Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q/A
(Amendment No. 1)
-------------------------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2009
COMMISSION FILE NO.: 0-50469
GREENSHIFT CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 59-3764931
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(State of other jurisdiction of IRS Employer
incorporation or organization) Identification No.)
One Penn Plaza, Suite 1612, New York, New York 10119
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(Address of principal executive offices) (Zip Code)
(212) 994-5374
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(Registrant's telephone number including area code)
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant as required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X. No __
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files.) Yes _X__ No _____
-----
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. (Check One)
Large accelerated filer Accelerated filer ---
---
Non-accelerated filer Smaller reporting company X
--- ---
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes No X
The number of outstanding shares of common stock as of May 20, 2009 was
500,000,000.
[OBJECT OMITTED]
Amendment No. 1
This Amendment No.1 on Form 10-Q/A, which amends and restates items identified
below with respect to the Form 10- Q, filed by GreenShift Corporation ("we" or
"the Company") with the Securities and Exchange Commission (the "SEC") on May
20, 2009 (the "Original Filing"), is being filed in order to:
o Include restated financial statements, as described in Note 17 to the
financial statements;
o Amend Item 2 ("Management's Discussion") to conform to the restated
financial statements;
o Amend Item 4 ("Controls and Procedures") to reflect the modification
to management's assessment of its disclosure controls and procedures
caused by the restatement and to provide further disclosures;
o The following under Item 2, ("Management's Discussion") was modified
as follows due to the restatement:
o the paragraph titled Expenses Associated with Change in
Convertible Liabilities was added;
o the paragraph titled Gain Associated with Derivative Instruments
was deleted;
o the Contractual Commitments table was updated.
o The following under Item 1, ("Financial Statements and Supplementary
Schedules") was modified as follows due to the restatement:
o Report of Independent Registered Public Accounting Firm was
updated to reflect restatement;
o Note 2, Going Concern was updated;
o Under Note 3, Significant Accounting Policies, the Financial
Instruments section was modified as well as the Financial
Measurements section;
o Note 7, Line of Credit was modified by moving a paragraph to Note
9, Debt and Purchase Obligations;
o Under Note 9, Debt and Purchase Obligations, the sections explain
the Acutus Debenture and the MIF Debenture were modified due to
the restatement;
o Note 17 Restatements was added to outline the changes that were
made to the financial statements.
None of the other disclosures in this Report have been amended or updated. For
updated information about GreenShift Corporation, please refer to the more
recent filings made with the SEC.
2
GREENSHIFT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED MARCH 31, 2009
TABLE OF CONTENTS
Page No
Part I - Financial Information
Item 1 Financial Statements (unaudited) ...............................................................5
Condensed Consolidated Balance Sheet as of March 31, 2009 (unaudited)...........................6
Condensed Consolidated Statements of Operations for the Three Month Period
Ended March 31, 2009(unaudited) and 2008 (unaudited)............................................7
Condensed Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2009 (unaudited) and 2008 (unaudited).................................................8
Statement of Stockholders' Equity - Year Ended December 31, 2008 and Three
Months Ended March 31, 2009.....................................................................9
Notes to Condensed Consolidated Financial Statements...........................................11
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations .........27
Item 3 Quantitative and Qualitative Disclosures about Market Risk.....................................33
Item 4 Controls and Procedures .......................................................................33
Part II - Other Information
Item 1 Legal Proceedings .............................................................................34
Item 1A Risk Factors ..................................................................................34
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds ...................................34
Item 3 Defaults upon Senior Securities ...............................................................34
Item 4 Submission of Matters to a Vote of Security Holders............................................34
Item 5 Other Information .............................................................................34
Item 6 Exhibits.......................................................................................34
Signatures..................................................................................................35
3
Basis of Presentation
In this Quarterly Report on Form 10-Q, the terms "we," "our," "us,"
"GreenShift," or the "Company" refer to GreenShift Corporation, and its
subsidiaries on a consolidated basis. The term "GreenShift Corporation" refers
to GreenShift Corporation on a stand alone basis only, and not its subsidiaries.
Market and Industry Data Forecasts
This document includes industry data and forecasts that the Company has prepared
based, in part, upon data and forecasts obtained from industry publications.
Third-party industry publications generally state that the information contained
therein has been obtained from sources believed to be reliable, but do not
guarantee the accuracy and completeness of such information. In particular, we
have based much of our discussion of the biodiesel and ethanol industries,
including government regulation relevant to the industry and forecasted growth
in demand, on information published by the National Biodiesel Board, the
national trade association for the U.S. biodiesel industry, and the Renewable
Fuels Association, the national trade association for the U.S. corn ethanol
industry. Because the National Biodiesel Board and Renewable Fuels Association
are trade organizations for the U.S. biodiesel and ethanol industries, they may
present information in a manner that is more favorable than would be presented
by an independent source. Forecasts in particular are subject to a high risk of
inaccuracy, especially forecasts projected over long periods of time.
Forward Looking Statements
We make certain forward-looking statements in this Quarterly Report on Form 10-Q
and in the documents that are incorporated herein by reference. These
forward-looking statements relate to our outlook or expectations for earnings,
revenues, expenses, asset quality or other future financial or business
performance, strategies or expectations, or the impact of legal, regulatory or
supervisory matters on our business, results of operations or financial
condition. Specifically, forward-looking statements may include statements
preceded by, followed by or that include the words "estimate," "plan,"
"project," "forecast," "intend," "expect," "anticipate," "believe," "seek,"
"target" or similar expressions. These statements reflect our management's
judgment based on currently available information and involve a number of risks
and uncertainties that could cause actual results to differ materially from
those in the forward-looking statements. Future performance cannot be ensured.
Actual results may differ materially from those in the forward-looking
statements. Some factors that could cause our actual results to differ include:
>> the volatility and uncertainty of commodity prices; >> operational
disruptions at our facilities; >> the costs and business risks associated with
developing new products and entering new markets; >> our ability to locate and
integrate future acquisitions; >> our ability to develop our corn oil extraction
and biodiesel production facilities; >> the effects of other mergers and
consolidations in the biofuels industry and unexpected announcements or
developments from others in the biofuels industry; >> the impact of new,
emerging and competing technologies on our business; >> the possibility of one
or more of the markets in which we compete being impacted by political, legal
and regulatory changes or other external factors over which they have no
control; >> changes in or elimination of governmental laws, tariffs, trade or
other controls or enforcement practices; >> our reliance on key management
personnel; >> limitations and restrictions contained in the instruments and
agreements governing our indebtedness; >> our ability to raise additional
capital and secure additional financing; >> our ability to implement additional
financial and management controls, reporting systems and procedures and comply
with Section 404 of the Sarbanes-Oxley Act, as amended; and >> other risks
referenced from time to time in our filings with the SEC and those factors
listed in this Form 10Q under Item 1A, Risks Factors, beginning on page 39.
You are cautioned not to place undue reliance on any forward-looking statements,
which speak only as of the date of this Form 10-Q, or in the case of a document
incorporated by reference, as of the date of that document. Except as required
by law, we undertake no obligation to publicly update or release any revisions
to these forward-looking statements to reflect any events or circumstances after
the date of this Form 10-Q or to reflect the occurrence of unanticipated events.
4
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
5
GREENSHIFT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2009 (UNAUDITED) AND DECEMBER 31, 2008
RESTATED RESTATED
3/31/2009 12/31/2008
-----------------------------
ASSETS
Current assets:
Cash ......................................................................... $ 8,839 $ 10,028
Accounts receivable, net of allowance of doubtful accounts of $0 and $46,962 . 201,314 733,768
Inventories .................................................................. 616,056 616,056
Cost and earnings in excess of billings ...................................... 235,941 175,592
Project development costs .................................................... 379,355 379,355
Assets to be disposed - current .............................................. 2,405,435 3,257,844
Prepaid expenses and other assets ............................................ 18,582 111,125
------------- -------------
Total current assets ....................................................... 3,865,522 5,283,768
------------- -------------
Other Assets:
Property and equipment, net .................................................. 11,044,497 11,125,547
Deposits ..................................................................... 213,634 213,634
Construction in progress ..................................................... 4,748,408 4,541,554
Intangible assets, net ....................................................... 38,402 42,959
Deferred financing costs, net ................................................ 291,206 390,464
Long term investments ........................................................ 2,501,324 2,501,324
Goodwill ..................................................................... -- 7,281,993
Assets to be disposed ........................................................ 15,408,645 15,949,146
------------- -------------
Total other assets ......................................................... 34,246,116 42,046,620
------------- -------------
TOTAL ASSETS .................................................................... $ 38,111,638 $ 47,330,388
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Line of credit ............................................................... $ 11,069,690 $ 11,044,838
Accounts payable and accrued expenses ........................................ 15,037,150 14,551,651
Accrued interest payable ..................................................... 8,067,518 6,603,228
Accrued interest payable - related party ..................................... 225,741 179,711
Billings in excess of earnings ............................................... -- 13,576
Deferred revenue, current portion ............................................ -- --
Income tax payable ........................................................... 45,000 45,000
Current portion of long term debt ............................................ 9,383,070 8,785,668
Convertible debenture - related party debt, net of discount .................. 1,676,197 1,900,333
Current portion of convertible debentures, net of discount ................... 24,831,536 11,792,387
Other current liabilities .................................................... 521,066 604,587
Liabilities of discontinued operations, current .............................. 363,228 363,228
Liabilities due to shareholders .............................................. 932,328 932,328
Liabilities to be disposed ................................................... 8,754,432 8,418,929
------------- -------------
Total current liabilities .................................................. 80,906,956 65,235,464
------------- -------------
Long term liabilities:
Long term debt, net of current ............................................... 373,931 964,028
Asset retirement obligation .................................................. 247,729 247,462
Deferred revenue, net of current portion ..................................... -- --
Liabilities to be disposed ................................................... 20,487,136 20,396,893
Convertible debentures, net of current ....................................... 8,556,848 21,188,196
------------- -------------
Total long term liabilities ................................................ 29,665,644 42,796,579
Total liabilities ............................................................... 110,572,600 108,032,043
------------- -------------
Equity:
Stockholders' equity (deficit):
Convertible preferred stock, $0.001 par value, 5,000,000 shares authorized:
Series A: 0 shares issued and outstanding, respectively .................... -- --
Series B: 2,508,671 and 2,519,219shares issued and outstanding, respectively 2,509 2,519
Series C: 0 shares issued and outstanding .................................. -- --
Series D: 799,954 and 800,000 shares issued and outstanding, respectively .. 800 800
Series E: 20,000 and 20,000 shares issued and outstanding, respectively .... 20 20
Common stock, $0.001 par value, 500,000,000 authorized;
210,396,022 and 95,144,983, shares issued and outstanding, respectively .... 210,395 95,144
Additional paid-in capital ................................................. 80,441,843 79,662,413
Accumulated deficit .......................................................... (153,126,202) (140,472,224)
------------- -------------
Total stockholders' equity (deficit) ....................................... (72,470,635) (60,711,328)
Non-controlling interest in subsidiary ..................................... 9,673 9,673
------------- -------------
Total equity (deficit) ................................................. (72,460,962) (60,701,655)
------------- -------------
TOTAL LIABILITIES AND EQUITY .................................................... $ 38,111,638 $ 47,330,388
============= =============
The notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
6
GREENSHIFT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008
(UNAUDITED)
RESTATED RESTATED
Three Months Three Months
Ended 3/31/09 Ended 3/31/08
------------------------------------
Revenue ..................................................... $ 855,658 $ 2,895,799
Cost of revenues ......................................... 1,155,724 1,520,100
---------------- ----------------
Gross profit .......................................... (300,066) 1,375,699
---------------- ----------------
Operating expenses:
General and administrative expenses ...................... 905,320 594,771
Selling expenses ....................................... 12,240 44,059
Research and development ................................. -- 601
Amortization of intangibles .............................. -- 525,000
Impairment of goodwill ................................... 7,281,993 --
Stock based compensation ................................. -- 304,017
---------------- ----------------
Total operating expenses ............................... 8,199,552 1,468,448
---------------- ----------------
Income (loss) from operations ............................... (8,499,618) (92,749)
---------------- ----------------
Other income (expense):
Amortization of debt discount & deferred financing ....... (186,810) (463,003)
Loss on disposal and impairment of investments ........... -- (1,662,600)
Miscellaneous interest income ............................ 6,902 5,115
Other income (expense) ................................... -- 24,875
Conversion liabilities ................................... (406,387) (47,070)
Conversion liabilities - affiliates ...................... (61,924) --
Interest expense - affiliate ............................. (42,001) (27,596)
Interest expense ......................................... (1,471,216) (1,187,140)
---------------- ----------------
Total other income (expense), net ...................... (2,161,436) (3,357,419)
---------------- ----------------
Loss before minority interest and income taxes .............. (10,661,054) (3,450,168)
Minority interest in net loss of consolidated subsidiaries -- (7,019)
---------------- ----------------
Loss before provision for income taxes ...................... (10,661,054) (3,457,187)
(Provision for)/benefit from income taxes ................ -- --
---------------- ----------------
Loss from continuing operations ............................. (10,661,054) (3,457,187)
---------------- ----------------
Discontinued Operations:
Loss from discontinued operations ........................ (1,722,924) (53,028)
---------------- ----------------
Net loss .................................................... $ (12,383,978) $ (3,510,214)
=============== ================
Mandatorily Redeemable Preferred Equity ..................... (270,000) --
---------------- ----------------
Net loss attributable to common shareholders ................ $ (12,653,978) $ (3,510,214)
================ ================
Weighted average common shares outstanding:
Basic and diluted ....................................... 104,921,105 53,579,671
Earnings (loss) per share:
Loss from continuing operations .......................... $ (0.10) $ (0.06)
Income (loss) from discontinued operations ............... (0.02) (0.00)
---------------- ----------------
Net loss per share - basic and diluted ................... $ (0.12) $ (0.07)
================ ================
Net loss ................................................. $ (0.12) $ (0.07)
================ ================
The notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
7
GREENSHIFT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2009 AND 2008 (UNAUDITED)
RESTATED RESTATED
Three Months Three Months
Ended 3/31/09 Ended 3/31/08
-----------------------------
CASH FLOW FROM OPERATING ACTIVITIES
Loss from continuing operations ............................. $(10,661,054) $ (3,457,187)
Loss from discontinued operations ........................... (1,722,924) (53,028)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization ............................... 293,218 130,132
Amortization of intangibles ................................. 4,557 525,800
Amortization of debt discount and deferred financing costs .. 190,474 463,002
Change in allowance for doubtful accounts ................... -- (143,047)
Interest from conversion liability .......................... 468,311 47,070
Stock based compensation .................................... -- 304,017
Acretion of asset retirement obligation ..................... 544 --
Loss on disposal of investments ............................. -- 1,662,600
Loss on impairment of goodwill .............................. 7,281,993 --
Change in assets and liabilities, net of acquisitions
Accounts receivable ......................................... 533,272 (1,450,239)
Allowance for doubtful accounts ............................. (817) --
Restricted cash ............................................. (234) (251,056)
Prepaid expenses ............................................ 94,544 (82,522)
Deposits .................................................... (83,521) (27,481)
Inventory ................................................... -- 1,120,331
Costs in excess of earnings ................................. (60,349) 133,312
Deferred financing fees ..................................... -- (149,750)
Accrued interest ............................................ 1,464,290 874,131
Accrued interest - related party ............................ 46,030 (169,325)
Billings in excess of cost .................................. (13,576) 1,353,298
Accounts payable and accrued expenses ....................... 693,332 (2,456,354)
Deferred income taxes ....................................... -- (59,631)
Deferred revenue ............................................ -- 366,971
Assets and liabilities to be disposed ....................... 1,548,655 --
Assets and liabilities of discontinued operations ........... -- (28,225)
------------ ------------
Net cash provided by (used in) operating activities ...... 76,745 (1,347,181)
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Cash paid for acquisition ................................... -- (80,000)
Cash acquired from acquisition .............................. -- --
Construction in progress .................................... (206,834) (1,775,228)
Investment in unconsolidated subsidiaries ................... -- --
Project development costs ................................... -- (47,735)
Additions to and acquisition of property, plant and equipment (420,020) (2,084,374)
------------ ------------
Net cash (used in) investing activities ................. (626,854) (3,987,337)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of line of credit ................................. -- (351,808)
Repayment of note payable - affiliate ....................... -- (997,279)
Proceeds from long short debt ............................... 20,000 --
Proceeds from convertible debentures ........................ 315,000 --
Repayment of convertible debentures - related party ......... 837,758 --
Loan due to an affiliate .................................... (2,000) --
Proceeds from line of credit ................................ -- 8,806,636
Cash paid to minority shareholders .......................... -- (820,827)
Repayment of long term debt ................................. (12,973) (1,376,470)
Repayment of convertible debentures - affiliates ............ (609,100) --
------------ ------------
Net cash provided by financing activities ............... 548,685 5,260,252
------------ ------------
Net (decrease) in cash ...................................... $ (1,423) $ (74,266)
Cash at beginning of period ................................. 9,704 486,993
------------ ------------
Cash at end of period ....................................... $ 8,281 $ 412,727
============ ============
The notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
8
GREENSHIFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2008 AND THREE MONTHS ENDED MARCH 31, 2009
Series C Series D Series E
Series A Series B Preferred Preferred Preferred
Preferred Stock Preferred Stock Stock Stock Stock
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
--------- ------ --------- ------- ------- ------- ------- ------- --------- --------
Balance at 12/31/07, 1,254,244 $151,250 $ 151 -- -- 800,000 $ 800 -- -- 1,254
Restated
========= ====== ========= ======= ======= ======= ======= ======= ========= ========
Adjustment of -- -- -- -- -- -- -- -- -- --
conversion of
subsidiary minority
interest
Write-off of
derivative due to
debt restructure -- -- -- -- -- -- -- -- -- --
Shares issued for
conversion of -- -- -- -- -- -- -- -- -- --
debentures
Adjustment for
transfer of entity -- -- -- -- -- -- -- -- -- --
under common control
Stock based -- -- -- -- -- -- -- -- -- --
compensation
Cancellation of debt -- -- -- -- -- -- -- -- -- --
- related party
Conversion of (1,254,244 (1,254) -- -- -- -- -- -- -- --
minority interest
Repurchase of -- -- -- -- -- -- -- -- -- --
subsidiary stock
Cancellation of debt -- -- -- -- -- -- -- -- -- --
- related party
Conversion of Series
B Preferred Stock to -- -- (151,250) (151) -- -- -- -- -- --
Common
Issuance of Series B
Preferred Stock to -- -- 3,025,333 3,025 -- -- -- -- -- --
create Employee Pool
Partial Conversion of -- -- (506,114) (506) -- -- -- -- -- --
Series B to Common
Conversion of debt -- -- -- -- -- -- -- -- -- --
Common stock issued -- -- -- -- -- -- -- -- -- --
for financing fees
Acquisition of -- -- -- -- -- -- -- -- 20,000 20
subsidiary
Priority return on
subsidiary -- -- -- -- -- -- -- -- -- --
Capital
Net loss -- -- -- -- -- -- -- -- -- --
--------- ------ --------- ------- ------- ------- ------- ------- --------- --------
Balance at 12/31/08, -- -- 2,519,219 $ -- -- 800,000 $ 800 20,000 $ 20 2,519
Restated
========= ====== ========= ======= ======= ======= ======= ======= ========= ========
Conversion of Series -- -- (10,548) (10) -- -- -- -- -- --
B Preferred Stock to
Common
Shares issued for
conversion of -- -- -- -- -- -- -- -- -- --
debentures
Conversion of Series
D Preferred Stock to -- -- -- -- -- -- (46) -- -- --
Common
Net loss -- -- -- -- -- -- -- -- -- --
--------- ------ --------- ------- ------- ------- ------- ------- --------- --------
Balance at 3/31/09, -- -- 2,508,671 $ -- -- 799,954 $ 800 20,000 $ 20 2,509
Restated
========= ====== ========= ======= ======= ======= ======= ======= ========= ========
The notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
9
GREENSHIFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2008 AND THREE MONTHS ENDED MARCH 31, 2009
Non-controlling
interest Additional
in Paid-in Accumulated Total
Common Stock subsidiary Capital Deficit Equity
----------- ---------- ------------ ------------- ----------- -----------
Shares Amount Amount Amount Amount Amount
----------- ---------- ------------ ------------- ----------- -----------
Balance at 12/31/07, 30,693,083 $ 30,693 -- $66,175,522 $(91,821.644)$(25,613,224)
Restated
=========== ========== ============ ============= =========== ===========
Non-controlling -- -- 25,000 -- -- 25,000
interest investment
in subsidiary
Adjustment of
conversion of
subsidiary minority
interest -- -- -- 183,373 -- 183,373
Shares issued for
conversion of 11,000,597 11,000 -- 543,657 -- 554,657
debentures
Adjustment for
transfer of entity -- -- -- (27,800) -- (27,800)
under common control
Stock based 850,000 850 -- 50,550 -- 51,400
compensation
Cancellation of debt -- -- -- 2,952,968 -- 2,952,968
- related party
Conversion of 25,084 25 -- 1,229 -- --
minority interest
Repurchase of -- -- -- (1,950,000) -- (1,950,000)
subsidiary stock
Cancellation of debt -- -- -- 293,085 -- 293,085
- related party
Conversion of Series
B Preferred Stock to 6,797,634 6,798 -- (6,647) -- --
Common
Issuance of Series B
Preferred Stock to -- -- -- 7,215,308 -- 7,218,333
create Employee Pool
Partial Conversion of 12,652,825 12,653 -- (12,147) -- --
Series B to Common
Conversion of debt 6,875,000 6,875 -- 1,093,125 -- 1,100,000
Common stock issued 6,250,000 6,250 -- 1,084,511 -- 1,090,761
for financing fees
Acquisition of 20,000,760 20,000 -- 2,065,680 -- 2,085,700
subsidiary
Priority return on
subsidiary -- -- -- -- (675,001) (675,001)
capital
Net loss -- -- (15,327) -- (47,975,579) (47,990,906)
----------- ---------- ------------- ------------ ----------- -----------
Balance at 12/31/08, 95,144,983 $95,144 $9,673 $79,662,413 $(140,472,224) $(60,701,655)
Restated
=========== ========== ============= ============ =========== ===========
263,700 264 -- (253) -- --
Conversion of Series
B Preferred Stock to
Common Manadatorily -- -- -- -- (270,000) (270,000)
reddemable preferred
Shares issued for
conversion of
debentures/conversion
liabilities 114,708,558 114,709 -- 779,961 -- 894,670
Conversion of Series
D Preferred Stock to
Common 278,781 278 -- (278) -- --
Net loss -- -- -- -- (12,383,978) (12,383,978)
----------- ---------- ------------- ------------ ----------- -----------
Balance at 3/31/09, 210,396,022 $210,395 $9,673 $80,441,843 $(153,126,202) (72,460,962)
Restated
=========== ========== ============= ============ =========== ===========
The notes to the Condensed Consolidated Financial Statements are an
integral part of these statements.
10
1 BASIS OF PRESENTATION
The consolidated interim financial statements included herein have been prepared
by GreenShift Corporation ("we," "our," "us," "GreenShift," or the "Company"),
pursuant to the rules and regulations of the Securities and Exchange Commission
and, in the opinion of management, include all adjustments which, except as
described elsewhere herein, are of a normal recurring nature, necessary for a
fair presentation of the financial position, results of operations, and cash
flows for the periods presented. The results for interim periods are not
necessarily indicative of results for the entire year. The financial statements
presented herein should be read in connection with the financial statements
included in the Company's Annual Report on Form 10-K for the year ended December
31, 2008.
DIVESTITURES
Biofuel Industries Group, LLC
Effective May 15, 2008, the Company and Biofuel Industries Group, LLC (d/b/a
NextDiesel(TM)) ("BIG") entered into an Exchange Agreement pursuant to which the
Company exchanged 20,000,000 common shares and 20,000 preferred shares in return
for 100% of the equity of BIG subject to the redemption by BIG of BIG's "Class A
Membership Units" for a total of $9 million preferred equity interest with a 12%
coupon commencing January 30, 2009 at a rate equal to 30% of BIG's net cash
flows (after all operating costs and regular debt payments have been paid) (the
"Class A Redemption").
The Company's ownership of BIG is subject to rescission in the event that: (a)
the BIG Loans are not timely serviced and kept in good standing, (b) the
Guaranty Payments, to the extent due, are not timely made, and (c) if the Class
A Redemption payments are not made to the extent that they are due. In addition,
BIG's agreements with its senior creditor, Citizens Bank, require Citizens Bank
to provide its written consent to change of control transactions. Citizens Bank
had previously consented to the change of control of BIG on the condition that
the Company closed on its prior financing agreements with CleanBioenergy
Partners, LLC (see Note 12, Commitments and Contingencies). This financing
failed to close as expected in March 2009 despite the Company's compliance with
the relevant agreements, and Citizens Bank consequently withdrew its consent to
the change of control of BIG. The Company subsequently entered into negotiations
in April 2009 to restructure the terms of the BIG acquisition, however, a notice
of default of the Exchange Agreement was declared on May 14, 2009 in order to
maintain compliance with BIG's loan agreements with Citizens Bank. While the
Company is actively pursuing debt and equity capital to subsidize the expansion
of the Adrian refinery, the Company does not intend to restructure the original
acquisition transaction at this time. Instead, the Company intends to facilitate
rescission of the original acquisition transaction and the divestiture of BIG
during the quarter ended June 30, 2009 due to changed market circumstances.
The Company may consider acquiring an equity stake in BIG in the future if it
successfully raises sufficient capital to expand the Adrian refinery. The
divestiture of BIG has not been completed as of the filing date of this report,
however, the financial results of this subsidiary have been presented as
discontinued operations as and for the quarter ended March 31, 2009 (see Note 6,
Discontinued Operations).
Sustainable Systems, Inc.
On March 26, 2007, the Company's subsidiary, GS AgriFuels Corporation, purchased
the remaining 85% of the outstanding capital stock of Sustainable Systems, Inc.
(GS AgriFuels had previously purchased 15% of the capital stock of Sustainable).
During the quarter ended March 31, 2009, the Company filed suit against the
selling shareholders of Sustainable for fraud, tortious interference and breach
of contract relating to the completion of this acquisition (see Note 12,
Commitments and Contingencies). On September 30, 2008, the Company and Paul
Miller, a former shareholder of Sustainable and the current President of
Sustainable, entered into a Mutual Consent and Release Agreement in which Mr.
Miller agreed to cancel all payment obligations and waived all amounts that may
have payable by GS AgriFuels under the Sustainable acquisition agreements.
On April 27, 2009, Sustainable Systems, LLC entered into a settlement agreement
with the states of Montana and North Dakota pertaining to outstanding payments
due for purchase of oilseeds during 2008 that were contracted at rates far
greater than current oilseed values. Sustainable had previously negotiated with
two separate banks to receive working capital financing sufficient to service
these obligations. Neither bank was able to close due to strain in the
prevailing commodity and financial markets. Sustainable has accordingly idled
its operations and voluntarily surrendered its commodity license to the state of
11
Montana Department of Agriculture pending liquidation of Sustainable's
inventories to satisfy the oilseed payables. Sustainable is permitted to
reacquire its commodity license upon the completion of sufficient working
capital and equity financing to operate. The liquidation of Sustainable's
inventory is ongoing and is expected to be complete during the second quarter
2009.
While the Company is actively pursuing strategic investment to replenish the
working capital resources of Sustainable, the Company intends to divest of the
majority, and probably all, of its equity holdings in Sustainable during the
second quarter 2009. The divestiture of Sustainable has not been completed as of
the filing date of this report, however, the financial results of this
subsidiary have been presented as discontinued operations as and for the quarter
ended March 31, 2009 (see Note 6, Discontinued Operations).
2 NATURE OF OPERATIONS
GreenShift Corporation ("we," "our," "us," "GreenShift," or the "Company")
develops and commercializes clean technologies that facilitate the efficient use
of natural resources.
We currently own four corn oil extraction facilities that are located in
Oshkosh, Wisconsin, Medina, New York, Marion, Indiana, and Riga, Michigan. We
have also installed one facility in Albion, Michigan under a modified version of
our market offering where our client paid us to build the extraction facility.
We have the long-term right (10 years or more) to buy the oil extracted from the
Albion facility but the client retains ownership of the extraction assets and is
paid a higher price for the corn oil extracted than we pay to our other clients.
These facilities collectively are designed to extract in excess of 7.3 million
gallons per year, of which more than of 6.0 million gallons per year is
currently installed.. We are currently focused on securing the capital resources
we need to operate our existing facilities and to build our contracted backlog
of corn oil extraction facilities.
During the three months ended March 31, 2009, we also owned a 10 million gallon
per year biodiesel facility in Adrian, Michigan ("BIG") and an oilseed crush
facility in Culbertson, Montana ("Sustainable"). These two facilities were idled
during the first quarter 2009 due to a lack of working capital. The Company
expects to divest both BIG and Sustainable during the quarter ending June 30,
2009. The financial results of these subsidiaries have been presented as
discontinued operations as and for the quarter ended March 31, 2009 (see Note 6,
Discontinued Operations).
The Company's speciality equipment manufacturing operations were also idled
during the first quarter of 2009. The Company intends to liquidate certain
assets of this operation during the second quarter of 2009 but will scale this
operation as needed to fulfill the Company's growth needs as it builds, installs
and maintains its various corn oil extraction facilities.
SEGMENT DESCRIPTIONS
The Company's operations during the three months ended March 31, 2009 are
classified into three reportable business segments: Equipment & Technology
Sales, Culinary Oil Production & Sales and Biofuel Production & Sales. Each of
these segments is organized based upon the nature of products and services
offered. The Company's remaining operations are aggregated and classified herein
as Corporate.
The Company's ongoing restructuring activities are expected to result in the
discontinuance of operations in the Culinary Oil Production & Sales segment
during the quarter ended June 30, 2009. The Company expects to divest its stake
in BIG and Sustainable during the quarter ended June 30, 2009. The Company sells
its corn oil as a feedstock for biofuel production or for direct use as a
biofuel, therefore, the Company's continuing corn oil production and sales
activities will continue to be recorded in the Company's Biofuel Production &
Sales segment. The Company expects that it will operate within two segments
effective April 1, 2009: Equipment & Technology Sales and Biofuel Production &
Sales. For comparative purposes, the financial results of BIG and Sustainable
have been presented as discontinued operations as and for the quarter ended
March 31, 2009 (see Note 6, Discontinued Operations).
3 GOING CONCERN
The Company had a working capital deficit of $77,041,434 at March 31, 2009,
which includes convertible debentures of $24,831,536, accrued interest payable
of $8,293,259, related party debt of $20,000, related party convertible
debentures of $1,676,197, $3,979,437 in purchase obligations, and $4,821,738 in
amounts due to the prior owners of our oilseed crush facility. The Company's
working capital deficit net of these amounts is $33,419,267.
12
Despite their classification as current liabilities, current convertible
debentures and accrued interest ($33,124,795) are not serviceable out of the
Company's cash flows (the terms of the convertible debt require repayment in
shares of either GreenShift Corporation or GS AgriFuels Corporation common
stock).
The purchase obligations ($3,979,437), to the extent due, are tied to the
earnings of the Company's equipment sales business and can only be serviced
after the Company's senior secured debt has been serviced.
The amounts due to the prior owners of our oilseed crush facility ($4,821,738)
pursuant to acquisition agreements that are now in default due to the failure by
the selling shareholders to disclose that Sustainable did not hold title to its
now-owned Culbertson, Montana oilseed crushing facility at the time of the
acquisition by GS AgriFuels.
Management intends to raise capital from debt and equity transactions to fund
operations, to increase revenue and to cut expenses to reduce the loss from
operations. There can be no assurances that the Company will be able to
eliminate both its working capital deficit and its operating losses. The
accompanying financial statements do not contain any adjustments which may be
required as a result of this uncertainty.
4 SIGNIFICANT ACCOUNTING POLICIES
MINORITY INTEREST
On January 1, 2009, the Company adopted SFAS No. 160, "Noncontrolling Interests
in Consolidated Financial Statements--an amendment of ARB No. 51," (SFAS 160).
SFAS 160 amends Accounting Research Bulletin No. 51, "Consolidated Financial
Statements," to establish accounting and reporting standards for the
noncontrolling interest in a subsidiary and for the deconsolidation of a
subsidiary. This standard defines a noncontrolling interest, previously called a
minority interest, as the portion of equity in a subsidiary not attributable,
directly or indirectly, to a parent. SFAS 160 requires, among other items, that
a noncontrolling interest be included in the consolidated statement of financial
position within equity separate from the parent's equity; consolidated net
income to be reported at amounts inclusive of both the parent's and
noncontrolling interest's shares and, separately, the amounts of consolidated
net income attributable to the parent and noncontrolling interest all on the
consolidated statement of operations; and if a subsidiary is deconsolidated, any
retained noncontrolling equity investment in the former subsidiary be measured
at fair value and a gain or loss be recognized in net income based on such fair
value. Additionally, SFAS 160 defines a noncontrolling interest as a financial
instrument issued by a subsidiary that is classified as equity in the
subsidiary's financial statements. A financial instrument issued by a subsidiary
that is classified as a liability in the subsidiary's financial statements based
on the guidance in other standards is not a controlling interest because it is
not an ownership interest. Based on this definition of noncontrolling interest
the Company presented its previously reported minority interest as a current
liability in the accompanying balance sheets. The presentation requirements of
SFAS 160 were applied retrospectively. Other than the change in presentation of
noncontrolling interests, the adoption of SFAS 160 had no impact on the
Financial Statements.
GOODWILL AND INTANGIBLE ASSETS
The Company accounts for its goodwill and intangible assets pursuant to SFAS No.
142, "Goodwill and Other Intangible Assets". Under SFAS 142, intangibles with
definite lives continue to be amortized on a straight-line basis over the lesser
of their estimated useful lives or contractual terms. Goodwill and intangibles
with indefinite lives are evaluated at least annually for impairment by
comparing the asset's estimated fair value with its carrying value, based on
cash flow methodology.
The Company reviews its goodwill annually for possible impairment and more
frequently if events or changes in circumstances indicate goodwill might be
impaired. The Company uses three methods of valuation to determine impairment.
The first method used is book value, the second methodology is Discounted Cash
Flow analysis and the third method is a combination of Discounted Cash Flow
analysis and Market Multiples The discounted cash flow calculation is made
utilizing various assumptions and estimates regarding future revenues and
expenses, cash flow and discount rates. The assumptions used are sometimes
significantly different than historical results due to the Company's current
business initiatives. If the Company fails to achieve results in line with the
assumptions used, intangible assets may be impaired. Possible impairment may
exist if the fair value computed using the discounted cash flow valuation
approach is lower than the carrying amount of the reporting unit (including
13
goodwill). Further analysis would be required if possible impairment exists by
comparing the implied fair value of the reporting unit, which is the excess of
the fair value of the reporting unit over amounts assigned to the reporting
unit's assets and liabilities, to the carrying amount of goodwill. If the
carrying amount of the reporting unit's goodwill is greater than the implied
fair value, an impairment loss equal to the difference would be recorded and
goodwill would be written down.
During the three months ended March 31, 2009, the Company recorded an impairment
of goodwill in the amount of $7,281,993 related to the BIG acquisition.
The changes in the carrying amount of goodwill during the three months ended
March 31, 2009 are as follows:
Equipment and Culinary Oil Environmental
Technology Sales Production Services Total
-------------------------------------------------------------------
Balance at December 31, 2007 905,579 7,458,877 -- 8,364,456
Goodwill Acquisition 421,727 -- 7,281,993 7,703,720
Impairment/Loss (1,327,306) (7,458,877) -- (8,786,183)
--------------- ---------------- --------------- ---------------
Balance at December 31, 2008 -- -- 7,281,993 7,281,993
Goodwill Acquisition -- -- -- --
Impairment/Loss -- -- (7,281,993) (7,281,993)
--------------- ---------------- --------------- ---------------
Balance at March 31, 2009 $ -- $ -- $ -- $ --
=============== ================ =============== ===============
FAIR VALUE MEASUREMENTS
Effective January 1, 2008, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value Measurements. This Statement defines fair
value for certain financial and nonfinancial assets and liabilities that are
recorded at fair value, establishes a framework for measuring fair value, and
expands disclosures about fair value measurements. This guidance applies to
other accounting pronouncements that require or permit fair value measurements.
On February 12, 2008, the FASB finalized FASB Staff Position (FSP) No. 157-2,
Effective Date of FASB Statement No. 157. This Staff Position delays the
effective date of SFAS No. 157 for nonfinancial assets and liabilities to fiscal
years beginning after November 15, 2008 and interim periods within those fiscal
years, except for those items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). The adoption
of SFAS No. 157 had no effect on the Company's consolidated financial position
or results of operations.
The Company accounted for the convertible debentures in accordance with SFAS No.
150, Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150), as the conversion feature embedded in the
convertible debentures could result in the note principal and related accrued
interest being converted to a variable number of the Company's common shares.
The Company adopted the provisions of Statement of Financial Accounting
Standards (SFAS) No. 157, Fair Value Measurements, which is effective for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years. Under FASB Statement No. 157, a framework was established for measuring
fair value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. The Company measured the fair value
of the preferred equity interest outstanding at September 30, 2008 since the
number of common shares issuable under the Company's Series E convertible
preferred stock was indeterminable during the nine months then ended. The value
at September 30, 2008 was determined to be $9,000,000, measured using
significant unobservable inputs (Level 3) using the present value of the shares
based on the average fair market value of the Company's stock for the three days
before and after the acquisition date.
The Company partially adopted SFAS 157 on January 1, 2008, delaying application
for non-financial assets and non-financial liabilities as permitted. This
statement establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. SFAS 157 establishes a fair value
hierarchy that prioritizes the inputs to valuation techniques used to measure
fair value into three levels as follows:
o Level 1 -- quoted prices (unadjusted) in active markets for identical
assets or liabilities that the Company has the ability to access as of the
measurement date. Financial assets and liabilities utilizing Level 1 inputs
include active exchange-traded securities and exchange-based derivatives.
o Level 2 -- inputs other than quoted prices included within Level 1 that are
directly observable for the asset or liability or indirectly observable
through corroboration with observable market data. Financial assets and
liabilities utilizing Level 2 inputs include fixed income securities,
non-exchange-based derivatives, mutual funds, and fair-value hedges.
o Level 3 -- unobservable inputs for the asset or liability only used when
there is little, if any, market activity for the asset or liability at the
measurement date. Financial assets and liabilities utilizing Level 3 inputs
14
include infrequently-traded, non-exchange-based derivatives and commingled
investment funds, and are measured using present value pricing models.
Fair Value
--------------------------------------------------------------------------------------------------------------------
As of March 31, 2009 Level 1 Level 2 Level 3 Total
--------------------------------------------------------------------------------------------------------------------
Embedded conversion liabilities $ -- $ -- $ 1,764,322 $ 1,764,322
The following table reconciles, for the period ended December 31, 2008, the
beginning and ending balances for financial instruments that are recognized at
fair value in the consolidated financial statements:
Balance of Embedded Conversion Liability at December 31, 2008 $ 1,504,081
Present Value of beneficial conversion features of new debentures 435,401
Reductions in fair value due to principal conversions (208,070)
Accretion adjustments to fair value - beneficial conversion features 32,910
-------------
Balance at March 31, 2009 $ 1,764,322
=============
The fair value of the conversion features are calculated at the time of issuance
and the Company records a conversion liability for the calculated value. The
Company recognizes interest expense for the conversion liability which is added
to the principal of the debenture. The Company also recognizes interest expense
for accretion of the conversion liability to fair value over the term of the
note.
The Company adopted SFAS No. 150, Accounting for Certain Financial Instruments
with Characteristics of both Liabilities and Equity (SFAS 150), as the
conversion feature embedded in each debenture could result in the note principal
being converted to a variable number of the Company's common shares.
5 STOCKHOLDERS' EQUITY
SERIES E PREFERRED STOCK
On May 15, 2008, the Company issued 20,000 shares of the Company's new Series E
Preferred Stock (the "Series E Shares") to the BIG shareholders (21,
Acquisition, below), which shares are convertible at a fixed rate of 1 preferred
share to 1,000 common shares into a total of 20,000,000 shares of Company common
stock; provided, however, that the Series E Shares shall be convertible into
Company common shares in proportion to the Company's earnings before interest,
taxes, depreciation and amortization and non-cash and non-recurring items
("EBITDA") and will be fully convertible into 20,000,000 common shares on a pro
rated basis as the Company achieves $50,000,000 in EBITDA during one year
period. The holders would be entitled to cumulative dividend rights equal to
that of 1,000 common shareholders upon the declaration of dividends on common
stock, and have voting privileges of one vote to every one common share. At
March 31, 2009 and 2008, there were 20,000 and 0 shares of Series E Preferred
Stock, respectively, issued and outstanding. All shares of Company stock issued
to the BIG shareholders are expected to be returned as part of the Company's
divestiture of BIG.
COMMON STOCK
From time to time during the three months ended March 31, 2009, the Company
issued a total of 13,780,051 common shares to YA Global Investments, LP upon its
conversion of debt in the amount of $127,600; 62,644,305 common shares to
Minority Interest Fund (II), LLC upon its conversion debt in the amount of
$439,000; 38,284,202 common shares to RAKJ Holdings, Inc. upon its conversion of
debt in the amount of $120,000; and, 263,700 common shares were converted from
Series B Preferred Stock for an employee of the Company.
The only conditions in which the Company would be required to redeem its
convertible preferred stock for cash would be in the event of a liquidation of
the Company or in the event of a cash-out merger of the Company.
6 DISCONTINUED OPERATIONS
BIOFUEL INDUSTRIES GROUP, LLC
Effective May 15, 2008, the Company and Biofuel Industries Group, LLC (d/b/a
NextDiesel(TM)) ("BIG") entered into an Exchange Agreement pursuant to which the
Company exchanged 20,000,000 common shares and 20,000 preferred shares in return
for 100% of the equity of BIG subject to the redemption by BIG of BIG's "Class A
Membership Units" for a total of $9 million preferred equity interest with a 12%
coupon commencing January 30, 2009 at a rate equal to 30% of BIG's net cash
flows (after all operating costs and regular debt payments have been paid) (the
"Class A Redemption").
15
The Company's ownership of BIG is subject to rescission in the event that: (a)
the BIG Loans are not timely serviced and kept in good standing, (b) the
Guaranty Payments, to the extent due, are not timely made, and (c) if the Class
A Redemption payments are not made to the extent that they are due. In addition,
BIG's agreements with its senior creditor, Citizens Bank, require Citizens Bank
to provide its written consent to change of control transactions. Citizens Bank
had previously consented to the change of control of BIG on the condition that
the Company closed on its prior financing agreements with CleanBioenergy
Partners, LLC (see Note 12, Commitments and Contingencies). This financing
failed to close as expected in March 2009 despite the Company's compliance with
the relevant agreements, and Citizens Bank consequently withdrew its consent to
the change of control of BIG. The Company subsequently entered into negotiations
in April 2009 to restructure the terms of the BIG acquisition, however, a notice
of default of the Exchange Agreement was declared on May 14, 2009 in order to
maintain compliance with BIG's loan agreements with Citizens Bank. While the
Company is actively pursuing debt and equity capital to subsidize the expansion
of the Adrian refinery, the Company does not intend to restructure the original
acquisition transaction at this time. Instead, the Company intends to facilitate
rescission of the original acquisition transaction and the divestiture of BIG
during the quarter ended June 30, 2009 due to changed market circumstances.
The Company may consider acquiring an equity stake in BIG in the future if it
successfully raises sufficient capital to expand the Adrian refinery. The
divestiture of BIG has not been completed as of the filing date of this report,
however, the financial results of this subsidiary have been presented as
discontinued operations as and for the quarter ended March 31, 2009. During the
three months ended March 31, 2009, the Company recorded an impairment of
goodwill in the amount of $7,281,993 related to the BIG acquisition.
The components of discontinued operations relating to the planned divestiture of
BIG are as follows:
3/31/2009 12/31/2008
----------------------------
Current assets ........................................................... $ 522,376 1,006,362
Other assets ............................................................. -- 233,816
Property and equipment ................................................... 12,532,479 12,761,877
------------ ------------
Total assets ............................................................. 13,054,855 14,002,055
Accounts Payable and Accrued Expenses .................................... 2,712,954 2,490,604
Line of credit............................................................ 745,235 745,235
Other current liabilities................................................. 263,950 290,778
Long term debt ........................................................... 8,759,491 8,760,853
Mandatorily redeemable equity ............................................ 10,710,000 10,440,000
------------ ------------
Total liabilities ........................................................ $ 23,191,630 22,727,470
Three months ended
3/31/2009 3/31/2008
----------------------------
Revenues ................................................................. $ 271,668 $ --
(Loss) income before provision for income taxes .......................... $ (1,164,411) $ --
SUSTAINABLE SYSTEMS, INC.
On March 26, 2007, the Company's subsidiary, GS AgriFuels Corporation, purchased
the remaining 85% of the outstanding capital stock of Sustainable Systems, Inc.
(GS AgriFuels had previously purchased 15% of the capital stock of Sustainable).
During the quarter ended March 31, 2009, the Company filed suit against the
selling shareholders of Sustainable for fraud, tortious interference and breach
of contract relating to the completion of this acquisition (see Note 12,
Commitments and Contingencies). On September 30, 2008, the Company and Paul
Miller, a former shareholder of Sustainable and the current President of
Sustainable, entered into a Mutual Consent and Release Agreement in which Mr.
Miller agreed to cancel all payment obligations and waived all amounts that may
have payable by GS AgriFuels under the Sustainable acquisition agreements.
On April 27, 2009, Sustainable Systems, LLC entered into a settlement agreement
with the states of Montana and North Dakota pertaining to outstanding payments
due for purchase of oilseeds during 2008 that were contracted at rates far
greater than current oilseed values. Sustainable had previously negotiated with
two separate banks to receive working capital financing sufficient to service
these obligations. Neither bank was able to close due to strain in the
prevailing commodity and financial markets. Sustainable has accordingly idled
its operations and voluntarily surrendered its commodity license to the state of
Montana Department of Agriculture pending liquidation of Sustainable's
inventories to satisfy the oilseed payables. Sustainable is permitted to
reacquire its commodity license upon the completion of sufficient working
capital and equity financing to operate. The liquidation of Sustainable's
inventory is ongoing and is expected to be complete during the second quarter
2009.
16
While the Company is actively pursuing strategic investment to replenish the
working capital resources of Sustainable, the Company intends to divest of the
majority, and probably all, of its equity holdings in Sustainable during the
second quarter 2009. The divestiture of Sustainable has not been completed as of
the filing date of this report, however, the financial results of this
subsidiary have been presented as discontinued operations as and for the quarter
ended March 31, 2009.
The components of discontinued operations relating to the planned divestiture of
Sustainable are as follows:
3/31/2009 12/31/2008
--------------------------
Inventory ............................................................... $ 1,023,283 $ 1,558,018
Other current assets .................................................... 859,776 693,483
Property and equipment .................................................. 1,394,708 1,425,282
Construction in progress ................................................ 1,481,459 1,481,459
Other assets ............................................................ -- 46,712
----------- -----------
Total assets ............................................................ 4,759,226 5,204,954
Accounts Payable ........................................................ 2,987,117 3,195,346
Notes payable, current .................................................. 1,515,969 1,477,422
Other current liabilities ............................................... 529,207 219,543
Notes payable, long term ................................................ 1,017,645 1,068,797
----------- -----------
Total liabilities ....................................................... $ 6,049,937 $ 5,961,108
Three months ended
3/31/2009 3/31/2008
--------------------------
Revenues ................................................................ $ 851,898 $ 3,659,954
(Loss) income before provision for income taxes ......................... $ (558,513) $ (53,028)
7 LINES OF CREDIT
Revolving Line of Credit for Construction of Corn Oil Extraction Facilities
On January 25, 2008, GS COES (Yorkville I), LLC, a subsidiary of the Company,
closed on the terms of a Credit Agreement with YA Global Investments, LP
("YAGI"). On July 1, 2008, the Credit Agreement was amended to extend the
commencement of payments to YAGI to October 1, 2008 and to extend all
performance timelines to December 31, 2008. On December 11, 2008, the Credit
Agreement was amended to extend the maturity date to January 31, 2011, to
increase the revolving availability to $13,750,000, and to restructure the
repayment provisions such that amounts advanced by YAGI would be repaid on the
closing of financing from CleanBioenergy Partners, LLC, an affiliate of GE
Energy Financial Services. The Credit Agreement was issued for the purpose of
constructing and installing corn oil extraction facilities based on the
Company's patented and patent-pending corn oil extraction technologies. While
the revolving availability under the line of credit was increased to $13,750,000
in the December 11, 2008 amendment, and the Company was otherwise in compliance
with the amended terms, the Company was unable to access the additional
availability. The principal balance on the line of credit was $10,000,000 as of
December 31, 2008, interest is accruing at the rate of 20% per annum, and the
line and accrued interest is payable at the maturity date. The December 11, 2008
amendment also added a term allowing YAGI to convert interest and principal into
common stock of the Company at a conversion price equal to the lesser of (a)
$1.25 or (b) 90% of the lowest daily volume weighted average price for the
twenty trading days preceding conversion. The Company is currently in
discussions with YAGI to restructure this line of credit since the
CleanBioenergy financing failed to close as expected (see Note 16, Subsequent
Events).
The Company accounted for the YAGI line of credit dated January 25, 2008 in
accordance with SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (SFAS 150), as the conversion
feature embedded in the YAGI line of credit could result in the principal being
converted to a variable number of the Company's common shares. The carrying
amount of the line has been restated for the prior year (please see Note 17
Restatement, below). The Company determined the value of the YAGI line of credit
at December 31, 2008 to be $11,044,838 which represented the face value of the
debenture plus the present value of the conversion feature. The liability for
the conversion feature shall increase from its present value of $1,044,838 at
17
December 31, 2008 to its estimated settlement amount of $1,111,111 at December
31, 2010. For the three months ended March 31, 2009, an expense of $24,852 has
been recorded as interest expense for the accretion of the present value
discount on the line of credit, thereby increasing the carrying value of the
YAGI line of credit to $11,069,690 at March 31, 2009.
To induce YAGI's entry into the Credit Agreement and in consideration of YAGI's
execution of the Restructuring Agreement described below, the Company issued six
million shares of its common stock to YAGI valued at $1,080,000. In conjunction
with the financing GS COES paid structuring fees of $210,000, legal fees of
$150,000, monitoring fees of $175,000, due diligence fees of $35,000 as well as
prepaid interest of $250,000. The balance of deferred financing fees was
$291,206 at March 31, 2009 after recording $95,590 in amortization of financing
fees for three months ending at March 31, 2009.
The Company does not have any ratios or covenants in conjunction with the YAGI
debt.
8 FINANCING ARRANGEMENTS
The following is a summary of the Company's financing arrangements as of March
31, 2009:
Current portion of notes payable: 3/31/2009
-------------
Note payable from NextGen Acquisition to Stillwater .................. $ 2,071,886
Purchase obligations from NextGen Acquisition to NextGen sellers ..... 3,979,437
Purchase obligations from GS AgriFuels to Sustainable Systems sellers 1,017,451
Asset retirement obligation, current ................................. 277
Vehicle loans and other short term borrowings ........................ 46,024
Mortgages and other term notes ....................................... 63,416
Current portion of notes payable from GreenShift to Bollheimer ....... 320,000
Current portion of notes payable from GS CleanTech ................... 150,000
Current portion of convertible notes payable from GS CleanTech ....... 1,734,579
------------
Total current portion of notes payable .......................... $ 9,383,070
============
Long-term notes payable, net of current maturities:
Mortgages and other term notes ....................................... $ 373,931
------------
Total long term notes payable, net of current maturities ........ $ 373,931
============
Asset retirement obligation:
Asset retirement obligation .......................................... $ 247,729
============
Current portion of convertible debentures:
Convertible debenture payable from GS AgriFuels to YAGI .............. $ 1,949,631
Convertible debenture payable from GS AgriFuels to YAGI .............. 5,500,000
Convertible debenture payable from GS AgriFuels to YAGI .............. 12,860,000
Note discounts ....................................................... (210,851)
Convertible debenture payable from GreenShift to RAKJ Holdings
390,000
Convertible debenture payable from GreenShift to Acutus ............. 538,469
Convertible debenture payable from GS AgriFuels to Sustainable Systems 1,902,140
sellers
Convertible debenture payable from GS AgriFuels to Sustainable Systems 1,902,147
------------
sellers
Total current portion of convertible debentures ................. $ 24,831,536
============
Long-term convertible debentures, net of current maturities:
Convertible debenture payable from GreenShift to YAGI ................ $ 2,084,986
Convertible debenture payable from GreenShift to YAGI ................ 175,915
Convertible debenture payable from GreenShift to YAGI ................ 1,224,063
Convertible debenture payable from GreenShift to YAGI ................ 2,789,278
Conversion liabilities ............................................... 332,607
Convertible debenture payable from GreenShift to YAGI ............... 1,950,000
------------
Total long-term portion of convertible debentures ............... $ 8,556,848
============
The following principal amounts of convertible debentures noted above that are
convertible into the common stock of the following companies are disclosed here:
GreenShift Corporation $ 8,762,710
GS AgriFuels Corporation 24,113,918
------------------
Total $ 32,876,628
==================
18
The following chart is presented to assist the reader in analyzing the Company's
ability to fulfill its fixed debt service requirements (net of note discounts)
of as of March 31, 2009 and the Company's ability to meet such obligations:
Year Amount
--------------------------------------------------------------------
2009 $ 33,824,606
2010 436,228
2011 8,581,621
2012 377,250
2013 and thereafter 173,410
------------------
Total minimum payments due under current and $ 43,393,115
==================
long term obligations
9 DEBT AND PURCHASE OBLIGATIONS
OTHER CONVERTIBLE DEBENTURES
During the year ended December 31, 2008, the Company issued convertible
debentures to Acutus Capital, LLC ("Acutus") in the amounts of $250,000 and
$235,000, respectively. The convertible debentures to Acutus shall bear interest
at a rate of 20% per year and mature on December 31, 2008 and February 15, 2009,
respectively. Acutus is entitled to convert the accrued interest and principal
of the convertible debenture into common stock of the Company at a conversion
price equal to $1.25 per share. The Company accounted for the YAGI Debenture
dated February 8, 2006 in accordance with SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity (SFAS
150), as the conversion feature embedded in the YAGI Debenture could result in
the note principal being converted to a variable number of the Company's common
shares. The carrying amount of the debenture has been restated for the prior
year (please see Note 17 Restatement, below). The Company determined the value
of the Acutus Debenture at December 31, 2008 to be $538,469 which represented
the face value of the debenture plus the present value of the conversion
feature. The liability for the conversion feature shall increase from its
present value of $53,469 at December 31, 2008 to its estimated settlement amount
of $53,889. The carrying value of the Acutus Debenture was $538,469 at March 31,
2009. As of March 31, 2009, the Company was in default on the Acutus debenture.
For the three months ended March 31, 2009, interest expense of $23,918 for these
obligations was incurred.
During the year ended December 31, 2008, the Company entered into amended and
restated convertible debentures with MIF that total $1,319,783. This amount
includes the $410,930 in notes payable that MIF purchased from Viridis, $757,853
in convertible debt that were purchased from Candent, and $500,000 in
convertible debt that was purchased from Acutus Capital, as well as an
additional $151,000 in new convertible debt that MIF purchased during December
2008. The total convertible debentures due to MIF were reduced by $432,932
during the year ended December 31, 2008, after MIF purchased the debenture
payable to the Company from EcoSystem Corporation by reducing the amount of the
convertible debt the Company owed to MIF. $500,000 of the convertible debt
issued to MIF bears interest at a rate of 20% and the balance of the convertible
debentures shall bear interest at 12% per year and mature on December 31, 2010.
MIF is entitled to convert the accrued interest and principal of the MIF
convertible debenture into common stock of the Company at a conversion price
equal to the lesser of (a) $1.25 per share or (b) 90% of the lowest daily volume
weighted average price for the twenty trading days preceding conversion. During
the three months ended March 31, 2009, MIF funded an additional $609,100 and
converted $439,000 on the amount due into Company common stock, and sold
$315,000 of the principal amount due to MIF to RAKJ Holdings, Inc. ("RAKJ"). The
Company accounted for the MIF Debenture in accordance with SFAS No. 150,
Accounting for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150), as the conversion feature embedded in the
RAKJ Debenture could result in the note principal being converted to a variable
number of the Company's common shares. The carrying amount of the debenture has
been restated for the prior year (please see Note 17 Restatement, below). The
Company determined the value of the MIF Debenture at December 31, 2008 to be
$1,514,201 which represented the face value of the debenture of $1,386,851 plus
the present value of the conversion feature. During the three months ended March
31, 2009, the Company recognized an additional conversion liability at present
value of $57,281 for additional funding received, recognized a reduction in
conversion liability value of $75,718 for the conversion and sale noted above
and recorded an expense of $4,643 as interest expense for the accretion of the
present value of the conversion liability for the quarter. The carrying value of
the MIF Debenture was $1,355,507 at March 31, 2009, including principal of
$1,241,951 and the value of the conversion liability. The liability for the
conversion feature shall increase from its present value of $113,556 at March
31, 2009 to its estimated settlement value of $137,994 at December 31, 2010.
Interest expense of $42,001 for these obligations was accrued for the three
months ended March 31, 2009.
19
The $315,000 convertible debt purchased by RAKJ bears interest at the rate of
12% per year and matures on December 31, 2010. RAKJ is entitled to convert the
accrued interest and principal of the convertible debenture into common stock of
the Company at a conversion price equal to the lesser of (a) $1.25 per share or
(b) 50% of the lowest daily volume weighted average closing price for the five
trading days preceding conversion. During the three months ending March 31,
2009, RAKJ converted 38,284,202 shares of common stock totaling $120,000 on this
debenture. The Company accounted for the YAGI Debenture in accordance with SFAS
No. 150, Accounting for Certain Financial Instruments with Characteristics of
both Liabilities and Equity (SFAS 150), as the conversion feature embedded in
the YAGI Debenture could result in the note principal being converted to a
variable number of the Company's common shares. The carrying amount of the
debenture has been restated for the prior year (please see Note 17 Restatement,
below). The Company determined the value of the RAKJ Debenture at March 31, 2009
to be $390,000 which represented the face value of the debenture plus the fair
value of the conversion feature. For the three months ending March 31, 2009,
interest expense of $4,029 for these obligations was incurred. The principal
balance of these notes at March 31, 2009 was $195,000.
On September 4, 2008, the Company's subsidiary, GS CleanTech Corporation,
entered into a series of convertible notes totaling $1,734,579. The notes shall
bear interest at a rate 15% per annum and mature on December 31, 2010.
Commencing on February 1, 2009, payments are due at a rate equal to the greater
of the interest accrued on the unpaid principal or $100,000 times the principal
amount divided by $3,000,000. Beginning July 1, 2009, payments are due based on
an eighteen month amortization, with all principal and accrued interest paid on
or before December 31, 2010. The notes are convertible into shares of GS
CleanTech subsidiary preferred stock (par $0.001) at the closing by GS CleanTech
of a planned Preferred Stock Financing at a 15% discount to the final terms of
any such Preferred Stock Financing. If any portion of the note is prepaid in
cash, GS CleanTech shall pay a 10% redemption premium at the time of redemption.
If the Preferred Stock Financing does not close on or before January 1, 2009,
the interest and redemption premium will increase to 20%. For the three months
ending March 31, 2009, interest expense of $278,345 for these obligations was
incurred. The balance of the loans was $1,734,579 as of March 31, 2009.
Under the YAGI Debentures, the Company owes a monthly payment of $250,000. The
Company determined the fair value of the monthly stream of payments under the
YAGI debentures at December 31, 2008 to be $3,028,424 which represented the face
value of the monthly payments plus the present value of the conversion feature.
For the three months ended March 31, 2009, the Company recognized an additional
conversion liability value of $63,120 due to additional installments becoming
due, recognized a reduction in value of the conversion liability of $12,352 for
conversions of principal and recorded $3,415 as interest expense for the
accretion of value on the conversion liability. The value of the conversion
feature underlying the stream of payments owed under the YAGI debentures was
$332,607 at March 31, 2009. The liability for the conversion feature shall
increase from its present value of $332,607 at March 31, 2009 to its estimated
settlement value of $388,892 at December 31, 2010.
10 ASSET RETIREMENT OBLIGATION
Pursuant to SFAS 143, Accounting for Asset Retirement Obligations, the Company
has recognized the fair value of the asset retirement obligation for the removal
of its COES systems. The present value of the estimated asset retirement costs
has been capitalized as part of the carrying amount of the related long-lived
assets. The liability has been accreted to its present value as of March 31,
2009, and the capitalized cost approximated $235,000. The Company has recognized
$869 due to accretion from the acquisition dates. The Company has determined a
range of abandonment dates between December 2018 and December 2019 and a total
salvage value of $250,000 per system. The following represents the amount of the
retirement obligation at the beginning and the three months ending March 31,
2009:
Beginning balance at January 1, 2008 $ 60,099
Liabilities incurred during the period 187,038
Liabilities settled during the period --
Accretion of interest 623
-------------
Ending balance at December 31, 2008 247,760
Liabilities incurred during the period --
Liabilities settled during the period --
Accretion of interest 246
-------------
Ending balance at March 31, 2009 $ 248,006
=============
20
11 COMMITMENTS AND CONTINGENCIES
The Company's subsidiaries, GS AgriFuels Corporation and NextGen Fuel, Inc. are
party to the matter entitled O'Brien & Gere Limited, et al v. NextGen Chemical
Processors, Inc., et al., which action was filed in the Supreme Court of the
State of New York. The verified complaint had sought performance of and damages
relating to certain service and related agreements, plus attorney's fees and
costs. This matter relates to the provision by plaintiffs of certain engineering
services to NextGen Chemical Processors, Inc. ("NCP") during 2005 and 2006. NCP
is owned by the former shareholders of the NextGen Fuel, Inc., subsidiary. On
September 19, 2007, the Supreme Court of the State of New York dismissed a
significant portion of O'Brien & Gere's complaint with prejudice. Management
does not believe that there is a reasonable possibility that the claims made
against NextGen Fuel by the plaintiffs in this litigation indicate that a
material loss has occurred. Accordingly, an estimate of loss cannot be
determined at this time and therefore, no accrual has been made in connection
with those claims.
The Company's GS AgriFuels subsidiary is party to the matter entitled GS
AgriFuels Corporation v. Chaykin, et al. The action was filed in the Supreme
Court of the State of New York, County of New York, on February 2, 2009. The
Complaint seeks damages for defendants' fraudulent misrepresentations, tortious
interference, breach of acquisition agreements and related claims. GS AgriFuels
initiated this litigation and intends to prosecute the case vigorously. The
defendants filed a separate action entitled Max, et al. v. GS AgriFuels
Corporation, et al. in response to GS AgriFuels' Complaint. The case was only
recently commenced and Management is unable to evaluate the probability of an
unfavorable outcome at this time. Accordingly, an estimate of loss cannot be
determined at this time and therefore, no accrual has been made in connection
with this contingency.
On December 11, 2008, GreenShift Corporation entered into a Membership Interest
Purchase and Equity Capital Contribution Agreement (the "ECAA Agreement"). The
parties to the agreement included GS COES (Adrian I), LLC, a newly formed
GreenShift subsidiary, BIG, GS (NextDiesel I), LLC, a newly formed GreenShift
subsidiary and CleanBioenergy Partners, LLC ("CleanBioenergy"), a newly formed
joint venture company owned by a subsidiary of GE Energy Financial Services ("GE
EFS"), a unit General Electric Company and a subsidiary of YA Global
Investments, L.P. Under the terms of the ECCA Agreement, CleanBioenergy agreed
to invest up to $38 million in GS NextDiesel to help deploy twelve corn oil
extraction facilities and to double the capacity of GreenShift's 10 million
gallon per year Adrian, Michigan-based NextDiesel biodiesel refinery to 20
million gallons per year. The ECCA Agreement was terminated in the first quarter
of 2009. The NextDiesel biodiesel refinery is owned by Biofuel Industries Group,
LLC ("BIG"), BIG's agreements with its senior creditor, Citizens Bank, require
Citizens Bank to provide its written consent to change of control transactions.
Citizens Bank had previously consented to the change of control of BIG on the
condition that the Company closed on its prior financing agreements with
CleanBioenergy. This financing failed to close as expected in March 2009 and
Citizens Bank consequently withdrew its consent to the change of control of BIG.
The Company subsequently entered into negotiations in April 2009 to restructure
the terms of the BIG acquisition, however, a notice of default of the Exchange
Agreement was declared on May 14, 2009 in order to maintain compliance with
BIG's loan agreements with Citizens Bank. While the Company is actively pursuing
debt and equity capital to subsidize the expansion of the Adrian refinery, the
Company does not intend to restructure the original acquisition transaction at
this time. Instead, the Company intends to facilitate rescission of the original
acquisition transaction and the divestiture of BIG during the quarter ended June
30, 2009 due to changed market circumstances. The Company may consider acquiring
an equity stake in BIG in the future if it successfully raises sufficient
capital to expand the Adrian refinery.
As of March 31, 2009, the Company was in default of its debt agreement with
Acutus Capital, LLC, and NextGen Acquisition, Inc, was in default of its
agreements with Stillwater Asset Backed Fund, LP. As of March 31, 2009, the
Company is in default of payments owed under the purchase agreement with
Bollheimer Associates in the amount of $240,000, and is in discussions with the
selling shareholder to restructure the terms of the relevant agreement. The
Company and its subsidiaries are party to numerous collections matters
pertaining to outstanding accounts payable due to vendors.
Under the Company's insurance programs, coverage is obtained for catastrophic
exposures, as well as those risks required to be insured by law or contract.
There is a $2,500 deductible per occurrence for environmental impairments.
Environmental liability insurance is carried with policy limits of $1,000,000
per occurrence and $2,000,000 aggregate.
The Company is also involved in various collection matters for which vendors are
seeking payment for services rendered and goods provided. These collection
matters total $2,096,000.
21
12 GUARANTY AGREEMENT
Both Viridis Capital, LLC ("Viridis"), the majority shareholder of the Company,
and its sole member, Kevin Kreisler, the Company's chairman, have guaranteed
nearly all of the Company's senior debt (in the outstanding amount of about $48
million), and Viridis has pledged all of its assets, including its shares of
Company Series D Preferred Stock, to YA Global Investments, LP ("YAGI"), to
secure the repayment by the Company of its obligations to YAGI.
13 SEGMENT INFORMATION
Segment information is presented in accordance with SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information." This standard is based on a
management approach that designates the internal organization that is used by
management for making operating decisions and assessing performance as the
sources of the Company's reportable segments. Operating segments are defined as
components of an enterprise about which financial information is available that
is evaluated on a regular basis by the chief operating decision-maker, or
decision-making groups, in deciding how to allocate resources to an individual
segment and in assessing performance of the segment.
The Company's operations during the fiscal quarter ended March 31, 2009 are
classified into three reportable business segments: Biofuel Production & Sales,
Culinary Oil Production & Sales, and Equipment & Technology Sales. Each of these
segments is organized based upon the nature of products and services offered.
The Company's remaining operations are aggregated and classified herein as
Corporate.
Summarized financial information about each segment is provided below:
Three Months Equipment & Culinary Oil Biofuel
Ended 3/31/09 Corporate Technology Sales Production & Sales Production & Sales Total
------------------------------------------------------------------------------------------------------------------
Total revenue $ -- $ 231,324 $ -- $ 624,334 $ 855,658
Cost of revenue -- 648,961 -- 506,763 1,155,724
------------- ------------------ ------------------ ----------------- -------------
Gross profit -- (417,637) -- 117,572 (300,066)
Operating expenses 235,652 205,149 -- 7,758,752 8,199,552
------------- ------------------ ------------------ ----------------- -------------
Income (loss)
from operations (235,652) (622,786) -- (7,641,180) (8,499,618)
Other income (expense) (719,462) (750,278) -- (691,696) (2,161,435)
------------- ------------------ ------------------ ----------------- -------------
Income (loss)
before taxes (955,114) (1,373,064) -- (8,332,876) (10,661,054)
Minority interest -- -- -- -- --
------------- ------------------ ------------------ ----------------- -------------
Taxes -- -- -- -- --
------------- ------------------ ------------------ ----------------- -------------
Net loss from
discontinued operations $ -- $ -- $ (558,513) $ (1,164,411) $ (1,722,924)
------------- ------------------ ------------------ ----------------- -------------
Net loss $ (955,114) $ (1,373,064) $ (558,513) $ (9,497,287) $(12,383,978)
============= ================== ================== ================= =============
Three Months Equipment & Culinary Oil Biofuel
Ended 3/31/08 Corporate Technology Sales Production & Sales Production & Sales Total
------------------------------------------------------------------------------------------------------------------
Total revenue $ -- $ 2,564,428 $ -- $ 331,371 $ 2,895,799
Cost of revenue 14,608 1,283,225 -- 222,267 1,520,100
------------- ------------------ ------------------ ----------------- -------------
Gross profit (14,608) 1,281,203 -- 109,104 1,375,699
Operating expenses 977,977 401,006 -- 89,465 1,468,448
------------- ------------------ ------------------ ----------------- -------------
Income(loss)
from operations (992,585) 880,197 -- 19,639 (92,749)
Other income (expense) (1,594,885) (1,488,963) -- (273,571) (3,357,419)
------------- ------------------ ------------------ ----------------- -------------
Loss before taxes (2,587,470) (608,766) -- (253,932) (3,450,168)
Taxes -- (7,019) -- -- (7,019)
------------- ------------------ ------------------ ----------------- -------------
Net loss from
continuing operations $ -- $ -- $ (53,028) $ -- $ (53,028)
------------- ------------------ ------------------ ----------------- -------------
Net loss attributable to
common shareholders $ (2,587,470) $ (615,785) $ (53,028) $ (253,932) $ (3,510,215)
============= ================== ================== ================= =============
14 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is a summary of supplemental disclosures of cash flow information
for the three months ending March 31, 2009 and 2008:
2009 2008
--------- -----------
Cash paid during the year for the following:
Interest .......................................................... $ -- $ 272,751
Income taxes ...................................................... -- 15,558
---------- ----------
Total ........................................................... $ -- $ 288,309
========== ==========
Acquisition of Bollheimer & Associates with debt .................... -- 320,000
Stock issued for compensation ....................................... -- 304,017
Reduction of convertible debentures from disposal of
investment in GS EnviroServices .................................... -- 2,000,000
Reduction of related party debt and accrued interest from forgiveness -- 2,000,000
Stock issued for conversion of debt ................................. 686,000 --
22
15 RELATED PARTY TRANSACTIONS
Minority Interest Fund (II), LLC ("MIF") is party to certain convertible
debentures issued by the Company (see Note 9, Convertible Debentures, above).
The managing member of MIF is a relative of the Company's chairman.
16 SUBSEQUENT EVENTS
CONVERTIBLE DEBENTURES
Since April 1, 2009, the Company issued a total of 100,600,927 common shares to
YA Global Investments, LP upon its conversion of debt in the amount of $199,461;
89,568,649 common shares to Minority Interest Fund (II), LLC ("MIF") upon its
conversion debt in the amount of $154,320; and, 99,434,402 common shares to RAKJ
Holdings, Inc. upon its conversion of debt in the amount of $195,000. During
April and May 2009, MIF purchased additional convertible debt in the amount of
$353,000, bringing MIF's total investment in the Company during 2009 to $962,100
and the Company's total debt due to MIF to $1,594,951 as of May 18, 2009.
PATENT ISSUANCE
During the second quarter 2009, the Company received two notices of allowance
from the U.S. Patent and Trademark Office for its proprietary corn oil
extraction technologies. These notices of allowance provided notification to the
Company that it is entitled to a patent for two of its several pending corn oil
extraction patent applications.
INVENTORY LIQUIDATION
On April 27, 2009, Sustainable Systems, LLC entered into a settlement agreement
with the states of Montana and North Dakota pertaining to outstanding payments
due for purchase of oilseeds during 2008 that were contracted at rates far
greater than current oilseed values. Sustainable had previously negotiated with
two separate banks to receive working capital financing sufficient to service
these obligations. Neither bank was able to close due to strain in the
prevailing commodity and financial markets. Sustainable has accordingly idled
its operations and voluntarily surrendered its commodity license to the state of
Montana Department of Agriculture pending liquidation of Sustainable's
inventories to satisfy the oilseed payables. Sustainable is permitted to
reacquire its commodity license upon the completion of sufficient working
capital and equity financing to operate. The liquidation of Sustainable's
inventory is ongoing and is expected to be complete during the second quarter
2009. While the Company is actively pursuing financing and strategic
partnerships to replenish the working capital resources of Sustainable, the
Company intends to divest of the majority, and probably all, of its equity
holdings in Sustainable during the second quarter 2009. The divestiture of
Sustainable has not been completed as of the filing date of this report,
however, the financial results of this subsidiary have been presented as
discontinued operations as and for the quarter ended March 31, 2009 (see Note 6,
Discontinued Operations).
RESCISSION OF ACQUISITION OF BIOFUEL INDUSTRIES GROUP, LLC
Effective May 15, 2008, the Company and Biofuel Industries Group, LLC (d/b/a
NextDiesel(TM)) ("BIG") entered into an Exchange Agreement pursuant to which the
Company exchanged 20,000,000 common shares and 20,000 preferred shares in return
for 100% of the equity of BIG subject to the redemption by BIG of BIG's "Class A
Membership Units" for a total of $9 million preferred equity interest with a 12%
coupon commencing January 30, 2009 at a rate equal to 30% of BIG's net cash
flows (after all operating costs and regular debt payments have been paid) (the
"Class A Redemption"). The Company's ownership of BIG is subject to rescission
in the event that: (a) the BIG Loans are not timely serviced and kept in good
standing, (b) the Guaranty Payments, to the extent due, are not timely made, and
(c) if the Class A Redemption payments are not made to the extent that they are
due. In addition, BIG's agreements with its senior creditor, Citizens Bank,
require Citizens Bank to provide its written consent to change of control
transactions. Citizens Bank had previously consented to the change of control of
BIG on the condition that the Company closed on its prior financing agreements
with CleanBioenergy Partners, LLC (see Note 12, Commitments and Contingencies).
This financing failed to close as expected in March 2009 despite the Company's
compliance with the relevant agreements, and Citizens Bank consequently withdrew
its consent to the change of control of BIG. The Company subsequently entered
into negotiations in April 2009 to restructure the terms of the BIG acquisition,
23
however, a notice of default of the Exchange Agreement was declared on May 14,
2009 in order to maintain compliance with BIG's loan agreements with Citizens
Bank. While the Company is actively pursuing debt and equity capital to
subsidize the expansion of the Adrian refinery, the Company does not intend to
restructure the original acquisition transaction at this time. Instead, the
Company intends to facilitate rescission of the original acquisition transaction
and the divestiture of BIG during the quarter ended June 30, 2009 due to changed
market circumstances. The Company may consider acquiring an equity stake in BIG
in the future if it successfully raises sufficient capital to expand the Adrian
refinery. The divestiture of BIG has not been completed as of the filing date of
this report, however, the financial results of this subsidiary have been
presented as discontinued operations as and for the quarter ended March 31, 2009
(see Note 6, Discontinued Operations). The Company wrote-off $7,281,993 in
goodwill previously booked in connection with the acquisition of BIG. The
Company's divestiture of BIG can be expected to result in the disposal of
$13,054,855 and $23,554,858 in assets and liabilities, respectively.
EARLY ADOPTER LICENSE AGREEMENT
On May 15, 2009, GS CleanTech Corporation and EcoSystem Corporation entered into
an Early Adopter License Agreement (the "EALA") involving use of GS CleanTech's
Cellulosic Corn(TM) technology platform. The EALA calls for the payment of
royalties to GS CleanTech equal to 10% of EcoSystem's pre-tax net income
deriving from the use of GS CleanTech's feedstock conditioning technologies,
lipid production, extraction and refining technologies, and carbon dioxide
reformation technologies. The EALA additionally calls for EcoSystem to sell all
fats and/or oils that it produces but does not directly refine into biofuel to
GS CleanTech at 60% of the price of diesel fuel at the time of shipment.
EcoSystem's is entitled to use Cellulosic Corn(TM) technology on a royalty-free
basis in its first 100 million gallons per year of corn ethanol production
facility (if successfully acquired). The EALA is non-exclusive but GS CleanTech
granted EcoSystem most favored licensee status in the EALA. This status shall be
subject to cancellation in the event that EcoSystem fails to commercialize the
licensed technologies on the following schedule: bench testing shall be
completed on or before May 15, 2010; pilot testing shall be completed on or
before May 15, 2011; a commercial-scale pilot facility shall be built on or
before May 15, 2012; and, commercial sales shall have been initiated on or
before May 15, 2013. EcoSystem shall provide all of the capital resources needed
to build bench, pilot and commercial scale facilities based on these
technologies under the EALA. GS CleanTech is a wholly owned subsidiary of the
Company. EcoSystem Corporation is majority owned by, Viridis Capital, LLC, which
company is owned by the Company's chairman and chief executive officer.
GRANT APPLICATION
During May 2009, the Company was requested by the U.S. Department of Energy and
the U.S. Department of Agriculture to submit additional information relative to
the Company's previously-filed pre-application for grant funding under the
"Biomass Research and Development Initiative" for the construction of a
demonstration facility based on the Company's Cellulosic Corn(TM) feedstock
conditioning technology. The Company's response to this request will be subject
to additional review by the U.S. Department of Energy and the U.S. Department of
Agriculture and there can be no assurance that the Company will be awarded any
grant funds. If approved, the scope of the grant will be to test the Company's
Cellulosic Corn(TM) feedstock conditioning technologies over a two year period
at a targeted first generation corn ethanol facility. The Company's patented and
patent-pending feedstock conditioning technologies are designed to
cost-effectively disintegrate cellulose to enhance corn-derived ethanol and oil
production yields, decrease raw material and fossil fuel utilization by the corn
ethanol process, and to improve the nutritional value of distillers grain. If
approved, the grant award would be for $1.2 million and will require an
additional $1.2 million to be provided by project collaborators. The Company
will collaborate with EcoSystem and Global Ethanol, LLC on the project.
17 RESTATEMENTS
The Company has restated its financial statements for the three months ended
March 31, 2009 and 2008. Subject to the filing of the original financial
statements for the three months then ended, Management determined that the
Company's prior policies relating to accounting for the impact of conversion
features embedded in the Company's various derivative securities should have
been changed to conform with recent guidance under EITF 08-04, Transition
Guidance for Conforming Changes to Issue No. 98-5, involving application of
conforming changes from the issuance of SFAS No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity (SFAS
150). Due to the variable number of the Company's common shares issuable upon
conversion of certain of the company's derivative securities, such instruments
should have been accounted for as liabilities under SFAS 150 during 2009 and
2008 based on interpretive guidance in EITF 08-04. During 2009 and 2008, the
Company had accounted for such instruments as derivative instruments under SFAS
No. 133, Accounting for Derivative Instruments and Hedging Activities, by
24
bifurcating the conversion features from the related host contracts and
recognizing them at fair value, amortizing the related debt discounts, and
recognizing gain or loss for changes in fair value of the conversion features.
Management believes that accounting for these conversion features as liabilities
under SFAS 150 is the preferable accounting treatment. In accordance with SFAS
No. 154, Accounting Changes and Error Corrections, the Company has restated the
financial statements for the three months ended March 31, 2009 to reflect the
adoption of this change in accounting, and has restated the financial statements
for the three months ended March 31, 2008 through retrospective application of
this accounting interpretation to prior periods in accordance with this
standard. In addition, the Company has reclassified certain obligations due to
subsidiary shareholders that were presented as "Minority Interest" in prior
financial statements to more properly classify these obligations as current
liabilities, and reclassified the actual amount of noncontrolling interest in
subsidiary capital as equity to conform to the adoption of SFAS 160,
Noncontrolling Interests in Consolidated Financial Statements--an amendment of
ARB No. 51.
An offsetting adjustment of $1,642,346 has been made to the opening balance of
accumulated deficit (increasing the deficit) as of the beginning of the periods
presented due to these restatements.
The following shows the effect of the restatements on the financial statements:
3/31/09 3/31/09 12/31/08 12/31/08
Balance Sheets: As reported As restated As reported As restated
----------------------------------------------------------
Line of credit $ 10,000,000 $ 11,069,690 $10,000,000 $11,044,838
Convertible debentures, current 24,521,796 24,831,536 11,665,309 11,792,387
Convertible debentures, related party 1,367,148 1,676,197 1,512,325 1,900,333
Liability for derivative instruments 8,316,098 -- 3,869,771 --
Liability due to shareholders -- 932,328 -- 932,328
Convertible debentures, net of current 8,224,241 8,556,848 20,726,439 21,188,196
Minority interest 942,001 -- 942,001 --
Additional paid-in capital 84,345,783 80,441,843 83,774,424 79,662,413
Accumulated deficit (163,325,155) (153,126,202) (146,432,325) (140,472,224)
Non-controlling interest
in subsidiary -- 9,673 -- 9,673
3/31/09 3/31/09 3/31/08 3/31/08
Statements of Operations: As reported As restated As reported As restated
----------------------------------------------------------
Change in fair value-derivatives $ (4,446,327) $ -- $ 319,829 $ --
Amortization of debt discount (447,644) (186,810) (1,114,095) (463,003)
Conversion liabilities -- (406,387) -- (47,070)
Conversion liabilities - affiliate -- (61,924) -- --
Loss from continuing operations (14,899,904) (10,661,054) (3,741,381) (3,457,187)
Net income (loss) (16,622,829) (12,383,978) (3,794,409) (3,510,214)
Earnings (loss) per share:
Continuing operations $ (0.14) $ (0.10) $ (0.07) $ (0.06)
Discontinued operations $ (0.02) $ (0.02) $ -- $ --
Total, basic and diluted $ (0.16) $ (0.12) $ (0.07) $ (0.07)
25
3/31/09 3/31/09 3/31/08 3/31/08
Statements of Stockholders' Equity: As reported As restated As reported As restated
----------------------------------------------------------
Beginning balance, paid-in capital 63,502,789 66,175,522
Write-off of derivative due to
debt restructure 6,784,743 --
Net loss (16,622,829) (12,383,978) (52,293,334) (47,975,579)
3/31/09 3/31/09 3/31/08 3/31/08
Statements of Cash Flows: As reported As restated As reported As restated
-----------------------------------------------------------
Net loss from continuing operations $(14,899,904) $(10,661,054) $(3,741,381) $(3,457,187)
Amortization of debt discount
and deferred financing costs 451,308 190,474 1,114,095 463,002
Change in fair value of derivatives 4,446,327 -- (319,829) --
Interest from conversion liabilities -- 468,311 -- 47,070
26
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
GreenShift Corporation ("we," "our," "us," "GreenShift," or the "Company")
develops and commercializes clean technologies that facilitate the efficient use
of natural resources. Our strategy is to use our technologies to become a
leading producer of biomass-derived products, and to do so at enhanced cost and
risk profiles by extracting and refining raw materials that other producers
cannot access or process.
We have created a business model based on feedstock ownership and margin
protection that is unique among biofuel producers. There are no other
technologies that have been developed, commercialized and integrated into the
corn ethanol industry today that have produced anything approaching the yield
improvement and energy savings demonstrated by our corn oil extraction
technologies.
Our corn oil extraction offering is structured to provide 100% of the capital
needed to build and integrate turn-key, skid-mounted facilities based on our
extraction technologies into corn ethanol facilities in return for the long-term
right to purchase the extracted oil for a fair price that is indexed to diesel
fuel prices. We refine the corn oil that we extract into biodiesel, which is
then sold at rates that are also indexed to diesel fuel prices. This makes our
business model more comparable to traditional oil and gas models than it is to
other biofuel models since we own our own `wellheads' and we have hedged our
refining margins. We believe that this gives us the ability to remain profitable
(after achieving break-even production levels) when most biodiesel producers are
forced to shut down.
Our corn oil extraction technologies are widely considered to be the quickest
path for margin improvement for corn ethanol producers today. We have proven
that we can extract upwards of 6.5 million gallons of corn oil per year for
every 100 million gallons of ethanol produced. This corresponds to a 7% increase
in the gallons of biofuel produced per bushel of corn from 2.8 to 3.0 gallons
per bushel.
This extraction rate also translates to 680 million gallons per year of inedible
feedstock that we can make for conversion into advanced biofuel with the U.S.
corn ethanol fleet producing 10.5 billion gallons per year. We hold a 6% share
of this market opportunity today; we are currently under contract to install
more than 40 million gallons per year of shovel-ready corn oil extraction
facilities at ethanol facilities throughout the U.S. Our primary goal is to
obtain the new financing we will need to build and operate this extraction
infrastructure.
We currently own four corn oil extraction facilities that are located in
Oshkosh, Wisconsin, Medina, New York, Marion, Indiana, and Riga, Michigan. We
have also installed one facility in Albion, Michigan under a modified version of
our market offering where our client paid us to build the extraction facility.
We have the long-term right to buy the oil extracted from the Albion facility
but the client retains ownership of the extraction assets and is paid a higher
price for the corn oil extracted than we pay to our other clients. These
facilities collectively are designed to extract in excess of 7.3 million gallons
per year, of which more than of 6.0 million gallons per year is currently
installed. We are currently focused on securing the capital resources we need to
operate our existing extraction facilities and to build our contracted backlog
of corn oil extraction facilities.
As of March 31, 2009, we also owned a 10 million gallon per year biodiesel
facility in Adrian, Michigan and an oilseed crush facility in Culbertson,
Montana. These two facilities were idled during the first quarter 2009 due to a
lack of working capital. The Company's speciality equipment manufacturing
operations were also idled during the first quarter of 2009. The Company intends
to scale this operation as needed to fulfill the Company's growth needs as it
builds, installs and maintains its various corn oil extraction facilities.
Plan of Operations
Our plans for 2009 originally involved the financing and construction of a
number of our corn oil extraction facilities, the construction or other
internalization of biodiesel refining capability, and the completion of
significant additional financing to build our contracted backlog of extraction
facilities. We closed on a portion of the financing we needed to build our
initial extraction facilities in January 2008, we acquired a biodiesel refinery
in May 2008, and we executed a term sheet in July 2008 and then definitive
investment agreements in December 2008 for in excess of $38 million in project
equity financing to execute on our backlog.
27
Unprecedented volatility in the global financial and commodity markets
intervened during 2008 and early 2009, and resulted in the loss of previously
committed sources of capital. We were consequently unable to complete
construction and initiate production with the amount of corn oil extraction
facilities needed to achieve break-even cash flow.
The conditions in the financial markets during the third and fourth quarters of
2008 resulted in the loss of previously committed sources of liquidity during
the second half of 2008. We believe that these market conditions were also
responsible for the failure of our $38 million project equity financing to close
during the first quarter 2009 as called for by the relevant December 2008
investment agreements. As a result of these events, we halted all construction
activities, and idled and then divested our biodiesel refining and oilseed crush
operations.
We have arranged for sufficient but costly bridge financing to cover essential
overhead needs and we expect to be able to continue to rely on similar financing
for the foreseeable future pending the resurrection of our working capital
resources and the completion of sufficient construction financing. Until this
occurs, our plan to generate the cash resources we need to cover our overhead
and other cash needs is to produce and sell corn oil from our installed base of
extraction facilities.
The divestiture of our biodiesel refining and oilseed crush operations can be
expected to reduce demand on the Company's available sources of liquidity in the
short-term but will prevent the Company from executing on its prior plans to
build value with each of these operations in connection with the planned
expansion of the Company's installed base of corn oil extraction facilities.
As relevant to our extraction plans, we recently received two notices of
allowance from the U.S. Patent and Trademark Office for our corn oil extraction
technologies. These notices of allowance provided notification to the Company
that it is entitled to a patent for two of its several pending corn oil
extraction patent applications. We believe that the issuance of our extraction
patents, the strategic value of feedstock ownership, and other market
circumstances have favorably shifted our market positioning and made available
an increased array of options to fully capitalize the construction of extraction
facilities and the restructuring of our balance sheet. We are currently
evaluating a number of opportunities in this regard.
Our plans for the balance of 2009 involve the following activities:
>> Complete the financing necessary to return to positive cash flow and
to build as many additional extraction facilities as possible as
quickly as possible;
>> Reduce the substantial majority of our convertible and other debt;
and,
>> Focus exclusively on servicing the growth needs of our extraction
technologies while facilitating the development of other clean
technologies in our portfolio by entering into and supporting license
agreements with strategic partners.
Results of Operations
The following table sets forth, for the periods presented, revenues, expenses
and net income in our condensed consolidated statement of operations, as well as
other key financial and operating data:
Three Months Ended
3/31/09 3/31/08
------------------------------
Summary Statement of Operations:
Revenue .................................................. $ 855,658 $ 2,895,799
Cost of revenues ......................................... 1,155,724 1,520,100
------------- -------------
Gross profit ........................................... (300,066) 1,375,699
Selling, general and administrative expenses ............. 8,199,552 1,468,448
------------- -------------
Income (loss) from operations ......................... (8,499,618) (92,749)
Other income (expense), net .............................. (2,161,435) (3,357,419)
------------- -------------
Lossbefore minority interest and taxes ................ (10,661,054) (3,450,168)
Minority interest in net loss of consolidated subsidiaries -- (7,019)
(Provision for) benefit from income taxes ................ -- --
Income (loss) from discontinued operations ............... (1,722,924) (53,028)
Preferred dividends ...................................... -- --
------------- -------------
Net loss .............................................. $ (12,383,978) $ (3,510,214)
============= =============
28
Other financial data:
Net cash flows (used in) provided by operating activities 76,745 (1,347,11)
Net cash flows (used in) provided by investing activities (626,854)
Net cash flow (used in) provided by financing activities . 548,685 5,260,252
------------- -------------
Net (decrease) increase in cash and cash equivalents .. (1,423) (901,299)
Operating data:
Corn oil extracted (gallons) ............................. 461,211 151,270
Average gross price of corn oil sold per gallon ($) ...... $ 1.15 $ 1.47
Three Months Ended March 31, 2009 Compared to Three Months Ended March 31, 2008
Revenues
Total revenues for the three months ended March 31, 2009 were $855,658
representing a decrease of 2,040,141, or 70.5%, over the three months ended
March 31, 2008 revenues of $2,895,799. Revenue for the three months ended March
31, 2009 included:
>> $624,334 in biofuel sales and,
>> $231,324 in equipment and technology sales.
In the comparable period of last year, our revenues were comprised of $331,371
from the sales of biofuels and $2,564,428 from sales of equipment and
technology.
Cost of Revenues
Cost of revenues for the three months ended March 31, 2009 were $1,155,724, or
135.1 % of revenue compared to $1,520,100, or 52.5% of revenue for the same
period in 2008.
During the three months ended March 31, 2009, the Company's biofuel production
costs of revenue were $506,763 as compared to $222,267 for the same period in
2008, and were attributable to costs associated with feedstock and other raw
material purchases, transportation and maintenance. Cost of revenue for our
equipment and technology sales business were $648,961 for the three months ended
March 31, 2009 as compared to $1,283,225 for the same period in 2008.
Revenues in 2009 decreased due to the fact that the Company's biodiesel
refinery, oilseed crush facility and equipment manufacturing operations were
shut down due to the unavailability of the working capital resources these
operations require.
Included within cost of revenue is depreciation and amortization expense of
$297,969 and $100,103 for the three months ended March 31, 2009, and 2008,
respectively. Depreciation and amortization expense increased by $197,866 over
the same period in 2008.
Gross Profit
Gross profit for three months ended March 31, 2009 was $(300,066), representing
a gross margin of (35.1)%. This compared to $1,375,699, representing a gross
margin of 47.5%. in the comparable period of the prior year.
Operating Expenses
Operating expenses for the three months ended March 31, 2009 were $8,199,552
compared to $1,468,448 for the same period in 2008. Included in the three months
ended March 31, 2009 was $0 in stock-based compensation as compared to $304,017
for the three months ended March 31, 2008. The decrease in operating expenses
was primarily due to the Company's changed business operations during 2009 as
compared to 2008.
Interest Expense
Interest expenses and financing costs for the three months ended March 31, 2009
were $1,981,527 and $1,261,806 for the three months ended March 31, 2008.
Included in the three months ended June 30, 2009 was $1,513,217 of interest
expense, consisting of $1,471,216 in accrued interest, $42,001 in accrued
interest due to a related party, and $468,311 in non-cash expenses associated
with the conversion features embedded in the convertible debentures issued by
the Company during the three months ended March 31, 2009.
Amortization of note discount was $91,219 and $0, respectively for the three
months ended March 31, 2009 and 2008.
29
Expenses Associated with Change in Convertible Liabilities
As of June 30, 2009, the Company had several convertible debentures due to YA
Global Investments, LP. The Company accounted for the convertible debentures in
accordance with SFAS No. 150, Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity (SFAS 150), as the conversion
feature embedded in the convertible debentures could result in the note
principal and related accrued interest being converted to a variable number of
the Company's common shares. We calculate the fair value of the conversion
feature at the time of issuance and record a conversion liability for the
calculated value. We recognize interest expense for the conversion liability
which is added to the principal of the debenture. We also recognize interest
expense for accretion of the conversion liability over the term of the note. The
additional value for the conversion features of $468,311 for the three months
ended March 31, 2009 have been recognized within Other income (expense) as
Changes in conversion liabilities in the accompanying financial statements,
including $61,924 for related party debt.
Net Income or Loss
Net loss from continuing operations for the three months ended March 31, 2009,
was $10,661,054 as compared to a loss of $3,457,187 from the same period in
2008. Loss for discontinued operations was $1,722,924 for the three months ended
March 31, 2009 as compared to $53,028 for the three months ended March 31, 2008.
Net loss for the three months ended March 31, 2009, was $12,383,978 as compared
to a loss of $3,510,214 from the same period in 2008.
The primary reasons for the magnitude of the change in net loss were expenses
attributable to the transition from technology development to mature market
execution, and expenses attributable to past financing and restructuring
activities as well as charges relating to the impairment of intangibles and
goodwill. The loss also included the following non-cash items: impairment
charges relating to the Biofuels Industries, LLC subsidiary of about $7,200,000;
amortization of debt discount and deferred financing fees of about $186,000;
depreciation expenses of about $300,000; and, accrued interest of about
$1,500,000.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Cash Balances
As of March 31, 2009, we had a cash balance of $8,281, down from a balance of
$9,704 at March 31, 2008. This net cash is summarized below and discussed in
more detail in the subsequent sub-sections:
>> Operating Activities
$76,745 of net cash provided by operating activities primarily
deriving from sales of equipment and technology and from biofuel
sales.
>> Investing Activities
$626,854 of net cash used in investing activities mainly for the
construction of our corn oil extraction facilities.
>> Financing Activities
$548,685 of net cash provided by financing activities.
Current and Prior Year Activity
Our primary source of liquidity is cash generated from operations and proceeds
from issuance of debt and common stock. For the three months ended March 31,
2009, net cash provided by our operating activities was $76,745 as compared to
the net cash used by our operating activities of $1,347,181 for the three months
ended March 31, 2008.
Our financial position and liquidity are, and will be, influenced by a variety
of factors, including our ability to generate cash flows from operations; the
level of our outstanding indebtedness and the interest we are obligated to pay
on this indebtedness; and, our capital expenditure requirements, which consist
primarily of facility construction and the purchase of equipment.
The Company's capital resources are impacted by changes in accounts receivable
as a result of revenue fluctuations, economic trends, and collection activities.
At March 31, 2009, accounts receivable, net of allowance for doubtful accounts,
totaled $201,314 and inventories totaled $616,056. Accounts payable and accrued
expenses totaled $15,037,150.
30
For the three months ended March 31, 2009, we used $627,854 in investing
activities as compared to $3,987,337 used in investing activities for the three
months ended March 31, 2008, and financing activities provided $548,685 in cash
as compared to $5,260,252 in cash used by financing activities during March 31,
2008.
The Company had a working capital deficit of $77,041,434 at March 31, 2009,
which includes convertible debentures of $24,831,536, accrued interest payable
of $8,293,259 related party convertible debentures of $1,676,197, $20,000 in
related party debt, $3,979,437 in purchase obligations, and $4,821,738 in
amounts due to the prior owners of our oilseed crush facility. The Company's
working capital deficit net of these amounts is $33,419,267.
Despite their classification as current liabilities, current convertible
debentures and accrued interest ($32,589,314) are not serviceable out of the
Company's cash flows (the terms of the convertible debt require repayment in
shares of either GreenShift Corporation or GS AgriFuels Corporation common
stock).
The purchase obligations ($3,979,437), to the extent due, are tied to the
earnings of the Company's equipment sales business and can only be serviced
after the Company's senior secured debt has been serviced.
The amounts due to the prior owners of our oilseed crush facility ($4,821,738)
pursuant to acquisition agreements that are now in default due to the failure by
the selling shareholders to disclose that Sustainable did not hold title to its
now-owned Culbertson, Montana oilseed crushing facility at the time of the
acquisition by GS AgriFuels.
Management intends to raise capital from debt and equity transactions to fund
operations, to increase revenue and to cut expenses to reduce the loss from
operations. There can be no assurances that the Company will be able to
eliminate both its working capital deficit and its operating losses. The
accompanying financial statements do not contain any adjustments which may be
required as a result of this uncertainty.
31
Expected Activity Moving Forward
We intend to fund our principal liquidity and capital resource requirements
through new financing activities. The Company has no committed source of capital
that is sufficient to meet all of its operational and other regular cash needs
during 2009 and beyond. Obtaining this capital is currently Management's top
priority.
Cash Flows Provided By Operating Activities
Among our current and known sources of operating cash flows are the cash flows
deriving from our four existing corn oil extraction facilities. We will continue
to market the corn oil we extract as a feedstock to third party renewable fuel
producers.
Cash Flows Provided By Financing Activities
We require significant new equity and debt financing to accelerate the
completion of our contracted corn oil extraction projects. We hope to complete
additional financing for this purpose during 2009. We are also evaluating
various opportunities to restructure our convertible debt. We do not know at
this time if the necessary funds can be obtained or on what terms they may be
available.
Cash Flows Used In Investment Activities
We intend to use our available sources of cash from operations and financing for
2009 to execute on our plan to build as many corn oil extraction facilities as
possible, as quickly as possible.
32
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of June 30, 2009, the Company was in technical default of certain senior
secured debt due to YA Global Investments, L.P. ("YAGI"), which default was due
to the failure of the CleanBioenergy Partners, LLC financing to close as
explained more fully in Note 11 to the Company's Condensed Financial Statements
for the quarter ended June 30, 2009. The Company intends to cure this default
and restructure its debt due to YAGI during 2009.
ITEM 4 CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our principal executive officer and principal financial officer participated in
and supervised the evaluation of our disclosure controls and procedures (as
defined in Rules 13(a)-15(e) and 15(d)-15(e) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act")) that are designed to ensure that
information required to be disclosed by us in the reports that we file is
recorded, processed, summarized and reported within the time periods specified
in the Securities and Exchange Commission's rules and forms. Disclosure controls
and procedures include, without limitation, controls and procedures designed to
ensure that the information required to be disclosed by us in the reports that
we file or submit under the Act is accumulated and communicated to our
management, including our principal executive officer or officers and principal
financial officer, to allow timely decisions regarding required disclosure. The
Company's chief executive officer and chief financial officer determined that,
as of the end of the period covered by this report, these controls and
procedures are ineffective in alerting them in a timely manner to material
information relating to the Company required to be included in the Company's
periodic SEC filings because it did not have a sufficient number of personnel
with an appropriate level of knowledge of and experience in generally accepted
accounting principles in the United States of America (U.S. GAAP) that are
appropriate to the Company's financial reporting requirements.
Subsequent to filing the Quarterly Report, management determined to change its
policies for accounting of the derivative securities that the Company has
issued. While the Company has restated the financial statements in this amended
Report to conform with this new policy, the use of the Company's long-standing
prior policy for accounting of the Company's derivative securities was not
itself due to any inadequacy in the Company's controls. However, because the
Company did not have a sufficient number of personnel with an appropriate level
of knowledge of and experience in generally accepted accounting principles in
the United States of America (U.S. GAAP) that are appropriate to the Company's
financial reporting requirements, the Company's controls and procedures were
ineffective as of March 31, 2009.
There have been no changes in the Company's internal control over financial
reporting during the most recently completed fiscal quarter that have materially
affected or are reasonably likely to materially affect the Company's internal
control over financial reporting.
33
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Company is party to the matter entitled O'Brien & Gere Limited, et al v.
NextGen Chemical Processors, Inc., et al., which action was filed in the Supreme
Court of the State of New York. The verified complaint had sought performance of
and damages relating to certain service and related agreements, plus attorney's
fees and costs. This matter relates to the provision by plaintiffs of certain
engineering services to NextGen Chemical Processors, Inc. ("NCP") during 2005
and 2006. NCP is owned by the former shareholders of NextGen Fuel, Inc.,
subsidiary. On September 19, 2007, the Supreme Court of the State of New York
dismissed a significant portion of O'Brien & Gere's complaint with prejudice.
Management does not believe that there is a reasonable probability that the
claims made against NextGen Fuel by the plaintiffs in this litigation indicate
that a material loss has occurred. Accordingly, an estimate of loss cannot be
made at this time and no accrual has been made in connection with those claims.
The Company's GS AgriFuels subsidiary is party to the matter entitled GS
AgriFuels Corporation v. Chaykin, et al. The action was filed in the Supreme
Court of the State of New York, County of New York, on February 2, 2009. The
Complaint seeks damages for defendants' fraudulent misrepresentations, tortious
interference, breach of acquisition agreements and related claims. GS AgriFuels
initiated this litigation and intends to prosecute the case vigorously. The
defendants filed a separate action entitled Max, et al. v. GS AgriFuels
Corporation, et al. in response to GS AgriFuels' Complaint. The case was only
recently commenced and Management is unable to evaluate the probability of an
unfavorable outcome at this time.
ITEM 1A RISK FACTORS
There was no material change to the risk factors recited in Item 1A of the
Company's Annual Report on Form 10-K for the year ended December 31, 2008.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
From time to time during the three months ended March 31, 2009 the Company
issued a total of 13,780,051 shares to YA Global Investments, LP upon its
partial conversion of a convertible debenture in the aggregate amount of
$127,600. The sales were exempt pursuant to Section 4(2) of the Securities Act
since the sales were not made in a public offering and were made to an entity
whose principals had access to detailed information about the Company and were
acquiring the shares for the entity's own account. There were no underwriters.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
ITEM 6 EXHIBITS
The following are exhibits filed as part of GreenShift's Form 10Q/A for the
quarter ended March 31, 2009:
INDEX TO EXHIBITS
Exhibit
Number Description
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to the
Sarbanes-Oxley Act of 2002.
34
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the date indicated.
GREENSHIFT CORPORATION
By
/S/ KEVIN KREISLER
---------------------------------------------
KEVIN KREISLER
Chief Executive Officer
/S/ EDWARD R. CARROLL
---------------------------------------------
EDWARD R. CARROLL
Chief Financial and Accounting Officer
Date: October 14, 2009
35