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EX-32 - EXHIBIT 32 - GREENSHIFT CORPgers10qaq1ex32.txt
EX-31 - EXHIBIT 31.1 - GREENSHIFT CORPgers10qaq1ex31-1.txt
EX-31 - EXHIBIT 31.2 - GREENSHIFT CORPgers10qaq1ex31-2.txt

                                  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
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


Delaware                                                           59-3764931
--------------------------------------------------------------------------------
(State of other jurisdiction of                                  IRS Employer
incorporation or organization)                               Identification No.)


One Penn Plaza, Suite 1612, New York, New York                           10119
--------------------------------------------------------------------------------
(Address of principal executive offices)                             (Zip Code)


                                 (212) 994-5374
--------------------------------------------------------------------------------
               (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