, plant and equipment, net $ 5,700,987 $ 5,807,119
============ ============

GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2006 and 2005
(Unaudited)

6. Notes Payable/Credit Facilities

Republic Services of Georgia

On May 6, 2002 we issued Republic Services of Georgia, LP ("RSLP") a
$743,750 10% promissory note due in March 2007. On July 31, 2005, RSLP agreed to
defer all interest and principal payments due, including nine existing past-due
payments totaling $76,042 through June 2006 at which time all past due interest
and principal payments under the May 6, 2002 promissory note was to be
incorporated into an a new 10% promissory note, payable in 48 monthly
installments commencing July 2006.

On June 30, 2006 we reached an agreement with RSLP in which in return for
a payment of $250,000 and the issuance of a $150,000 unsecured promissory note,
RSLP agreed to forgo all remaining amounts due under the revised May 6, 2002
promissory note totaling $766,355 at June 30, 2006. The settlement was
characterized as a troubled debt restructuring and as a result, we realized a
gain on restructuring of $353,476 during the quarter ended June 30, 2006. The
note bears interest at 10% and is payable in 11 monthly installments of $5,000
with the remaining balance due June 30, 2007. The balance due RSLP at December
31, 2006 was $132,879.

June 2004 Laurus Credit Facility

On June 30, 2004, we entered into a $9 million credit facility with Laurus
Master Fund, Ltd. ("Laurus"), consisting of a $5 million convertible, revolving
working capital line of credit and a $4 million convertible term note. At
closing, we borrowed $2 million under the line of credit and $4 million under
the term loan. We used the proceeds to repay certain existing debt obligations,
financing costs relating to this transaction, and general working capital. On
March 22, 2005, the credit facility was amended to (1) permit us to maintain
overradvances of up to $2,000,000 under the line of credit through December 31,
2005 (subsequently extended to May 31, 2006); (2) defer certain principal
payments on the term note as described below; and (3) reduce the conversion
price on the minimum borrowing note and term note as described below.

The line of credit had a three-year term and required us to maintain a
minimum borrowing of $1,000,000. Advances generally bore interest at the prime
rate plus 1.0% and were convertible into shares of our common stock at the
option of Laurus. Except for downward adjustments provided in the credit
facility terms described below, the interest rate would not be below 5%. Amounts
advanced under the line were limited to 90% of accounts receivable and 50% of
finished goods inventory as defined, subject to certain limitations. We were
permitted to maintain overadvances of up to $2,000,000 under the line of credit
until June 30, 2006.

Subject to certain limitations, Laurus had the option to convert the first
$1,000,000 of borrowings under the line of credit into our common stock at a
revised price of $0.79 (85% of the average closing price of our common stock for
the five days immediately preceding March 22, 2005). Each subsequent $1,000,000
of borrowings would be convertible at the higher of $.93 or a 10% premium over
the 22-day trailing average closing price computed on each $1,000,000 increment.
As a result of the reduction in conversion price pursuant to the terms of the
March 22, 2005 amendment, we recorded a beneficial conversion feature of
$598,717. The discount was recorded as additional paid-in-capital and was
entirely amortized to interest expense by December 31, 2005.

The term note also had a three-year term and bore interest at the greater
of prime rate plus 1% or 5%, payable monthly. Monthly principal payments of
$125,000 over the term of the loan commenced on November 1, 2004; however, the
terms of the March 22, 2005 amendment deferred the principal payments otherwise
due from December 1, 2004 through June 30, 2005, until the maturity date of the
term note, at which time the deferred payments and all other outstanding amounts
were due. In addition, Laurus agreed to defer principal payments otherwise due
from November 1, 2005 through June 1, 2006, which were to be payable in full at
maturity.

Laurus had the option to convert some or all of the note's principal and
interest payments into common stock at a revised fixed conversion price of $.79
on the first $1,000,000 of borrowings, and $.93 on the remaining amounts.
Subject to certain limitations, regular payments of principal and interest were
automatically payable in common stock if the 5-day average closing price of the
common stock immediately preceding a payment date was greater than or equal to
110% of such fixed conversion price. As a result of the change in conversion

GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2006 and 2005
(Unaudited)

6. Credit Facility/Notes Payable - (Continued

price pursuant to the terms of the March 22, 2005 amendment, we recorded an
additional beneficial conversion feature of $1,485,594 on the term note. The
additional discount amount was recorded as paid-in-capital with the portion
attributed to the first $1,000,000 of borrowings, $567,429 which was entirely
amortized to interest expense by December 31, 2005. The remaining balance of
$918,165 was to be amortized over the remaining term of the note or ratably upon
any partial conversion.

On July 20, 2005, we issued an additional $1 million convertible term note
to Laurus. The note was to mature on June 30, 2007 and bore interest at the
prime rate plus 1.75%, payable monthly commencing August 1, 2005. Monthly
principal payments of $58,823.53 over the term of the loan were to commence on
February 1, 2006. Laurus subsequently agreed to defer the principal payments
otherwise due from February 1, 2006 through May 1, 2006, until the maturity date
of the term note, at which time the deferred payments and all other outstanding
amounts are due. Laurus had the option to convert some or all of the principal
and interest payments into common stock at a price of $.33 (the average closing
price of our common stock on the American Stock Exchange for the 3-day period
ending July 18, 2005).

In connection with this term note, we issued Laurus an option to purchase
up to an aggregate of 2,413,571 shares of our common stock at an exercise price
equal to $0.01 per share. This option, valued at $401,738, was immediately
exercisable, has a term of ten years, allows for cashless exercise at the option
of Laurus, and does not contain any "put" provisions. Net proceeds received from
issuance of the term note amounted to $955,000 and were allocated to the term
note and the option based on their relative fair values. The note contained a
beneficial conversion feature of $393,939 at issuance based on the intrinsic
value of the shares into which the note is convertible, and a debt issue
discount amounting to $446,738. The beneficial conversion amount was recorded as
paid in capital and was to be amortized to interest expense along with the debt
conversion discount over the two year term of the note or ratably upon any
partial conversion. The terms of the note were substantially similar to our June
2004 credit facility, including similar negative and restrictive covenants, as
well as reporting requirements and default provisions.

The conversion price applicable to each of the notes and the exercise
price of each of the warrants was previously subject to downward adjustment on a
"full ratchet" basis, if with certain exceptions, we issued shares of our common
stock (or common stock equivalents) at a price per share less than the
applicable conversion or exercise price. These rights have never been enforced
and on April 8, 2006, Laurus agreed to retroactively eliminate their rights to
enforce these provisions.

June 2006 Laurus Credit Facility

On June 30, 2006, we entered into a $16 million amended and restated
credit facility with Laurus (the "New Credit Facility"). The New Credit Facility
consists of a $5 million non-convertible secured revolving note and an $11
million secured non-convertible term note. Unlike the terms of our prior credit
facility with Laurus, the New Credit Facility is not convertible into shares of
our common stock.

The revolving note has a three-year term from the closing, bears interest
on any outstanding amounts at the prime rate plus 2% (10.25% at December 31,
2006), with a minimum rate of 8%. Amounts advanced under the line are limited to
90% of eligible accounts receivable and 50% of finished goods inventory, as
defined up to a maximum of $5 million, subject to certain limitations. There
were no amounts outstanding under the revolving note at December 31, 2006.

The term loan has a maturity date of June 30, 2009 and bears interest at
the prime rate plus 2% (10.25% at December 31, 2006), with a minimum rate of 8%.
Interest on the term loan is payable monthly commencing August 1, 2006.
Principal will be amortized over the term of the loan, commencing on July 2,
2007, with minimum monthly payments of principal as follows: (i) for the period

GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2006 and 2005
(Unaudited)

6. Credit Facility/Notes Payable - (Continued)

commencing on July 2, 2007 through June 2008, minimum principal payments of
$150,000; (ii) for the period from July 2008 through June 2009, minimum
principal payments of $400,000; and (iii) the balance of the principal will be
payable on the maturity date. In addition, we have agreed to make an excess cash
flow repayment as follows: no later than ninety-five days following the end of
each fiscal year beginning with the fiscal year ending on September 30, 2007, we
have agreed to make a payment equal to 50% of (a) the aggregate net operating
cash flow generated for such fiscal year less (b) aggregate capital expenditures
made in such fiscal year (up to a maximum of 25% of the net operating cash flow
calculated in accordance with clause (a). The term loan may be prepaid at any
time without penalty. We used approximately $8,503,000 of the term note proceeds
to repay our outstanding indebtedness under our existing credit facility with
Laurus, approximately $1,219,000 to repay in full the indebtedness due our Iowa
subsidiary's lender First American Bank; $250,000 to RSLP as part of a
settlement agreement (as described above) and paid approximately $888,000 of
costs and fees associated with this transaction which were expensed at June 30,
2006.

In connection with the New Credit Facility, we issued Laurus a warrant to
purchase up to an aggregate of 3,586,429 shares of our common stock at an
exercise price equal to $0.01 per share. This warrant, valued at $1,116,927, is
immediately exercisable, has a term of ten years, allows for cashless exercise
at the option of Laurus, and does not contain any "put" provisions. Previously
issued warrants to purchase an aggregate of 1,380,000 shares of our common
stock, which were issued in connection with the original notes on June 30, 2004,
were canceled as part of this transaction. The amount of our common stock Laurus
may hold at any given time is limited to no more than 4.99% of our outstanding
common stock. This limitation maybe waived by Laurus upon 61 days notice to us
and does not apply if an event of default occurs, and is continuing under the
New Credit Facility. The fair value of these terminated warrants was determined
to be $31,774 and offset the value of the new warrant issued. In addition, the
fair value associated with the foregone convertibility feature of all previous
convertible amounts was determined to be $740,998 and also offset the value of
the new warrant issued. As a result of the foregoing, the net value assigned to
the new warrant of $344,155 was recorded as paid in capital and recorded as a
reduction to the carrying value of the refinanced note as described below. The
terms of the term note are substantially similar to our June 2004 credit
facility, including similar negative and restrictive covenants, as well as
reporting requirements and default provisions.

Laurus Funds has agreed that it will not, on any trading day, be permitted
to sell any common stock acquired upon exercise of this warrant in excess of 10%
of the aggregate numbers of shares of the common stock traded on such trading
day. We have agreed to register for resale under the Securities Act of 1933 the
shares of common stock issuable to Laurus Funds upon exercise of the
aforementioned warrant. On January 25, 2007 we filed a registration statement
relating to the 3,586,429 shares underlying the June 30, 2006 warrant.

Pursuant to Statement of Financial Accounting Standards No. 15 "Accounting
by Debtors and Creditors for Troubled Debt Restructuring" ("SFAS 15") the New
Credit Facility has been accounted for as a troubled debt restructuring. It was
determined that, because the effective interest rate of the New Credit Facility
was lower than that of the previous credit facility therefore indicating a
concession was granted by Laurus, we are viewed as a passive beneficiary of the
restructuring, and no new transaction has occurred. Under SFAS 15, a
modification of terms "is neither an event that results in a new asset or
liability for accounting purposes nor an event that requires a new measurement
of an existing asset or liability." Thus, from a debtor's standpoint, SFAS 15
calls for a modification of the terms of a loan to be accounted for
prospectively. As a result, unamortized balances of $258,900 of deferred
financing fees and $972,836 of debt discount and beneficial conversion features
associated with the previous Laurus credit facility were netted along with the
value of the new warrants issued of $344,155 against the new term debt related
to the portion of the new debt that refinanced the Laurus debt and related
accrued interest totaling $8,503,416 to provide a net carrying amount for that
portion of the debt of $6,927,525. The carrying amount of the loan will be
amortized over the term of the loan at a constant effective interest rate of 20%
applied to the future cash payments specified by the new loan.

GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2006 and 2005
(Unaudited)

6. Credit Facility/Notes Payable - (Continued)

The carrying value of the Laurus debt under the New Credit Facility at
December 31, 2006 was $9,424,109 and does not equate to the total cash payments
due under the debt as a result of accounting for a troubled debt restructure.
The following is a summary of the cash maturities of the Laurus debt:

Twelve Months Ending December 31,
---------------------------------
2007 ............................... $ 900,000
2008 ............................... 3,300,000
2009................................ 6,800,000
-----------
$11,000,000
===========

7. Notes Payable - Related Party

Note Payable-Related Party

In November 2000, we borrowed $200,000 from a director under an unsecured
promissory note which bears interest at 12% per annum with interest due monthly
and the principal originally due in November 2001. In June 2001 and again in
September 2002, the director agreed to extend the maturity date of note until
November 2004. The director agreed to extend the maturity date several times and
on August 24, 2006, agreed to convert the $200,000 of principal and $76,445 of
accrued interest into 953,259 of unregistered shares of common stock at a price
of $.29 per share which was the closing price of our stock on the date of
conversion.

Between June and August 2003, two immediate family members of an officer
loaned us a total of $400,000 under the terms of two-year, unsecured promissory
notes which bear interest at 12% per annum with interest due quarterly and the
principal due upon maturity. In March 2004, these same individuals loaned us an
additional $200,000 in aggregate, under similar terms with the principal due
upon maturity March 2006. These individuals each agreed to invest the entire
$100,000 principal balance of their June 2003 notes ($200,000 in aggregate) into
our April 2004 private placement of investment units and each received 113,636
units in these transactions. In addition, the two individuals agreed to extend
the maturity of the remaining balance of these notes, $400,000 at December 31,
2006 until the earlier of when all amounts due under the Laurus credit facility
have been repaid or June 30, 2009.

In September 2003, a former officer loaned us $400,000 under a September
30, 2003 unsecured promissory note which bore interest at 12% per annum with
interest due quarterly and the principal due March 31, 2004 (subsequently
extended to September 30, 2004). In 2004, the former officer offset
approximately $163,000 of amounts due the Company under a 1998 note against the
balance due him and applied approximately $114,000 of the balance due him plus
$21,000 of accrued interest to exercise options to purchase 185,000 shares of
unregistered common stock. In addition, he agreed to extend the maturity of the
remaining balance of this note until the earlier of when all amounts due under
the Laurus credit facility have been repaid or June 30, 2009. In July 2006, the
balance due the former officer was $99,320 of which he assigned $79,060 of the
balance to one of an officer's immediate family members noted above and the
remaining balance of $20,260 plus accrued interest of $13,500 to the officer.

Between January and June 2006, a director loaned us $155,000 under three
unsecured promissory notes which bear interest at 10% per annum with interest
and principal due during periods ranging from June 30, 2006 through September
30, 2006. On April 12, 2006, the director agreed in lieu of being repaid in cash
at maturity to convert $76,450 (including interest of $1,450) into 273,035
shares of unregistered common stock at a price of $.28 which was the closing
price of our stock on the date of conversion. In addition, on June 5, 2006 the
director agreed to convert $15,226 (including interest of $226) into 42,295
shares of unregistered common stock at a price of $.36 which was the closing
price of our stock on the date of conversion. The director has agreed be paid
$10,000 per month during the quarter ended December 31, 2006 and extend the
remaining $35,000 until the earlier of when all amounts due under the
restructured Laurus credit facility have been repaid or June 30, 2009. As of
December 31, 2006 there was $45,000 due the director as he agreed to extend the
final $10,000 repayment until February 2007. For the three months ended December
31, 2006 and 2005, interest expense on notes payable to related parties amounted
to $14,982 and $20,980 respectively. Accrued interest payable amounted to
$94,085 at December 31, 2006.

GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2006 and 2005
(Unaudited)

7. Litigation

As of December 31, 2006, approximately fourteen vendors of our GreenMan
Technologies of Georgia, Inc. and GreenMan Technologies of Tennessee, Inc.
subsidiaries had commenced legal action, primarily in the state courts of
Georgia, in attempts to collect approximately $1.4 million of past due amounts,
plus accruing interest, attorneys' fees, and costs, all relating to various
services rendered to these subsidiaries. The largest individual claim is for
approximately $650,000. As of December 31, 2006, five vendors had secured
judgments in their favor against GreenMan Technologies of Georgia, Inc. for an
aggregate of approximately $237,000. As previously noted, all of GreenMan
Technologies of Tennessee, Inc.'s assets were sold in September 2005 and
substantially all of GreenMan Technologies of Georgia, Inc.'s assets were sold
as of March 1, 2006. All proceeds from these sales were retained by our secured
lender and these subsidiaries have no substantial assets. We are therefore
currently evaluating the alternatives available to these subsidiaries.

Although GreenMan Technologies, Inc. was not a party to any of these
vendor relationships, three of the plaintiffs have named GreenMan Technologies,
Inc. as a defendant along with our subsidiaries. We believe that GreenMan
Technologies, Inc. has valid defenses to these claims, as well as against any
similar or related claims that may be made against us in the future, and we
intend to defend against any such claims vigorously.

In addition to the foregoing, we are subject to routine claims from time
to time in the ordinary course of our business. We do not believe that the
resolution of any of the claims that are currently known to us will have a
material adverse effect on our company or on our financial statements.

8. Stockholders' Equity

Common Stock Transactions

On October 19, 2006, we issued 13,636 shares of our unregistered common
stock valued at $4,500 (at a price of $.33 which was the closing price of our
stock on the date of issuance) to a third party for consulting services rendered
during fiscal 2006.

In conjunction with the relocation of corporate headquarters from
Massachusetts to Minnesota we terminated our lease for our former headquarters
effective November 1, 2006. In return for the termination, we gave our landlord
$50,000 and issued 65,000 shares of our unregistered common stock valued at
$32,500 at a price of $.50 which was the closing price of our stock on the date
of issuance). We were allowed to remain in the existing space through December
31, 2006 as part of the settlement agreement (valued at $13,140), the landlord
agreed to provide us with approximately 1,100 square feet of office space for 12
months commencing January 1, 2007 at no cost (valued at $15,000). As a result of
settlement, we recorded a lease settlement expense of $54,360 at September 30,
2006.

During the quarter ended December 31, 2006, several directors agreed to
accept 26,828 shares of unregistered common stock valued at $10,795 (all shares
were issued at a price equal to the closing price of our common stock on date of
issuance) in lieu of cash for certain director's fees and expenses due the
directors.

Stock Options

We maintain stock-based compensation plans, which are described more fully
in Note 11 to the consolidated financial statements in the 2006 Annual Report
filed on Form 10-KSB. As permitted by Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation", we
previously had elected to continue with the accounting methodology prescribed by
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees." On October 1, 2006, we adopted the fair value recognition
provisions of SFAS No. 123(R) "Share-based Payment" using the prospective method
and have applied the required fair value methodology to all stock option and
equity award plans. Therefore, we continue to account for nonvested awards
outstanding at the date of adoption in the same manner we accounted for them
prior to adoption. We use the Balack- Scholes option valuation to determine the
fair value of share based payments granted after October 1, 2006. During the
three months ended December 31, 2006, we recorded $8,562 of stock based
compensation expense as a result of the adoption of SFAS 123(R).

GREENMAN TECHNOLOGIES, INC.
Notes to Interim Consolidated Financial Statements
Quarter Ended December 31, 2006 and 2005
(Unaudited)

8. Stockholders' Equity - (Continued)

The following table provides the pro forma disclosures of net loss and
earnings per share as if the fair value recognition provisions of SFAS No. 123,
had been applied to prior periods:

Three Months Ended
December 31, 2005
-----------------

Net loss as reported .................................... $(1,406,325)
Add: Compensation recognized under APB No.25 ............ --
Less: Compensation recognized under SFAS No. 123 ........ (8,149)
-----------
Pro forma net loss ...................................... $(1,414,474)
===========

Net loss per share:
Basic and diluted - as reported ...................... $ (0.07)
===========
Basic and diluted - pro forma ........................ $ (0.07)
===========

The fair value of the options at the date of grant and assumptions
utilized to determine such values are indicated in the following table for the
three months ended December 31, 2006 as no options were granted during the three
months ended December 31, 2005.

Three Months Ended
December 31, 2006
-----------------

Risk-free interest rate ................................. 4.63%
Expected dividend yield ................................. --
Expected life ........................................... 7.5 years
Expected volatility ..................................... 76.9%
Weighted Average fair value of options granted .......... $ .17

In projecting expected stock price volatility we considered historical
data for a twenty week period prior to date of grant. We estimated the expected
life of stock options using the shortcut method, and estimated stock option
forfeitures based on historical experience.

On December 29, 2006, we granted our Chief Executive Officer an option to
purchase 25,000 shares of our common stock at an exercise price of $.36 per
share, which represented the closing price of our stock on the date of grant.
The grant was made pursuant to the terms of his employment agreement as it
related to additional incentive compensation due for the fiscal year ended
September 30, 2006. The option was granted under the 2005 Stock Option Plan, has
a ten-year term and vests equally over a five-year period from date of grant.
The option had a fair value on date of grant of $.14 per share.

During the quarter ended December 31, 2006, we granted options to one
officer and two directors to purchase an aggregate of 260,000 shares of the our
common stock at exercise prices ranging from $.35 to $.55 per share, which
represented the closing price of our stock on the date of each respective grant.
The options were granted under the 2005 Stock Option Plan, have a ten-year term
and vest equally over a five-year period from date of grant. The options had a
fair value on date of grant ranging from $.13 to $.21 per share.

Item 2. Management's Discussion and Analysis or Plan of Operation

In September 2005, due to the magnitude of continued operating losses, our
Board of Directors approved separate plans to divest the operations of our
Georgia and Tennessee subsidiaries and dispose of their respective assets. In
addition, due to continuing operating losses, in July 2006 we sold our
California subsidiary. Accordingly, we have classified all three respective
entity's results of operations as discontinued operations for all periods
presented in the accompanying consolidated financial statements.

The following information should be read in conjunction with the unaudited
consolidated financial statements and the notes thereto included in Item 1 of
the Quarterly Report, and the audited consolidated financial statements and
notes thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations contained in our Form 10-KSB filed for the year ended
September 30, 2006.

Results of Operations

Three Months ended December 31, 2006 Compared to the Three Months ended
December 31, 2005

Net sales from continuing operations for the three months ended December
31, 2006 increased $610,379 or 14% to $4,886,730 as compared to the first
quarter of last year's net sales from continuing operations of $4,276,351. Our
continuing operations processed approximately 3.65 million passenger tire
equivalents during the quarter ended December 31, 2006, compared to
approximately 3.10 million passenger tire equivalents during the same period
last year. In addition to the 18% increase in overall inbound tire volume, the
overall fee we are paid to collect and dispose of a scrap tire ("tipping fee")
increased 2% compared to last year.

Gross profit for the three months ended December 31, 2006 was $1,483,360
or 30.4% of net sales, compared to $1,304,858 or 30.5% of net sales for the
three months ended December 31, 2005. Our cost of sales increased $431,877 or
15% primarily due to increased collection and processing costs associated with
higher inbound volume. In addition, due to the completion of several large civil
engineering projects (which use more of the scrap tire including waste wire)
during fiscal 2006, our processing residual waste costs increased approximately
$58,000 during the three months ended December 31, 2006 as compared to the prior
year.

Selling, general and administrative expenses for the three months ended
December 31, 2006 increased $192,283 to $967,942 or 20% of net sales, compared
to $775,659 or 18% of net sales for the three months ended December 31, 2005.
The increase was primarily attributable to an increase of approximately $116,000
in salaries and wages, sales commissions and the re-allocation of approximately
$52,000 of net corporate operating expenses which were absorbed by discontinued
operations during the three months ended December 31, 2005.

As a result of the foregoing, we had operating income from continuing
operations of $515,418 during the three months ended December 31, 2006 as
compared to operating income of $529,199 for the three months ended December 31,
2005.

Interest and financing expense for the three months ended December 31,
2006 increased $243,856 to $523,141, compared to $279,285 during the three
months ended December 31, 2005. The increase is attributable to the inclusion of
approximately $137,940 of deferred interest associated with the June 2006 Laurus
credit facility restructuring, increased rates and the allocation of all Laurus
related cash interest to continuing operations during the fiscal year ended
September 30, 2006 (approximately $25,000 was allocated to discontinued
operations during the three months ended December 31, 2005). Non-cash financing
fees and interest were zero during the three months ended December 31, 2006 as
compared to $656,271 for the same period last year from the amortization of
deferred financing fees in conjunction with the June 2006 Laurus refinancing.

As a result of the foregoing, our net loss after income taxes from
continuing operations for the three months ended December 31, 2006 decreased
$409,457 or 96% to $18,877 or $.00 per basic share, compared to a net loss of
$428,330 or $.02 per basic share for the three months ended December 31, 2005.

During the three months ended December 31, 2006, several vendors issued
credits relating to past due amounts, we recovered some bad debts and reduced
certain accrued expenses which offset a $19,058 increase in our Georgia lease
settlement reserve resulting in $9,825 ($.00 per basic share) of income from
discontinued operations. The $977,995 net loss ($.05 per basic share) from
discontinued operations for the three months ended December 31, 2005 includes
approximately $746,000 associated with our Georgia operations and approximately
$232,000 associated with our California operations.

Our net loss for the three months ended December 31, 2006 decreased
$1,397,273 or 99% to $9,052 or $.00 per basic share as compared to a net loss of
$1,406,325 or $.07 per basic share for the three months ended December 31, 2005.

Liquidity and Capital Resources

The Consolidated Statements of Cash Flows reflect events in the three
months ended December 31, 2006 and 2005 as they affect our liquidity. During the
three months ended December 31, 2006, net cash used by operating activities was
$26,723. While our net loss was $9,052 our overall cash flow was positively
impacted by the following non-cash expenses and changes to our working capital:
$380,809 of depreciation and amortization and a decrease in accounts receivable
of $101,949. These changes were offset by a $293,498 increase in product
inventory which is not unusual during this seasonally slower quarter and a net
decrease in accounts payable and accrued expenses of $124,874. During the three
months ended December 31, 2005, net cash provided by operating activities was
$1,044,373 which reflects a net loss of $1,406,325 which was partially offset by
the following non-cash expenses and changes to our working capital: $1,055,253
of depreciation and amortization, an increase in accounts receivable and product
inventory of $1,434,362 in aggregate.

Net cash used by investing activities was $204,055 for the three months
ended December 31, 2006 reflecting the purchase of equipment offset by proceeds
of $13,546. The net cash provided by investing activities for the three months
ended December 31, 2005 was $13,246 reflecting the purchase of $46,754 of
equipment and the receipt of $60,000 of proceeds from the sale of equipment.

Net cash used by financing activities was $140,577 during the three months
ended December 31, 2006 reflecting normal debt and capital lease repayments. Net
cash provided used by financing activities was $1,293,393 during the three
months ended December 31, 2005 reflecting the repayment of notes payable and our
working capital lines of $1,239,373 and capital leases of $54,020.

In order to reduce our operating costs, address our liquidity needs and
return to profitable status, we have implemented and/or are in the processing of
implementing the following actions:

Divestiture of Unprofitable Operations

Due to the magnitude of the continuing operating losses incurred by our
Georgia ($3.4 million) and Tennessee ($1.8 million) subsidiaries during fiscal
2005 and our California ($3.2 million since inception) subsidiary in fiscal 2006
our Board of Directors determined it to be in the best interest of our company
to discontinue all Southeastern and West coast operations and dispose of their
respective operating assets. A majority of the Tennessee operating losses were
due to rapid market share growth within the state necessitating us to transport
an increasing number of Tennessee scrap tires to our Georgia facility for
processing at significant transportation and processing costs. A majority of the
Georgia operating losses were due to (1) the negative impact of processing a
significant number of Tennessee sourced tires; (2) a change in the
specifications of our primary end market customers requiring a smaller product
resulting in reduced processing capacity and significantly higher operating
costs and (3) equipment reliability issues resulting from aging equipment
processing an increasing number of scrap tires. A majority of the California
operating losses were due to significantly higher operating costs and equipment
reliability issues resulting from aging equipment.

our Tennessee subsidiary included in the results for year ended September 30,
2005 were approximately $3.1 million. We accrued $165,000 of estimated costs
associated with the Tennessee closure at September 30, 2005. During fiscal 2006
we incurred and charged against the accrual approximately $109,000. In addition,
$56,000 was reversed into income as a result of a reduction in certain plant
closure accruals and an agreement with our former Tennessee landlord regarding
past due amounts. Additionally, we recognized $70,000 of income associated with
insurance credits. In aggregate, we recognized approximately $126,000 of income
from discontinued Tennessee operations during the year ended September 30, 2006.

In September 2005, we adopted a plan to dispose of all Georgia operations
and during the quarter ended December 31, 2005, we substantially curtailed
operations at our Georgia subsidiary. As a result, we wrote down all Georgia
operating assets to their estimated fair market value at September 30, 2005 and
recorded a loss on disposal of $4,631,102 (including a non-cash loss of
$1,253,748 associated with goodwill written off) net of a gain on settlement of
our Georgia facility lease of $586,137. We completed the divestiture of all
Georgia operating assets as of March 1, 2006. The aggregate net losses incurred
during fiscal 2006 associated with our discontinued Georgia operation was
approximately $582,000. The aggregate net losses including the loss on disposal
associated with the discontinued operations of our Georgia subsidiary included
in the results for the fiscal year ended September 30, 2005 were approximately
$8.0 million.

In February 2006, we sold and assigned to Tires Into Recycled Energy and
Supplies, Inc. ("TIRES"), a leading crumb rubber processor in the United States,
certain assets, including (a) certain truck tire processing equipment located at
our Georgia facility; (b) certain rights and interests in our contracts with
suppliers of scrap truck tires; and (c) certain intangible assets. TIRES assumed
all of our rights and obligations under these contracts. In addition, TIRES
entered into a sublease agreement with us with respect to part of the premises
located in Georgia. Pursuant to the terms of the sublease agreement, TIRES
received an initial six months of free rent after which they are required to pay
$4,650 per month. The lease can be terminated anytime with six months notice. In
December 2006, we received notice that TIRES would be terminating their lease
effective June 5, 2007. We are currently working to indentify a new sublessee.
As additional consideration, TIRES terminated several material supply agreements
and a December 2005 letter of intent containing an exclusive option to acquire
certain operating assets of TIRES.

In February 2006, we amended our Georgia lease agreement to obtain the
right to terminate the original lease, which had a remaining term of
approximately 15 years, by providing the landlord with six months notice. In the
event of termination, we will be obligated to continue to pay rent until the
earlier to occur of (1) the sale by the landlord of the premises; (2) the date
on which a new tenant takes over; or (3) three years from the date on which we
vacate the property. As a result of the amendment and our decision to dispose of
our Georgia operations, we wrote off the unamortized balance of $1,427,053
associated with the leased land and buildings and improvements as a cost of
disposal of discontinued operations at September 30, 2005. This loss was
partially offset by a $586,137 gain on settlement of the remaining capital lease
obligations due and is included in the loss on disposal of discontinued
operations at September 30, 2005. In addition, on August 28, 2006 we received
notice from the Georgia landlord indicating that the Georgia subsidiary was in
default under the lease due to its insolvent financial condition. The landlord
agreed to waive the default in return for $75,000 fee to be paid upon
termination of the lease and required that all current and future rights and
obligations under the lease be assigned to GreenMan Technologies, Inc. pursuant

to a March 29, 2001 guaranty agreement. The $75,000 is included in loss from
discontinued operations for the fiscal year ended September 30, 2006 and is
included in Obligations due under lease settlement at December 31, 2006. The net
present value of the lease settlement obligation increased by $19,058 during the
quarter ended December 31, 2006 and is included in discontinued operations for
the three month period then ended. The increase is primarily the result of the
additional liability assumed by us due to the TIRES lease termination notice.

In July 2006 we sold our California subsidiary to a third party for $1,000
in a stock purchase agreement. The aggregate net losses associated with our
California subsidiary included in the results for the three months ended
December 31, 2005 was approximately $232,000. The aggregate net losses including
the loss on disposal associated with the discontinued operations of our
California subsidiary included in the results of operations for year ended
September 30, 2006 were approximately $1,005,000 and $3.2 million since
inception.

Credit Facility Refinancing

On June 30, 2006, we entered into a $16 million amended and restated credit
facility with Laurus (the "New Credit Facility"). The New Credit Facility
consists of a $5 million non-convertible secured revolving note and an $11
million secured non-convertible term note. Unlike our previous credit facility
with Laurus, the New Credit Facility is not convertible into shares of common
stock.

The revolving note has a term of three years from the closing, bears
interest on any outstanding amounts at the prime rate published in The Wall
Street Journal from time to time plus 2%, with a minimum rate of 8%. The amount
we may borrow at any time under the revolving note is based on our eligible
accounts receivable and our eligible inventory with an advance rate equal to 90%
of our eligible accounts receivable (90 days or less) and 50% of finished goods
inventory up to a maximum of $5 million minus such reserves as Laurus may
reasonably in its good faith judgment deem necessary and proper from time to
time. There were no amounts outstanding under the line at December 31, 2006.

The term note has a maturity date of June 30, 2009 and bears interest at the
prime rate published in The Wall Street Journal from time to time plus 2% with a
minimum rate of 8%. Interest on the loan is payable monthly commencing August 1,
2006. Principal will be amortized over the term of the loan, commencing on July
2, 2007, with minimum monthly payments of principal as follows: (i) for the
period commencing on July 2, 2007 through June 2008, minimum payments of
$150,000; (ii) for the period from July 2008 through June 2009, minimum payments
of $400,000; and (iii) the balance of the principal shall be payable on the
maturity date. In addition, we have agreed to make an excess cash flow repayment
as follows: no later than 95 days following the end of each fiscal year
beginning with the fiscal year ending on September 30, 2007, we have agreed to
make a payment equal to 50% of (a) our aggregate net operating cash flow
generated in such fiscal year less (b) our aggregate capital expenditures in
such fiscal year (up to a maximum of 25% of the net operating cash flow
calculated in accordance with clause (a) of this sentence. The term loan maybe
prepaid at any time without penalty. We used approximately $9,972,000 of the
term loan proceeds to repay certain existing debt (including approximately $8.5
million due to Laurus) and to pay approximately $888,000 of transaction fees
associated with the New Credit Facility.

In connection with the New Credit Facility, we also issued to Laurus a
warrant to purchase up to an aggregate of 3,586,429 shares of our common stock
at an exercise price equal to $.01 per share. Laurus has agreed that it will
not, on any trading day, be permitted to sell any common stock acquired upon
exercise of this warrant in excess of 10% of the aggregate number of shares of
the common stock traded on such trading day. Previously issued warrants to
purchase an aggregate of 1,380,000 shares of our common stock were canceled as
part of these transactions. The amount of our common stock Laurus may hold at
any given time is limited to no more than 4.99% of our outstanding capital
stock. This limitation may be waived by Laurus upon 61 days notice to us and
does not apply if an event of default occurs and is continuing under the New
Credit Facility.

We have agreed to register for resale under the Securities Act of 1933 the
shares of common stock issuable to Laurus Funds upon exercise of the
aforementioned warrant. On January 25, 2007 we filed the registration statement
relating to the 3,586,429 shares underlying the June 30, 2006 warrant.

Subject to applicable cure periods, amounts borrowed under the New Credit
Facility are subject to acceleration upon certain events of default, including:
(i) any failure to pay when due any amount we owe under the New Credit Facility;
(ii) any material breach by us of any other covenant made to Laurus; (iii) any
misrepresentation, in any material respect, made by us to Laurus in the
documents governing the New Credit Facility; (iv) the institution of certain
bankruptcy and insolvency proceedings by or against us; (v) the entry of certain

monetary judgments against us that are not paid or vacated for a period of 30
business days; (vi) suspensions of trading of our common stock; (vii) any
failure to deliver shares of common stock upon exercise of the warrant; (viii)
certain defaults under agreements related to any of our other indebtedness; and
(ix) changes of control of our company. Substantial fees and penalties are
payable to Laurus in the event of a default.

Our obligations under the New Credit Facility are secured by first priority
security interests in all of the assets of our company and all of the assets of
our GreenMan Technologies of Minnesota, Inc. and GreenMan Technologies of Iowa,
Inc. subsidiaries, as well as by pledges of the capital stock of those
subsidiaries.

Additional Steps to Increase Liquidity

Over the last several years, we have funded portions of our operating cash
flow from sales of equity securities, loans from officers and related parties,
increased borrowings and extending payments to our vendors.

In November 2000, a director loaned us $200,000 under an unsecured
promissory note which bore interest at 12% per annum with interest due monthly
and the principal due in November 2001. In June 2001 and again in June 2004, the
director agreed to extend the maturity of this note until the earlier of when
all amounts due under the Laurus credit facility have been repaid or June 30,
2007. On August 24, 2006, the director converted the $200,000 of principal and
$76,445 of accrued interest into 953,259 unregistered shares of common stock at
a price of $.29 which was the closing price of our stock on the date of
conversion.

In addition, during the period of January to June 2006, another director
loaned us $155,000 under the terms of three unsecured promissory notes which
bear interest at 10% per annum with interest with principal due during periods
ranging from June 30, 2006 through September 30, 2006. On April 12, 2006, the
director agreed in lieu of being repaid in cash at maturity to convert $76,450
(including interest of $1,450) into 273,035 shares of unregistered common stock
at a price of $.28 which was the closing price of our stock on the date of
conversion. In addition, on June 5, 2006 the director agreed to convert $15,226
(including interest of $226) into 42,295 shares of unregistered common stock at
a price of $.36 which was the closing price of our stock on the date of
conversion. The director has agreed be paid $10,000 per month during the quarter
ended December 31, 2006 and extend the remaining $35,000 until the earlier of
when all amounts due under the restructured Laurus credit facility have been
repaid or June 30, 2009. As of December 31, 2006 there was $45,000 due the
director as he agreed to extend the final $10,000 repayment until February 2007.

Operating Performance Enhancements

Historically, our tire shredding operations were able to recover and sell
approximately 60% of a processed tire with the balance disposed of as waste wire
residual (cross-contaminated rubber and steel) at a significant cost. During the
past several years we have purchased secondary equipment for our Iowa and
Minnesota facilities to further process the waste wire residual into saleable
components of rubber and steel that not only provide new sources of revenue but
also significantly reduced our residual disposal costs.

During the third quarter of fiscal 2006, we initiated a $950,000 equipment
upgrade to our Des Moines, Iowa processing facility installing new fine grind
crumb rubber processing equipment. The equipment became operational during
September 2006. This new equipment is expected to increase overall production
capacity by over 8 million pounds per year to over 20 million pounds of crumb
rubber capacity. Approximately $450,000 of the initiative was funded by a long
term loan from the Iowa Department of Natural Resources with the balance of the
project funded through internally generated cash flow and Iowa's line of credit.
The Iowa line of credit was subsequently paid off in conjunction with our June
2006 Laurus refinancing.

Effects of Inflation and Changing Prices

Generally, we are exposed to the effects of inflation and changing prices.
Primarily because the largest component of our collection and disposal costs is
transportation, we have been adversely affected by the significant increases in
the cost of fuel. Additionally, because we rely on floating-rate debt for
certain financing arrangements, rising interest rates have had a negative effect
on our performance.

Based on our fiscal 2007 operating plan, available working capital,
revenues from operations and anticipated availability under our working capital
line of credit with Laurus, we believe we will be able to satisfy our cash
requirements through the third quarter of fiscal 2008 at which time our Laurus
principal payments increase substantially. If we are unable to obtain additional
financing or restructure our remaining principal payments with Laurus, our
ability to maintain our current level of operations could be materially and
adversely affected and we may be required to adjust our operating plans
accordingly.

Off-Balance Sheet Arrangements

We lease various facilities and equipment under cancelable and
non-cancelable short and long term operating leases which are described in
Footnote 8 to the Audited Consolidated Financial Statements contained in our
annual report on Form 10-KSB.

Cautionary Statement

Information contained or incorporated by reference in this document
contains contains forward-looking statements regarding future events and the
future results of GreenMan Technologies, Inc. within the meaning of the Private
Securities Litigation Reform Act of 1995, and are based on current expectations,
estimates, forecasts, and projections and the beliefs and assumptions of our
management. Words such as "expect," "anticipate," "target," "goal," "project,"
"intend," "plan," "believe," "seek," "estimate," "will," "likely," "may,"
"designed," "would," "future," "can," "could" and other similar expressions that
are predictions of or indicate future events and trends or which do not relate
to historical matters are intended to identify such forward-looking statements.
These statements are based on management's current expectations and beliefs and
involve a number of risks, uncertainties, and assumptions that are difficult to
predict; consequently actual results may differ materially from those projected,
anticipated, or implied.

Factors That May Affect Future Results

Risks Related to our Business

We have lost money in the last seventeen consecutive quarters and may need
additional working capital if we do not return to sustained profitability, which
if not received, may force us to curtail operations.

We have incurred losses from operations in the last 17 consecutive
quarters. As of December 31, 2006, we had $267,659 in cash and cash equivalents
and a working capital deficiency of $4,019,679 of which $3,350,448 or 83% of the
total is associated with our discontinued Georgia operations. We understand our
continued existence is dependent on our ability to generate positive operating
cash flow and achieve profitable status on a sustained basis. We believe our
efforts to achieve these goals, as evidenced by the significant reduction in our
quarterly losses have been positively impacted by the June 30, 2006
restructuring of our Laurus Credit facility and our divestiture of historically
unprofitable operations during fiscal 2006 and 2005. However, in the fourth
quarter of fiscal 2008, our principal payments due Laurus are scheduled to
increase substantially. If we are unable to obtain additional financing or
restructure our remaining principal payments with Laurus, our ability to
maintain our current level of operations could be materially and adversely
affected and we may be required to adjust our operating plans accordingly.

The delisting of our common stock by the American Stock Exchange could
substantially limit our stock's liquidity and impair our ability to raise
capital.

Our common stock ceased trading on the American Stock Exchange on June 15,
2006 and was delisted by the Exchange on July 6, 2006 as result of our failure
to maintain Stockholders' equity in excess of $4 million as required by the
Exchange's Company Guide when a company has incurred losses in three of the four
most recent fiscal years. During the period of June 15 through June 20, 2006 we
were traded on the Pink Sheet until June 21, 2006 when we began trading on the
Over-The-Counter-Bulletin-Board under the symbol "GMTI". We believe the
delisting could substantially limit our stock's liquidity and impair our ability
to raise capital.

We have substantial indebtedness to Laurus Master Fund secured by substantially
all of our assets. If an event of default occurs under the secured notes issued
to Laurus, Laurus may foreclose on our assets and we may be forced to curtail or
cease our operations or sell some or all of our assets to repay the notes. On
January 25, 2007 we filed the registration statement relating to the 3,586,429
shares underlying the June 30, 2006 warrant.

On June 30, 2006, we entered into a $16 million amended and restated
credit facility with Laurus (the "New Credit Facility"). The New Credit Facility
consists of a $5 million non-convertible secured revolving note and an $11
million secured non-convertible term note. Unlike the terms of the June 2004
credit facility with Laurus, the New Credit Facility is not convertible into
shares of our common stock.

Subject to certain grace periods, the notes and agreements provide for the
following events of default (among others):

o failure to pay interest and principal when due;

o an uncured breach by us of any material covenant, term or condition
in any of the notes or related agreements;

o a breach by us of any material representation or warranty made in
any of the notes or in any related agreement;

o any money judgment or similar final process is filed against us for
more than $50,000 that remains unvacated, unbonded or unstayed for a
period of 30 business days;

o any form of bankruptcy or insolvency proceeding is instituted by or
against us;

o suspension of our common stock from our principal trading market for
five consecutive days or five days during any ten consecutive days;
and

o the occurrence of a change in control of our ownership.

In the event of a future default under our agreements with Laurus, Laurus
may enforce its rights as a secured party and we may lose all or a portion of
our assets, be forced to materially reduce our business activities or cease
operations.

We will require additional funding to grow our business, which funding may not
be available to us on favorable terms or at all. If we do not obtain funding
when we need it, our business will be adversely affected. In addition, if we
have to sell securities in order to obtain financing, the rights of our current
holders may be adversely affected.

We will have to seek additional outside funding sources to satisfy our
future financing demands if our operations do not produce the level of revenue
we require to maintain and grow our business. We cannot assure you that outside
funding will be available to us at the time that we need it and in the amount
necessary to satisfy our needs, or, that if such funds are available, they will
be available on terms that are favorable to us. If we are unable to secure
financing when we need it, our business will be adversely affected and we may
need to discontinue some or all of our operations. If we have to issue
additional shares of common stock or securities convertible into common stock in
order to secure additional funding, our current stockholders will experience
dilution of their ownership of our shares. In the event that we issue securities
or instruments other than common stock, we may be required to issue such
instruments with greater rights than those currently possessed by holders of our
common stock.

Improvement in our business depends on our ability to increase demand for our
products and services.

Adverse events or economic or other conditions affecting markets for our
products and services, potential delays in product development, product and
service flaws, changes in technology, changes in the regulatory environment and
the availability of competitive products and services are among a number of
factors that could limit demand for our products and services.

Our business is subject to extensive and rigorous government regulation; failure
to comply with applicable regulatory requirements could substantially harm our
business.

Our tire recycling activities are subject to extensive and rigorous
government regulation designed to protect the environment. The establishment and
operation of plants for tire recycling are subject to obtaining numerous permits
and compliance with environmental and other government regulations. The process
of obtaining required regulatory approvals can be lengthy and expensive. The
Environmental Protection Agency and comparable state and local regulatory
agencies actively enforce environmental regulations and conduct periodic
inspections to determine compliance with government regulations. Failure to
comply with applicable regulatory requirements can result in, among other
things, fines, suspensions of approvals, seizure or recall of products,
operating restrictions, and criminal prosecutions. Furthermore, changes in
existing regulations or adoption of new regulations could impose costly new
procedures for compliance, or prevent us from obtaining, or affect the timing
of, regulatory approvals.

The market in which we operate is highly competitive, fragmented and
decentralized and our competitors may have greater technical and financial
resources.

The market for our services is highly competitive, fragmented and
decentralized. Many of our competitors are small regional or local businesses.
Some of our larger competitors may have greater financial and technical
resources than we do. As a result, they may be able to adapt more quickly to new
or emerging technologies and changes in customer requirements, or to devote
greater resources to the promotion and sale of their services. Competition could
increase if new companies enter the markets in which we operate or our existing
competitors expand their service lines. These factors may limit or prevent any
further development of our business.

Our success depends on the retention of our senior management and other key
personnel.

Our success depends largely on the skills, experience and performance of
our senior management. The loss of any key member of senior management could
have a material adverse effect on our business, financial condition and results
of operations.

Seasonal factors may affect our quarterly operating results.

Seasonality may cause our total revenues to fluctuate. We typically
process fewer tires during the winter and experience a more pronounced volume
reduction in severe weather conditions. In addition, a majority of our crumb
rubber is used for playground and athletic surfaces, running tracks and
landscaping/groundcover applications which are typically installed during the
warmer portions of the year. Similar seasonal or other patterns may develop in
our business.

Inflation and changing prices may hurt our business.

Generally, we are exposed to the effects of inflation and changing prices.
Primarily because the largest component of our collection and disposal costs is
transportation, we have been adversely affected by significant increases in the
cost of fuel. Additionally, because we rely on floating-rate debt for certain
financing arrangements, rising interest rates have had a negative effect on our
financial performance.

If we acquire other companies or businesses, we will be subject to risks that
could hurt our business.

A significant part of our business strategy entails future acquisitions,
or significant investments in, businesses that offer complementary products and
services. Promising acquisitions are difficult to identify and complete for a
number of reasons. Any acquisitions completed by our company may be made at a
premium over the fair value of the net assets of the acquired companies, and
competition may cause us to pay more for an acquired business than its long-term
fair market value. There can be no assurance that we will be able to complete
future acquisitions on terms favorable to us or at all. In addition, we may not
be able to integrate future acquired businesses, at all or without significant
distraction of management from our ongoing business. In order to finance
acquisitions, it may be necessary for us to issue shares of our capital stock to
the sellers of the acquired businesses and/or to seek additional funds through
public or private financings. Any equity or debt financing, if available at all,
may be on terms which are not favorable to us and, in the case of an equity
financing or the use of our stock to pay for an acquisition, may result in
dilution to our existing stockholders.

As we grow, we are subject to growth related risks.

We are subject to growth-related risks, including capacity constraints and
pressure on our internal systems and personnel. In order to manage current
operations and any future growth effectively, we will need to continue to
implement and improve our operational, financial and management information
systems and to hire, train, motivate, manage and retain employees. We may be
unable to manage such growth effectively. Our management, personnel or systems
may be inadequate to support our operations, and we may be unable to achieve the
increased levels of revenue commensurate with the increased levels of operating

expenses associated with this growth. Any such failure could have a material
adverse impact on our business, operations and prospects. In addition, the cost
of opening new facilities and the hiring of new personnel for those facilities
could significantly decrease our profitability, if the new facilities do not
generate sufficient additional revenue.

If we fail to maintain an effective system of internal controls, we may not be
able to accurately report our financial results or prevent fraud. As a result,
current and potential shareholders could lose confidence in our financial
reporting, which would harm our business and the trading price of our stock.

Effective internal controls are necessary for us to provide reliable
financial reports and effectively minimize the possibility of fraud and its
impact on our company. If we cannot continue to provide financial reports or
effectively minimize the possibility of fraud, our business reputation and
operating results could be harmed.

In addition, we will be required as currently proposed to include the
management and auditor reports on internal controls as part of our annual report
for the fiscal year ending September 30, 2008, pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, which requires, among other things, that we maintain
effective internal controls over financial reporting and procedures. In
particular, we must perform system and process evaluation and testing of our
internal controls over financial reporting to allow management and our
independent registered public accounting firm to report on the effectiveness of
our internal controls over financial reporting, as required by Section 404. Our
compliance with Section 404 will require that we incur substantial accounting
expense and expend significant management efforts.

We cannot be certain as to the timing of the completion of our evaluation
and testing, the timing of any remediation actions that may be required or the
impact these may have on our operations. Furthermore, there is no precedent
available by which to measure compliance adequacy. If we are not able to
implement the requirements relating to internal controls and all other
provisions of Section 404 in a timely fashion or achieve adequate compliance
with these requirements or other requirements of the Sarbanes-Oxley Act, we
might become subject to sanctions or investigation by regulatory authorities
such as the Securities and Exchange Commission or any securities exchange on
which we may be trading at that time, which action may be injurious to our
reputation and affect our financial condition and decrease the value and
liquidity of our common stock.

Risks Related to the Securities Market

Our stock price may be volatile, which could result in substantial losses for
our shareholders.

Our common stock is thinly traded and an active public market for our
stock may not develop. Consequently, the market price of our common stock may be
highly volatile. Additionally, the market price of our common stock could
fluctuate significantly in response to the following factors, some of which are
beyond our control:

o we are now traded on the OTC Bulletin Board;

o changes in market valuations of similar companies;

o announcements by us or by our competitors of new or enhanced
products, technologies or services or significant contracts,
acquisitions, strategic relationships, joint ventures or capital
commitments;

o regulatory developments;

o additions or departures of senior management and other key
personnel;

o deviations in our results of operations from the estimates of
securities analysts; and

o future issuances of our common stock or other securities.

We have options and warrants currently outstanding. Exercise of these options
and warrants, and conversions of these promissory notes will cause dilution to
existing and new shareholders. Future sales of common stock by Laurus and our
existing stockholders could result in a decline in the market price of our
stock.

As of December 31, 2006, we have options and warrants to purchase
approximately 11,197,959 shares of common stock outstanding. The exercise of our
options and warrants will cause additional shares of common stock to be issued,
resulting in dilution to investors and our existing stockholders. As of December
31, 2006, approximately 13.6 million shares of our common stock were eligible
for sale in the public market. This represents approximately 63 percent of our
outstanding shares of common stock. We are required to register additional
shares of common stock owned by certain stockholders. After the effective date
of the registration statement for those shares, approximately 17.8 million
shares of our common stock will be eligible for resale in the public market.
Sales of a significant number of shares of our common stock in the public market
could result in a decline in the market price of our common stock, particularly
in light of the illiquidity and low trading volume in our common stock

Our directors, executive officers and principal stockholders own a significant
percentage of our shares, which will limit your ability to influence corporate
matters.

Our directors, executive officers and other principal stockholders owned
approximately 35 percent of our outstanding common stock as of December 31,
2006. Accordingly, these stockholders could have a significant influence over
the outcome of any corporate transaction or other matter submitted to our
stockholders for approval, including mergers, consolidations and the sale of all
or substantially all of our assets and also could prevent or cause a change in
control. The interests of these stockholders may differ from the interests of
our other stockholders. In addition, limited number of shares held in public
float effect the liquidity of our common stock. Third parties may be discouraged
from making a tender offer or bid to acquire us because of this concentration of
ownership.

We have never paid dividends on our capital stock, and we do not anticipate
paying any cash dividends in the foreseeable future.

We have paid no cash dividends on our capital stock to date and we
currently intend to retain our future earnings, if any, to fund the development
and growth of our businesses. In addition, our agreements with Laurus prohibit
the payment of cash dividends. As a result, capital appreciation, if any, of our
common stock will be shareholders' sole source of gain for the foreseeable
future.

Anti-takeover provisions in our charter documents and Delaware law could
discourage potential acquisition proposals and could prevent, deter or delay a
change in control of our company.

Certain provisions of our Restated Certificate of Incorporation and
By-Laws could have the effect, either alone or in combination with each other,
of preventing, deterring or delaying a change in control of our company, even if
a change in control would be beneficial to our stockholders. Delaware law may
also discourage, delay or prevent someone from acquiring or merging with us.

Environmental Liability

There are no known material environmental violations or assessments.