Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2009
COMMISSION FILE NO.: 0-50469
GREENSHIFT CORPORATION
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(Exact name of registrant as specified in its charter)
Delaware 59-3764931
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(State of other jurisdiction of IRS Employer
incorporation or organization) Identification No.)
One Penn Plaza, Suite 1612, New York, New York 10119
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(Address of principal executive offices) (Zip Code)
(212) 994-5374
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(Registrant's telephone number including area code)
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant as required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
--- ---
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files.) Yes 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 November 20, 2009 was
3,116,171,820.
GREENSHIFT CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2009
TABLE OF CONTENTS
Page No
Part I - Financial Information
Item 1 Financial Statements (unaudited) ..................................................................4
Condensed Consolidated Balance Sheet as of September 30, 2009 (unaudited) and
December 31, 2008..................................................................................5
Condensed Consolidated Statements of Operations for the Three and Nine Month Periods
Ended September 30, 2009(unaudited) and 2008 (unaudited)...........................................6
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 2009 (unaudited) and 2008 (unaudited)................................................7
Statement of Stockholders' Equity - Year Ended December 31, 2008 and Nine
Months Ended September 30, 2009 (unaudited)........................................................8
Notes to Condensed Consolidated Financial Statements..............................................10
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations ............25
Item 3 Quantitative and Qualitative Disclosures about Market Risk........................................31
Item 4 Controls and Procedures ..........................................................................31
Part II - Other Information
Item 1 Legal Proceedings ................................................................................32
Item 1A Risk Factors .....................................................................................33
Item 2 Unregistered Sales of Equity Securities and Use of Proceeds ......................................33
Item 3 Defaults upon Senior Securities ..................................................................33
Item 4 Submission of Matters to a Vote of Security Holders...............................................33
Item 5 Other Information ................................................................................33
Item 6 Exhibits..........................................................................................34
Signatures 30
2
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 standalone 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, Risk 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.
3
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS (UNAUDITED)
4
GREENSHIFT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2009 (UNAUDITED) AND DECEMBER 31, 2008
9/30/2009 12/31/2008
------------------------------
ASSETS
Current assets:
Cash .......................................................................... $ -- $ 10,028
Accounts receivable, net of allowance of doubtful
accounts of $4,731,238 and $46,962 ........................................... 173,079 733,768
Inventories ................................................................... 616,056 616,056
Cost and earnings in excess of billings ....................................... -- 175,592
Project development costs ..................................................... 379,355 379,355
Assets to be disposed, current ................................................ -- 1,006,343
Due from affiliates ........................................................... 119,230 --
Prepaid expenses and other assets ............................................. 353,184 111,125
------------- -------------
Total current assets ........................................................ 1,640,904 3,032,267
------------- -------------
Other Assets:
Property and equipment, net ................................................... 10,564,064 11,125,547
Deposits ...................................................................... 213,634 213,634
Construction in progress ...................................................... 5,302,564 4,541,554
Accrued interest receivable ................................................... 16,898 --
Note receivable ............................................................... 500,000 --
Intangible assets, net ........................................................ 654,063 42,959
Deferred financing costs, net ................................................. -- 390,464
Minority investments .......................................................... 2,501,324 2,501,324
Goodwill ...................................................................... -- 7,281,993
Assets to be disposed, net of current ......................................... -- 12,995,691
------------- -------------
Total other assets .......................................................... 19,752,547 39,093,166
------------- -------------
TOTAL ASSETS ..................................................................... $ 21,393,451 $ 42,125,433
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT):
Current liabilities:
Line of credit ................................................................ $ 11,111,111 $ 11,044,838
Accounts payable and accrued expenses ......................................... 14,028,522 14,551,651
Accrued interest payable ...................................................... 8,221,688 6,603,228
Accrued interest payable - related party ...................................... 405,274 179,711
Billings in excess of earnings ................................................ -- 13,576
Income tax payable ............................................................ 45,000 45,000
Current portion of long term debt ............................................. 8,389,698 8,785,668
Convertible debenture - related party debt, net of discount ................... 5,219,438 1,900,333
Current portion of convertible debentures, net of discount .................... 19,108,654 11,792,387
Other current liabilities ..................................................... 521,066 604,587
Liabilities of discontinued operations, current ............................... 363,228 363,228
Contingent amounts due to minority shareholders
of consolidated subsidiaries ................................................. 932,328 932,328
Liabilities to be disposed .................................................... -- 3,526,617
------------- -------------
Total current liabilities ................................................... 68,346,005 60,343,152
------------- -------------
Long term liabilities:
Long term debt, net of current ................................................ 373,250 964,028
Asset retirement obligation ................................................... 248,221 247,462
Liabilities to be disposed, non-current ....................................... -- 19,328,095
Convertible debentures, net of current ........................................ 8,458,693 21,188,196
------------- -------------
Total long term liabilities ................................................. 9,080,164 41,727,781
Total liabilities ................................................................ 77,426,169 102,070,933
------------- -------------
Stockholders' equity (deficit)
Convertible preferred stock, $0.001 par value, 5,000,000 shares authorized:
Series B: 2,498,123 and 2,512,037 shares issued and outstanding, respectively 2,498 2,519
Series D: 799,954 and 800,000 shares issued and outstanding, respectively ... 800 800
Series E: 0 and 20,000 shares issued and outstanding, respectively .......... -- 20
Common stock, $0.001 par value, 500,000,000 authorized;
701,528,167 and 85,891,214, shares issued and outstanding, respectively ...... 701,528 95,144
Additional paid-in capital .................................................... 87,950,901 76,878,929
Accumulated deficit ........................................................... (144,698,118) (136,932,585)
------------- -------------
Total stockholders' equity (deficit) ............................................. (56,042,391) (59,955,173)
------------- -------------
Non-controlling interest in subsidiary ........................................ 9,673 9,673
------------- -------------
Total equity (deficit) ...................................................... (56,032,718) (59,945,500)
------------- -------------
TOTAL LIABILITIES AND EQUITY (DEFICIT) ........................................... $ 21,393,451 $ 42,125,433
============= =============
The notes to the Condensed Consolidated Financial Statements
are an integral part of these statements.
5
GREENSHIFT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008
(UNAUDITED)
3 Months Ended September 30 9 Months Ended September 30
------------------------------ ------------------------------
2009 2008 2009 2008
------------- ------------- ------------- ---------------
(RESTATED) (RESTATED)
Revenue ............................................... $ 927,817 $ 2,494,602 $ 2,960,501 $ 11,352,176
Cost of revenues ...................................... 830,249 1,781,546 2,824,636 5,827,445
------------- ------------- ------------- -------------
Gross profit ........................................ 97,568 713,056 135,864 5,524,731
------------- ------------- ------------- -------------
Operating expenses:
General and administrative expenses ................ 878,054 537,660 2,813,532 2,560,377
Selling expenses ................................... 7,708 89,338 28,763 133,014
Research and development ........................... -- (13,475) -- 18,732
Bad debt expense ................................... 396,822 -- 4,712,026 --
Write-down of assets ............................... -- -- 28,895 --
Amortization of intangibles ........................ -- 525,000 -- 1,575,000
Gain/Loss on disposal of equipment ................. 4,244 (164,382) 4,244 (164,382)
Impairment of goodwill ............................. -- -- 7,281,993 --
Stock based compensation ........................... -- 33,176 -- 370,009
------------- ------------- ------------- -------------
Total operating expenses ......................... 1,286,828 1,007,317 14,869,543 4,492,750
------------- ------------- ------------- -------------
Income (loss) from operations ......................... (1,189,260) (294,262) (14,733,679) 1,031,980
------------- ------------- ------------- -------------
Other income (expense):
Interest income .................................... 15,123 (2,452) 16,899 (2,452)
Loss on disposal and impairment of investments ..... -- (685,333) -- (3,425,068)
Amortization of debt discount & deferred financing . (294,621) (579,424) (671,389) (1,569,576)
Other income (expense) ............................. 93,317 (19,010) 174,133 26,525
Conversion liabilities ............................. (126,919) (104,011) (823,303) (224,606)
Conversion liabilities- affiliate .................. (325,252) -- (451,807) --
Interest expense - affiliate ....................... (185,743) (35,871) (272,528) (91,547)
Interest expense ................................... (1,381,442) (1,449,017) (4,351,582) (4,169,181)
------------- ------------- ------------- -------------
Total other income (expense), net ................ (2,205,536) (2,875,118) (6,379,576) (9,455,906)
------------- ------------- ------------- -------------
Loss before minority interest and income taxes ........ (3,394,796) (3,169,380) (21,113,255) (8,423,925)
Noncontrolling interest in net loss of
consolidated subsidiaries ........................... -- 2,489 -- 8,908
------------- ------------- ------------- -------------
Loss before provision for income taxes ................ (3,394,796) (3,166,891) (21,113,255) (8,415,017)
(Provision for)/benefit from income taxes ............. -- (8,229) 402,347 (8,229)
------------- ------------- ------------- -------------
Loss from continuing operations ....................... (3,394,796) (3,175,120) (20,710,907) (8,423,246)
------------- ------------- ------------- -------------
Discontinued Operationss
Gain from disposal of discontinued operations ......... -- -- 14,452,069 --
Income (loss) from discontinued operations ............ (69,353) (2,554,787) (1,236,709) (3,114,859)
------------- ------------- ------------- -------------
Total income (loss) from discontinued operations ... (69,353) (2,554,787) 13,215,374 (3,114,859)
------------- ------------- ------------- -------------
Net income (loss) ..................................... $ (3,464,149) $ (5,729,907) $ (7,495,533) $ (11,538,106)
============= ============= ============= =============
Priority Return-Mandatorily Redeemable Preferred Equity -- -- (270,000) --
------------- ------------- ------------- -------------
Net income (loss) attributable to common shareholders . $ (3,464,149) $ (5,729,907) $ (7,765,533) $ (11,538,106)
============= ============= ============= =============
Weighted average common shares outstanding
Basic and diluted ..................................... 515,637,281 35,515,574 353,700,714 67,982,782
Earnings (loss) per share
Loss from continuing operations ....................... $ (0.01) $ (0.09) $ (0.06) $ (0.12)
Income (loss) from discontinued operations ............ -- (0.07) 0.04 (0.05)
------------- ------------- ------------- -------------
Net income (loss) per share - basic and diluted ....... $ (0.01) $ (0.16) $ (0.02) $ (0.17)
============= ============= ============= =============
The notes to the Condensed Consolidated Financial Statements
are an integral part of these statements.
6
GREENSHIFT CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 (UNAUDITED)
RESTATED
9 Months Ended 9 Months Ended
September 30, 2009 September 30, 2008
---------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES
Net loss .................................................... $ (7,495,533) $(11,538,106)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Depreciation and amortization ............................... 890,039 855,378
Amortization of intangibles ................................. 138,897 1,561,305
Amortization of debt discount and deferred financing costs .. 675,056 1,213,718
Gain on disposal of subsidiary .............................. (14,451,979) --
Change in net assets to be disposed of ...................... 5,599,302 (291,051)
Interest from conversion liability .......................... 1,289,013 224,606
Stock based compensation .................................... -- 370,009
Accretion of asset retirement obligation .................... 1,036 --
Loss on disposal of investment .............................. -- 3,425,068
Loss on disposal of fixed assets ............................ 4,242 --
Write-down of assets ........................................ 28,985 --
Loss on impairment of goodwill .............................. 7,281,993 --
Bad debt expense ............................................ 4,709,276 --
Change in minority interest ................................. -- (20,000)
Change in assets and liabilities, net of acquisitions
Accounts receivable ......................................... (4,148,587) 731,947
Restricted cash ............................................. 324 121,779
Prepaid expenses ............................................ 34,456 871,230
Deposits .................................................... (83,521) (262,600)
Inventory ................................................... -- 3,938,502
Costs in excess of earnings ................................. 175,592 (1,691,851)
Deferred financing fees ..................................... -- (99,830)
Accrued interest ............................................ 4,228,283 3,383,958
Accrued interest - related party ............................ 225,563 83,332
Billings in excess of cost .................................. (13,576) (887,671)
Accounts payable and accrued expenses ....................... 277,773 3,091,326
Other current liabilities ................................... -- 136,435
Deferred income taxes ....................................... -- (59,630)
Deferred revenue ............................................ -- (1,037,327)
------------ ------------
Net cash provided by (used in) operating activities ... (683,366) 4,120,528
------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Cash paid for acquisition ................................... -- (80,000)
Cash acquired from acquisition .............................. -- --
Construction in progress .................................... (761,010) (4,862,842)
Divestiture of subsidiary ................................... -- 1,000,000
Proceeds from sale of equipment ............................. 55,440 (90,901)
Additions to and acquisition of property, plant and equipment (425,048) (6,346,132)
------------ ------------
Net cash (used in) investing activities .................. (1,130,618) (10,379,875)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of line of credit ................................. -- (1,635,765)
Proceeds from loan receivable - related party ............... (115,618) (3,681)
Proceeds from long term debt ................................ 45,035 713,582
Proceeds from convertible debentures ........................ -- 2,484,579
Repayment of convertible debentures - related party ......... 1,895,858 --
Repayment of short term borrowings - affiliate .............. (8,021) (1,530,849)
Proceeds from line of credit ................................ -- 19,987,808
Cash paid to minority shareholders .......................... -- (820,827)
Repayment of long term debt ................................. (12,973) (2,880,310)
------------ ------------
Net cash provided by financing activities ................ 1,804,280 6,313,537
------------ ------------
Net increase (decrease) in cash ............................. $ (9,704) $ 54,190
Cash at beginning of period ................................. 9,704 486,993
------------ ------------
Cash at end of period ....................................... $ -- $ 541,183
============ ============
The notes to the Condensed Consolidated Financial Statements are
an integral part of these statements.
7
GREENSHIFT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2008 AND
NINE MONTHS ENDED SEPTEMBER 30, 2009 (UNAUDITED)
Series C Series E
Series A Series B Preferred Series D Preferred
Preferred Stock Preferred Stock Stock Preferred Stock Stock
Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount
---------- -------- -------- -------- ------ ------- -------- -------- ------- --------
Balance at 12/31/07 1,254,244 $ 1,254 151,250 $ 151 -- -- 800,000 $ 800 -- --
========== ======== ======== ======== ====== ======= ======== ======== ======= ========
Non-controlling interest -- -- -- -- -- -- -- -- -- --
investment in subsidiary
Adjustment of conversion of -- -- -- -- -- -- -- -- -- --
subsidiary minority interest
Shares issued for conversion -- -- -- -- -- -- -- -- -- --
of debentures
Adjustment for transfer of -- -- -- -- -- -- -- -- -- --
entity under common control
Stock based compensation -- -- -- -- -- -- -- -- -- --
Cancellation of debt - -- -- -- -- -- -- -- -- -- --
related party
Conversion of minority (1,254,244)(1,254) -- -- -- -- -- -- -- --
interest
Repurchase of subsidiary stock -- -- -- -- -- -- -- -- -- --
Cancellation of debt - -- -- -- -- -- -- -- -- -- --
related party
Conversion of Series B -- -- (151,250) (151) -- -- -- -- -- --
Preferred Stock to Common
Issuance of Series B
Preferred Stock to create -- -- 3,025,33 3,025 -- -- -- -- -- --
Employee Pool
Partial Conversion of Series -- -- (506,114) (506) -- -- -- -- -- --
B to Common
Conversion of debt -- -- -- -- -- -- -- -- -- --
Common stock issued for -- -- -- -- -- -- -- -- -- --
financing fees
Acquisition of subsidiary -- -- -- -- -- -- -- -- 20,000 20
Priority return on subsidiary -- -- -- -- -- -- -- -- -- --
capital
Net loss -- -- -- -- -- -- -- -- -- --
---------- -------- -------- -------- ------ ------- -------- -------- ------- --------
Balance at 12/31/08 -- -- 2,519,219 $ 2,519 -- -- 800,000 $ 800 20,000 $ 20
========== ======== ======== ======== ====== ======= ======== ======== ======= ========
Conversion of Series B -- -- (21,096) (21) -- -- -- -- -- --
Preferred Stock to Common
Shares issued for conversion -- -- -- -- -- -- -- -- -- --
of debentures
Conversion of Series D -- -- -- -- -- -- (46) -- -- --
Preferred Stock to Common
Cancellation of shares -- -- -- -- -- -- -- -- (20,000) (20)
Net loss -- -- -- -- -- -- -- -- -- --
---------- -------- -------- -------- ------ ------- -------- -------- ------- --------
Balance at 9/30/09 (Unaudited) -- -- 2,498,123 $ 2,498 -- -- 799,954 $ 800 -- $ --
========== ======== ======== ======== ====== ======= ======== ======== ======= ========
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
NINE MONTHS ENDED SEPTEMBER 30, 2009 (UNAUDITED)
Non-controlling Additional
Interest in Paid-in Accumulated
Common Stock Subsidiary Capital Deficit Total 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)
============ ============ ============= ============ ============ =============
Non-controlling interest investment in -- -- 25,000 -- -- 25,000
subsidiary
Adjustment of conversion of subsidiary -- -- -- 183,373 -- 183,373
minority interest
Shares issued for conversion of debentures 11,000,597 11,000 -- 543,657 -- 554,657
Adjustment for transfer of entity under -- -- -- (27,800) -- (27,800)
common control
Stock based compensation 850,000 850 -- 50,550 -- 51,400
Cancellation of debt - related party -- -- -- 2,952,968 -- 2,952,968
Conversion of minority interest 25,084 25 -- 1,229 -- --
Repurchase of subsidiary stock -- -- -- (1,950,000) -- (1,950,000)
Cancellation of debt - related party -- -- -- 293,085 -- 293,085
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 Series B to Common 12,652,825 12,653 -- (12,147) -- --
Conversion of debt 6,875,000 6,875 -- 1,093,125 -- 1,100,000
Common stock issued for financing fees 6,250,000 6,250 -- 1,084,511 -- 1,090,761
Acquisition of subsidiary 20,000,760 20,000 -- 2,065,680 -- 2,085,700
Restatement - to omit SSI results due to -- -- -- (2,783,485) 3,539,639 756,154
sale of 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 $76,878,929 $(136,932,585$(59,945,500)
============= ============ ============ ============= ============ =============
Conversion of Series B Preferred Stock to 527,400 527 -- (506) -- --
Common
Mandatorily redeemable preferred -- -- -- -- (270,000) (270,000)
Shares issued for conversion of debentures 623,077,763 623,078 -- 1,014,862 -- 1,637,939
Sale of subsidiary -- -- -- 11,548,622 -- 11,548,622
Stock issued for repayment of accounts 2,500,000 2,500 -- 12,000 -- 14,500
payable
Change in conversion feature due to -- -- -- -- 557,745
conversion liabilities 557,745
Conversion of Series D Preferred Stock to 278,781 279 -- (279) -- --
Common
Cancellation of shares (20,000,760) (20,000) -- (2,065,700) -- (2,085,720)
Net loss -- -- -- -- (7,495,533) (7,495,533)
------------ ------------ ------------- ------------ ------------ ------------
Balance at 9/ 30/09 (Unaudited) 701,528,167 $701,528 $9,673 $87,950,901 $(144,698,118 $(56,032,718)
============ ============ ============= ============ ============ =============
The notes to the Condensed Consolidated Financial Statements
are an integral part of these statements
9
GREENSHIFT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 was subject to rescission
in the event that: (a) BIG's loans were not timely serviced and kept in good
standing, (b) certain guaranty payments, to the extent due, were not timely
made, and (c) if the Class A Redemption payments were not made to the extent
that they are due. 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 previously-pending financing
agreements with CleanBioenergy Partners, LLC (see Note 11, Commitments and
Contingencies). This financing failed to close as expected in March 2009 despite
the Company's compliance with the relevant agreements with CleanBioenergy
Partners, 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. The Company elected
not to restructure the original acquisition transaction and instead facilitated
rescission of the original acquisition transaction and the divestiture of BIG
during the second quarter of 2009. The financial results of BIG were presented
10
as discontinued operations as and for the quarter ended March 31, 2009 (see Note
6, Discontinued Operations), and are not included in the Company's results of
continuing operations for the quarter ended September 30, 2009.
Sustainable Systems, Inc.
Effective June 30, 2009, GS AgriFuels Corporation and Carbonics Capital
Corporation entered into a Stock Purchase Agreement pursuant to which Carbonics
acquired 100% of the stock of Sustainable Systems, Inc. ("Culbertson") from GS
AgriFuels in return for assumption of $4,000,000 of GS AgriFuels' indebtedness
to YAGI Investments, L.P. ("YAGI"), plus any and all obligations of GS AgriFuels
that may be in effect in relation to the acquisition by sellers (the "Selling
Shareholders") of Culbertson (the "Purchase Obligations"). In connection with
this Agreement, Carbonics issued an amended and restated convertible debenture
to YAGI for $4,000,000 due on December 31, 2011. The Purchase Obligations
pertain to the 2007 acquisition by GS AgriFuels of Culbertson and include
$3,804,287 in convertible debentures and $1,017,451 in notes payable to the
prior owners of Culbertson. The relevant acquisition agreements with the Selling
Shareholders are in default due to the disclosure by the Selling Shareholders
that Culbertson owned its Culbertson, Montana oilseed crushing facility when in
fact Culbertson merely held the right to purchase the Montana facility at the
time of the acquisition by GS AgriFuels; the failure to disclose by the Selling
Shareholders that the Culbertson's right to purchase the Montana facility, as
well as any investment made in the Montana facility, was subject to forfeiture
within months of entering into the acquisition agreements with GS AgriFuels;
and, the provision by the Selling Shareholders of materially false financial
statements. This matter and the extent of the relevant parties' obligations
under the relevant acquisition agreements and otherwise are the subject of a
litigation initiated by GS AgriFuels against the Selling Shareholders, and a
separate litigation served by the Selling Shareholders thereafter. Three of the
Selling Shareholders, corresponding to about 64% of the Selling Shareholders'
prior ownership interest in Culbertson, have entered into settlement agreements
pursuant to which GS AgriFuels has been released from the pro-rated Purchase
Obligation previously attributable to these shareholders. Carbonics has assumed
all rights and obligations of GS AgriFuels pertaining to these agreements and
this litigation. Carbonics is majority owned by the Company's majority
shareholder, Viridis Capital, LLC. The financial results of this subsidiary have
been retrospectively omitted from the operations in accordance with FASB
Accounting Standards Codification ("ASC") 805-50-45-1, Transactions Between
Entities Under Common Control".
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 based on our patented and
patent-pending corn oil extraction technologies that are located at our
licensee's ethanol plants in Oshkosh, Wisconsin, Medina, New York, Marion,
Indiana, and Riga, Michigan. We have installed one facility at another
licensee's ethanol plant in Albion, Michigan under a modified version of our
market offering where our licensee paid to build the extraction facility. We
have also recently entered into an agreement to finance, build and commission
two additional corn oil extraction facilities at a licensee ethanol plant in
Lakota, Iowa. We have the long-term right (10 years or more) to buy the oil
extracted from each facility in return for the use by each licensee of our
patented and patent-pending corn oil extraction technologies. These facilities
collectively are designed to extract in excess of 9 million gallons per year of
inedible corn oil. We are currently focused on securing the capital resources we
need to operate our existing facilities and to build new corn oil extraction
facilities.
During the nine months ended September 30, 2009, we also owned a 10 million
gallon per year biodiesel facility in Adrian, Michigan ("BIG") and an oilseed
crush facility in Culbertson, Montana ("Culbertson"). These two facilities were
idled during the first quarter 2009 due to a lack of working capital. The
Company divested both of these facilities during the second quarter of 2009. The
financial results of these subsidiaries have been presented as discontinued
operations as and for the quarter ended September 30, 2009 (see Note 6,
Discontinued Operations). The Company's specialty equipment manufacturing
operations were also idled during the nine months ended September 30, 2009. The
Company intends to liquidate certain assets of this operation during the fourth
quarter of 2009 and may 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 nine months ended September 30, 2009 are
classified into two reportable business segments: Equipment & Technology 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 resulted in the cessation of
operations in its former Culinary Oil Production & Sales segment during the
quarter ended September 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 despite the fact that its
former BIG biodiesel facility was divested during the second quarter 2009. For
comparative purposes, the financial results of BIG and Culbertson have been
presented as discontinued operations as and for the quarter ended September 30,
2009 (see Note 6, Discontinued Operations).
3 GOING CONCERN
The Company had a working capital deficit of $66,705,102 at September 30, 2009,
which includes convertible debentures and line of credit totaling $30,219,765,
accrued interest payable of $8,626,962, related party debt of $51,500, related
party convertible debentures of $5,219,438, and $3,979,437 in purchase
obligations. The Company's working capital deficit net of these amounts is
$18,608,000.
Despite their classification as current liabilities, current convertible
debentures, line of credit and accrued interest ($38,846,727) 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.
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.
11
4 SIGNIFICANT ACCOUNTING POLICIES
NONCONTROLLING INTEREST
Effective July 1 2009, the Company accounted for the noncontrolling interest in
a subsidiary and for the deconsolidation of a subsidiary under ASC 810-10-45-16,
Noncontrolling Interest in 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. The standard
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, the standard 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. Other than the change in presentation of noncontrolling interests, the
adoption of ASC 810-10-45-16 had no impact on the Financial Statements.
FAIR VALUE MEASUREMENTS
Effective July 1 2009, the Company adopted ASC 820, Fair Value Measurements and
Disclosures. This topic 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 supersedes all other accounting pronouncements that
require or permit fair value measurements.
The Company accounted for the convertible debentures in accordance with ASC 480,
Distinguishing Liabilities from Equity, 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.
Under ASC 820, 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.
Effective July 1 2009, the Company adopted ASC 820-10-55-23A, Scope Application
to Certain Non-Financial Assets and Certain Non-Financial Liabilities, delaying
application for non-financial assets and non-financial liabilities as permitted.
ASC 820 establishes a framework for measuring fair value, and expands
disclosures about fair value measurements. ASC 820 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
include infrequently-traded, non-exchange-based derivatives and commingled
investment funds, and are measured using present value pricing models.
Fair Value
--------------------------------------------------------------------------------------------------------------
As of September 30, 2009 Level 1 Level 2 Level 3 Total
--------------------------------------------------------------------------------------------------------------
Embedded conversion liabilities $ -- $ -- $ 2,221,447 $ 2,221,447
12
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 1,179,399
Reductions in fair value due to principal conversions (557,744)
Accretion adjustments to fair value - beneficial conversion features 95,711
-----------------
Balance at September 30, 2009 $ 2,221,447
=================
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 has adopted ASC 480, Distinguishing Liabilities from Equity, 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.
FINANCIAL INSTRUMENTS
The carrying values of accounts receivable, other receivables, accounts payable,
and accrued expenses approximate their fair values due to their short term
maturities. The carrying values of the Company's long-term debt approximate
their fair values based upon a comparison of the interest rate and terms of such
debt to the rates and terms of debt currently available to the Company. It was
not practical to estimate the fair value of the convertible debt. In order to do
so, it would be necessary to obtain an independent valuation of these unique
instruments. The cost of that valuation would not be justified in light of the
materiality of the instruments to the Company.
LICENSE FEES
License fees represent a one-time license fee of $150,000 per system (a
"System") built and commissioned based on the Technology plus an ongoing royalty
of $0.10 per gallon of corn oil extracted with the Technology (see Note 15,
Related Party Transactions, below). For the nine months ended September 30,
2008, the Company incurred license fees of $750,000 (corresponding to technology
licenses incurred on five Systems), royalty fees of $147,832 (corresponding to
1,478,320 gallons of corn oil), and the Company also prepaid license fees of
$300,000 on two additional Systems. The license fees were capitalized with
$133,929 being amortized and included in the Company's costs of sales for the
nine months ended September 30, 2009.
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. During the nine
months ended September 30, 2009, the 20,000 shares of Series E Preferred Stock
were cancelled due to the rescission of the original acquisition transaction and
the divestiture of BIG. At both September 30, 2009 and 2008, there were no
shares of Series E Preferred Stock issued and outstanding.
COMMON STOCK
The Company issued 623,077,763 shares of common stock upon the conversion of an
aggregate of $1,643,167 in debt during the nine months ended September 30, 2009,
consisting of: 149,955,247 common shares issued to YA Global Investments, LP
("YAGI") upon its conversion of debt and accrued interest in the amount of
$395,461; 296,532,508 common shares issued to Minority Interest Fund (II), LLC
("MIF") upon its conversion of debt in the amount of $877,479; 134,631,965
common shares issued to RAKJ Holdings, Inc. ("RAKJ") upon its conversion of debt
in the amount of $315,000; and, 41,958,043 common shares issued to Mammoth
Corporation upon its conversion of debt in the amount of $50,000. In addition,
527,400 common shares issued to an employee upon conversion of vested shares of
Series B Preferred Stock.
The only conditions under 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.
13
6 DISCONTINUED OPERATIONS
SUSTAINABLE SYSTEMS, INC.
Effective June 30, 2009, GS AgriFuels Corporation and Carbonics Capital
Corporation entered into a Stock Purchase Agreement pursuant to which Carbonics
acquired 100% of the stock of Sustainable Systems, Inc. ("Culbertson") from GS
AgriFuels in return for assumption of $4,000,000 of GS AgriFuels' indebtedness
to YAGI Investments, L.P. ("YAGI"), plus any and all obligations of GS AgriFuels
that may be in effect in relation to the acquisition by sellers of Culbertson
(the "Purchase Obligations"). In connection with this Agreement, Carbonics
issued an amended and restated convertible debenture to YAGI for $4,000,000 due
on December 31, 2011. The Purchase Obligations pertain to the 2007 acquisition
by GS AgriFuels of Culbertson and include $3,804,287 in convertible debentures
and $1,017,451 in notes payable to the prior owners of Culbertson. The relevant
acquisition agreements with the Selling Shareholders are in default due to the
disclosure by the Selling Shareholders that Culbertson owned its Culbertson,
Montana oilseed crushing facility when in fact Culbertson merely held the right
to purchase the Montana facility at the time of the acquisition by GS AgriFuels;
the failure to disclose by the Selling Shareholders that the Culbertson's right
to purchase the Montana facility, as well as any investment made in the Montana
facility, was subject to forfeiture within months of entering into the
acquisition agreements with GS AgriFuels; and, the provision by the Selling
Shareholders of materially false financial statements. This matter and the
extent of the relevant parties' obligations under the relevant acquisition
agreements and otherwise are the subject of a litigation initiated by GS
AgriFuels against the Selling Shareholders, and a separate litigation served by
the Selling Shareholders thereafter. Three of the Selling Shareholders,
corresponding to about 64% of the Selling Shareholders' prior ownership interest
in Culbertson, have entered into settlement agreements pursuant to which GS
AgriFuels has been released from the pro-rated Purchase Obligation previously
attributable to these shareholders. Carbonics has assumed all rights and
obligations of GS AgriFuels pertaining to these agreements and this litigation.
Carbonics is majority owned by the Company's majority shareholder, Viridis
Capital, LLC. The financial results of this subsidiary have been retrospectively
omitted from the operations in accordance with ASC 805-50-45-1, Transactions
Between Entities Under Common Control." The financial results of Culbertson have
been omitted from the Company's results of operations for the nine months ended
September 30, 2009 and the December 31, 2008 balance sheet has been restated as
well.
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 was subject to rescission
in the event that: (a) BIG's loans were not timely serviced and kept in good
standing, (b) certain guaranty payments, to the extent due, were not timely
made, and (c) if the Class A Redemption payments were not made to the extent
that they are due. 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 previously-pending financing
agreements with CleanBioenergy Partners, LLC (see Note 11, Commitments and
Contingencies). This financing failed to close as expected in March 2009 despite
the Company's compliance with the relevant agreements with CleanBioenergy
Partners, 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. The Company elected
not to restructure the original acquisition transaction and instead facilitated
rescission of the original acquisition transaction and the divestiture of BIG
during the second quarter of 2009. The financial results of BIG were presented
as discontinued operations as and for the quarter ended March 31, 2009 (see Note
6, Discontinued Operations), and are not included in the Company's results of
operations for the nine months ended September 30, 2009. During the nine months
ended September 30, 2009, the Company recorded an impairment of goodwill in the
amount of $7,281,993, bad debt expense of $4,709,276 related to accounts
receivable consisting of equipment and corn oil owed by BIG to the Company, and
a gain on disposal of net liabilities of $14,451,979.
14
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.
The Company accounted for the YAGI line of credit dated January 25, 2008 in
accordance with ASC 480, Distinguishing Liabilities from Equity, 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 16 Restatements, below). The Company determined the value of the YAGI line
of credit at issuance to be $11,044,838 which represented the face value of the
principal 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
issuance to its estimated settlement value of $1,111,111 at December 31, 2010.
For the nine months ended September 30, 2009, an expense of $66,273 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 its estimated settlement value of $11,111,111 at September 30, 2009.
The Company issued six million shares of its common stock to YAGI valued at
$1,080,000, and 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 in connection with the issuance of the revolving
line of credit described above. The balance of deferred financing fees was $0 at
September 30, 2009. The Company does not have any ratios or covenants in
conjunction with the YAGI debt. The Company is currently in default on the
agreements due to the failure of the GE transaction.
8 FINANCING ARRANGEMENTS
The following is a summary of the Company's financing arrangements as of
September 30, 2009:
Current portion of notes payable:
Note payable from NextGen Acquisition to Stillwater $ 2,071,886
Purchase obligations from NextGen Acquisition to NextGen sellers 3,979,437
Asset retirement obligation, current 277
Vehicle loans and other short term borrowings 48,453
Mortgages and other term notes 85,066
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 $ 8,389,698
=================
Long-term notes payable, net of current maturities:
Mortgages and other term notes $ 373,250
-----------------
Total long term notes payable, net of current maturities $ 373,250
=================
Asset retirement obligation:
Asset retirement obligation $ 248,221
=================
15
Current portion of convertible debentures:
Convertible debenture to YA Global Investments, LP 5,500,000
Convertible debenture to YA Global Investments, LP 12,860,000
Note discounts (117,478)
Convertible debenture to JMJ Financial Corporation 807,195
Convertible debenture to Carbonics Capital Corporation 320,398
Convertible debenture to Minority Interest Fund (II) 4,889,040
Convertible debenture to Mammoth Corporation 58,937
-----------------
Total current portion of convertible debentures $ 24,328,092
=================
Long-term convertible debentures, net of current maturities:
Convertible debenture to YA Global Investments, LP $ 2,046,586
Convertible debenture to YA Global Investments, LP 1,224,063
Convertible debenture to YA Global Investments, LP 2,789,278
Convertible debenture to YA Global Investments, LP 1,950,000
Convertible debenture conversion liabilities 448,766
-----------------
Total long-term portion of convertible debentures $ 8,458,693
=================
The following principal amounts of convertible debentures noted above are
convertible into the common stock of the following companies:
GreenShift Corporation $ 14,544,262
GS AgriFuels Corporation 18,360,000
------------------
Total $ 32,786,784
==================
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 September 30, 2009 and the Company's ability to meet such obligations:
Year Amount
---------------------------------------------------------------------
2009 $ 26,749,698
2010 6,013,638
2011 8,483,466
2012 377,250
2013 and thereafter 173,902
-----------------
Total minimum payments due under current and $ 41,797,953
=================
long term obligations
9 DEBT AND PURCHASE OBLIGATIONS
On June 9, 2009, JMJ Financial Corporation ("JMJ") issued the Company a 14.4%
secured promissory note in the amount of $500,000 (the "JMJ Note") in return for
$600,000 in 12% convertible debt (the "JMJ Debenture") issued by the Company.
The principal balance due under the JMJ Note was $500,000 as of September 30,
2009 and accrued interest receivable under the JMJ Note was $1,775. The
principal and accrued interest for the JMJ Note and JMJ Debenture have been
presented as of September 30, 2009, at their face value, without offset. The JMJ
Debenture is convertible into Company common stock at a rate equal to 70% of the
lowest closing market price for the Company's common stock for the twenty
trading days preceding conversion. The Company accounted for the JMJ Debenture
dated June 9, 2009 in accordance with ASC 480, Distinguishing Liabilities from
Equity, as the conversion feature embedded in the JMJ Debenture could result in
the note principal being converted to a variable number of the Company's common
shares. The Company determined the value of the $600,000 JMJ Debenture at June
9, 2009 to be $793,768 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 carrying value of $193,768 at June 30, 2009 to
its estimated settlement amount of $257,904 at June 11, 2012. For the nine
months ended September 30, 2009, an expense of $13,427 has been recorded as
interest expense for the accretion of the value of the conversion liability. The
carrying value of the $600,000 JMJ Debenture was $807,195 at September 30, 2009.
For the nine months ended September 30, 2009, interest expense of $20,592 for
these obligations was incurred.
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 debentures in
16
accordance ASC 480, Distinguishing Liabilities from Equity, as the conversion
feature embedded in the debentures could result in the note principal being
converted to a variable number of the Company's common shares. The Company
determined the fair value of the Acutus debentures at December 31, 2008 to be
$538,469 which represented the face value of the debenture plus the present
value of the conversion feature. As of June 30, 2009, an expense of $420 has
been recorded as interest expense for the accretion of the value of the
conversion liability. The carrying value of the Acutus Debenture was $538,889 at
June 30, 2009. The obligation to pay debenture was assumed by Minority Interest
Fund (II), LLC effective July 1, 2009. For the nine months ended September 30,
2009, interest expense of $48,101 for these obligations was incurred.
As of December 31, 2008, the Company had convertible debentures payable to
Minority Interest Fund (II), LLC ("MIF") in an aggregate amount of $1,319,783
(the "MIF Debenture"). This amount includes the $410,930 in notes payable that
MIF purchased from Viridis Capital, LLC ("Viridis"), $757,853 in convertible
debt that were purchased from Candent Corporation ("Candent"), and $500,000 in
convertible debt that was purchased from Acutus, 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 bringing the year-end balance to $1,386,851. The
convertible debt issued to MIF bears interest at a rate of 20% and matures 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 nine months ended September 30, 2009, MIF purchased
additional debentures from the Company in the amount of 3,874,230; assumed the
obligation to pay $485,000 in debentures due to unrelated third parties from the
Company; converted $837,343 of the principal balance due to MIF into 256,397,181
shares of Company common stock, and assigned $415,000 of the principal amount
due to MIF to RAKJ Holdings, Inc. ("RAKJ") ($315,000), and Mammoth Corporation
("Mammoth") ($100,000). An additional 40,135,327 shares converted by Sunny Isles
Ventures was used to reduce principal by $40,135. The Company accounted for the
MIF Debenture in accordance with ASC 480, Distinguishing Liabilities from
Equity, as the conversion feature embedded in the MIF 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 16, Restatements, 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 nine months ended September 30, 2009, the Company
recognized additional conversion liabilities at present value of $428,706 for
additional funding received, recognized a reduction in the conversion liability
at present value of $133,720 for the conversions and recorded an expense of
$23,101 as interest expense for the accretion of the present value of the
conversion liability for the nine months. The carrying value of the MIF
Debenture was $4,889,040 at September 30, 2009, and included principal of
$4,453,602 and the value of the conversion liability. The liability for the
conversion feature shall increase from its present value of $148,529 at June 30,
2009 to its estimated settlement value of $588,604 at December 31, 2010.
Interest expense of $271,235 for these obligations was accrued for the nine
months ended September 30, 2009.
During the nine months ending September 30, 2009, RAKJ fully converted the
amount due under its $315,000 debenture into 134,631,965 common shares. The
Company accounted for the RAKJ Debenture in accordance with ASC 480,
Distinguishing Liabilities from Equity, 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. For the nine months ending
September 30, 2009, interest expense of $5,228 for these obligations was
incurred. The principal balance due to RAKJ at September 30, 2009 was $0.
During the three months ended September 30, 2009, Mammoth purchased $100,000 in
convertible debt from MIF (the "Mammoth Debenture"). Mammoth is entitled to
convert the accrued interest and principal of the Mammoth Debenture into common
stock of the Company at a conversion price equal to 50% of the average closing
market price for the five trading days preceding conversion. During the nine
months ending September 30, 2009, Mammoth converted $50,000 on this debenture
into 41,958,043 common shares. The Company accounted for the Mammoth Debenture
in accordance with ASC 480, Distinguishing Liabilities from Equity, as the
conversion feature embedded in the Mammoth Debenture could result in the note
principal being converted to a variable number of the Company's common shares.
For the nine months ending September 30, 2009, interest expense of $5,228 for
these obligations was incurred. The Company determined the value of the Mammoth
Debenture at September 15, 2009 (date of issuance) to be $124,959 which
represented the face value of the debenture of $100,000 plus the present value
of the conversion feature. During the nine months ended September 30, 2009, the
17
Company recognized a reduction in conversion liability at present value of
$16,619 for the conversions and recorded an expense of $597 as interest expense
for the accretion of the present value of the conversion liability for the
period. The carrying value of the Mammoth Debenture was $58,937 at September 30,
2009, including principal of $50,000 and the value of the conversion liability.
The liability for the conversion feature shall increase from its present value
of $8,937 at September 30, 2009 to its estimated settlement value of $21,428 at
December 31, 2010. Interest expense of $233 for these obligations was accrued
for the nine months ended September 30, 2009.
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 20% per annum and mature on December 31, 2010. Beginning
July 1, 2009, payments were 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 20% redemption premium at the time of redemption. For the nine months ending
September 30, 2009, interest expense of $227,715 for these obligations was
incurred. The balance of the loans was $1,734,579 as of September 30, 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 nine months ended September 30, 2009, the Company recognized an
additional conversion liability value of $193,940 due to additional installments
becoming due, recognized a reduction in value of the conversion liability of
$38,517 for conversions of principal and recorded $14,919 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 $448,766 at September 30, 2009 (please see Note 16 Restatements,
below).
10 ASSET RETIREMENT OBLIGATION
Pursuant ASC 410-20, 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 September 30, 2009, and
the capitalized cost approximated $235,000. The Company has recognized $1,361
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 nine months ending September 30,
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 738
-------------
Ending balance at September 30, 2009 $ 248,498
=============
11 COMMITMENTS AND CONTINGENCIES
INFRINGEMENT
On October 13, 2009, the U.S. Patent and Trademark Office issued U.S. Patent No.
7,601,858, titled "Method of Processing Ethanol Byproducts and Related
Subsystems" (the '858 Patent) to GS CleanTech Corporation, a wholly-owned
subsidiary of GreenShift Corporation. On October 27, 2009, the U.S. Patent and
Trademark Office issued U.S. Patent No. 7,608,729, titled "Method of Freeing the
Bound Oil Present in Whole Stillage and Thin Stillage" (the '729 Patent) to GS
CleanTech. Both the `858 Patent and the `729 Patent relate to the Company's corn
oil extraction technologies. On October 13, 2009, GS CleanTech filed a legal
action in the United States District Court (Southern District of New York)
captioned GS CleanTech Corporation v. GEA Westfalia Separator, Inc.; and DOES
1-20, alleging infringement of the `858 Patent. On October 13, 2009, GreenShift
filed a Motion to Dismiss with the same court relative to a separate complaint
filed previously by Westfalia alleging (1) false advertising in violation of the
Lanham Act ss. 43(a); (2) deceptive trade practices and false advertising in
violation of New York General Business Law ss.ss. 349, 350 and 350-a; and (3)
common law unfair competition. On October 13, 2009, Westfalia filed its First
Amended Complaint in the matter captioned GEA Westfalia Separator, Inc. and Ace
Ethanol, LLC v. GreenShift Corporation, which complaint included Ace Ethanol, an
ethanol production company, and added claims seeking a declaratory judgment of
18
invalidity and/or non-infringement of the `858 patent. On October 13, 2009, ICM,
Inc. filed a complaint in the United States District Court (District of Kansas)
in the matter captioned ICM, Inc. v. GS CleanTech Corporation and GreenShift
Corporation, alleging unfair competition, interference with existing and
prospective business and contractual relationships, and deceptive trade
practices. ICM is also seeking declaratory judgment of invalidity and
non-infringement of the `858 patent. On October 15, 2009, GS CleanTech filed a
Notice of Filing First Amended Complaint for infringement of the `858 patent,
along with a copy of the First Amended Complaint, which added ICM, Ace Ethanol,
Lifeline Foods LLC and ten additional DOES as defendants in the case pending in
the Southern District of New York. These matters were only recently commenced
and Management is unable to characterize or evaluate the probability of any
outcome at this time.
OTHER MATTERS
The Company's subsidiary, NextGen Fuel, Inc., 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 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, and on October 16, 2009 O'Brien &
Gere dismissed GS AgriFuels and the Company from the suit 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 relating to
the sale by the defendants of the stock of Sustainable Systems, Inc.
("Culbertson") to GS AgriFuels, and arising from the disclosure by the
defendants that Culbertson owned its Culbertson, Montana oilseed crushing
facility when in fact Culbertson merely held the right to purchase the Montana
facility at the time of the acquisition by GS AgriFuels; the failure to disclose
by the defendants that Culbertson's right to purchase the Montana facility, as
well as any investment made in the Montana facility, was subject to forfeiture
within months of entering into the acquisition agreements with GS AgriFuels;
and, the provision by the defendants of materially false financial statements.
The defendants served a separate action entitled Max, et al. v. GS AgriFuels
Corporation, et al. in the Montana Fourth Judicial District Court in response to
GS AgriFuels' New York complaint. GS AgriFuels has petitioned for dismissal of
the Montana action and three of the former shareholders of Culbertson,
corresponding to about 64% of the former shareholders' prior ownership interest
in Culbertson, have entered into settlement agreements pursuant to which GS
AgriFuels has been released from all obligations under the relevant acquisition
agreements and otherwise. Despite these settlements, Management is unable to
evaluate the probability of an unfavorable outcome at this time. An estimate of
loss cannot be determined and therefore, no accrual has been made in connection
with this contingency, however, Carbonics Capital Corporation (see Note 6,
Discontinued Operations, above) has assumed all rights and obligations of GS
AgriFuels pertaining to this litigation. Carbonics is majority owned by the
Company's majority shareholder, Viridis Capital, LLC.
As of September 30, 2009, the Company's subsidiary, NextGen Acquisition, Inc.,
was in default of its debt agreement with Stillwater Asset Backed Fund, LP. As
of September 30, 2009, the Company is also in default of payments owed under the
purchase agreement with Bollheimer Associates in the amount of $240,000, and
intends 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. 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.
19
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.
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 $42
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 ASC 280, Segment Reporting.
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 September 30, 2009 are
classified into two reportable business segments: Biofuel 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:
Nine months Equipment & Biofuel
Ended 9/30/09 Corporate Technology Sales Production & Sales Total
----------------------------------------------------------------------------------------------------------------
Total revenue $ -- $ 349,706 $ 2,610,795 $ 2,960,501
Cost of revenue 133,929 1,000,456 1,690,252 2,824,636
------------ ---------- ------------ -----------
Gross profit (133,929) (650,751) 920,544 135,864
Operating expenses 938,629 407,011 13,523,903 14,869,544
------------ ----------- ------------ -----------
Income (loss) from operations (1,072,558) (1,057,762) (12,603,359) (14,733,679)
Other income (expense) (2,118,561) (2,149,414) (2,11,601) (6,379,576)
------------ ----------- ------------ -----------
Income (loss) before taxes (3,191,119) (3,207,176) (14,714,960) (21,113,255)
Non-Controlling interest -- -- -- --
------------ ----------- ------------ -----------
Taxes -- 402,398 (51) 402,347
------------ ----------- ------------ -----------
Gain on sale of discontinued
Operations -- -- 14,452,083 14,452,083
Net loss from discontinued operations $ -- $ -- $(1,236,709) $(1,236,709)
------------ ----------- ------------ ------------
Net loss $(3,191,119) $(2,804,778) $(1,499,637) $(7,495,534)
============ ============ ============ ============
Nine months Equipment & Biofuel
Ended 9/30/08 Corporate Technology Sales Production & Sales Total
----------------------------------------------------------------------------------------------------------------
Total revenue $ -- $10,065,613 $ 1,286,563 $11,352,176
Cost of revenue 83,968 5,097,031 641,447 5,827,446
------------ ----------- ------------ -----------
Gross profit (83,968) 4,968,582 645,117 5,524,731
Operating expenses 1,718,446 2,097,061 677,243 4,492,750
------------ ----------- ------------ -----------
Income (loss) from operations (1,807,414) 2,871,521 (32,126) 1,031,981
Other income (expense) (6,055,928) (1,884,774) (1,515,203) (9,455,905)
------------ ----------- ------------ -----------
Income (loss) before taxes (7,863,342) 986,747 (1,547,330) (8,423,925)
Noncontrolling interest -- 8,908 -- 8,908
------------ ----------- ------------ -----------
Taxes (4,094) (1,944) (2,192) (8,230)
------------ ----------- ------------ -----------
Net loss from
discontinued operations $ (291,052) $ -- $(3,114,859) $(3,405,911)
------------ ----------- ------------ ------------
Net income (loss) $(8,158,488) $ 993,711 $(4,664,381) $(11,829,158)
============ =========== ============ =============
20
3 Months Equipment & Biofuel
Ended 9/30/09 Corporate Technology Sales Production & Sales Total
----------------------------------------------------------------------------------------------------------------
Total revenue $ -- $ 51,586 $ 876,230 $ 927,817
Cost of revenue 133,929 147,376 548,944 830,249
------------ ----------- ------------ -----------
Gross profit (133,929) (95,789) 327,286 97,568
Operating expenses 351,553 22,655 912,620 1,286,828
------------ ----------- ------------ -----------
Income (loss) from operations (485,482) (118,445) (585,334) (1,189,260)
Other income (expense) (829,173) (660,283) (716,080) (2,205,536)
------------ ----------- ------------ -----------
Loss before taxes (1,314,655) (778,727) (1,301,414) (3,394,796)
Taxes -- -- -- --
------------ ----------- ------------ -----------
Gain on sale of discontinued operations -- -- -- --
Income (loss) from discontinued operations $ -- $ -- $ -- $ --
----------- ----------- ------------ -----------
Net gain (loss) attributable to common
shareholders $(1,314,655) $ (778,727) $(1,301,414) $(3,394,796)
============ =========== ============ ============
Three Months Equipment & Biofuel
Ended 9/30/08 Corporate Technology Sales Production & Sales Total
----------------------------------------------------------------------------------------------------------------
Total revenue $ -- $ 2,313,437 $ 181,165 $ 2,494,602
Cost of revenue 45,308 1,918,717 (182,478) 1,781,547
------------ ----------- ------------ -----------
Gross profit (45,308) 1,604,223 363,644 713,056
Operating expenses (593,071) 1,604,223 (3,835) 1,007,317
------------ ----------- ------------ -----------
Income (loss) from operations 547,763 (1,209,503) (367,479) (294,261)
Other income (expense) (3,268,547) (1,112,637) (719,208) (2,875,118)
------------ ----------- ------------ -----------
Income (loss) before taxes (2,720,784) (96,866) (351,730) (3,169,380)
Non-controlling interest -- (8,229) -- (8,229)
------------ ----------- ------------ -----------
Taxes -- 2489 -- 2,489
------------ ----------- ------------ -----------
Gain (loss) from,
discontinued operations (291,052) -- (2,554,787) (2,845,839)
Preferred dividends -- -- -- --
Net gain (loss) $(3,011,836) $ (101,606) $ (351,730) $(6,020,959)
============ =========== ============ ============
14 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
The following is a summary of supplemental disclosures of cash flow information
for the nine months ending September 30, 2009 and 2008:
2009 2008
------------ --------------
Cash paid during the year for the following:
Interest $ -- $ --
Income taxes -- 22,486
------------ --------------
Total $ -- $ 22,486
============ ==============
Acquisition of Bollheimer & Associates with debt -- 320,000
Stock issued for compensation -- 336,833
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 1,643,167 --
Acquisition of Biofuels Industries Group, LLC with debt -- 9,000,000
JMJ Financial convertible debenture 600,000 --
JMJ Financial note receivable 500,000 --
MIF Debentures issued for $750,000 license fee
intangibles and $300,000 prepayment 1,050,000 --
15 RELATED PARTY TRANSACTIONS
Minority Interest Fund (II), LLC ("MIF") is party to certain convertible
debentures issued by the Company (see Note 9, Debt and Purchase Obligations,
above). The managing member of MIF is a relative of the Company's chairman.
Effective December 15, 2007, GS CleanTech Corporation, a wholly-owned subsidiary
of the Company, executed an Amended and Restated Technology Acquisition
Agreement (the "TAA") with Cantrell Winsness Technologies, LLC, David F.
Cantrell, David Winsness, Gregory P. Barlage and John W. Davis (the "Inventors")
pursuant to which the parties amended and restated the method of calculating the
purchase price for the Company's corn oil extraction technology (the
"Technology"). The TAA, as amended, provides for the payment to the Inventors of
21
a one-time license fee of $150,000 per system (a "System") built and
commissioned based on the Technology plus an ongoing royalty of $0.10 per gallon
of corn oil extracted with the Technology. The Company is required to sell,
market, deploy or in any way cause the initiation of operations of a total of
three Systems on or before December 31, 2008, a total of eight Systems on or
before December 31, 2009, and an additional five Systems per year thereafter up
to a total of eighteen Systems, at which point the Company has no continuing
commercialization requirement. The ownership of the Technology is subject to
reversion in the event that the Company fails to satisfy the commercialization
requirements of the TAA or if the Company otherwise initiates bankruptcy
proceedings. In any event of reversion, the Company shall retain the
non-exclusive right to use the Technology. David Winsness and Greg Barlage are
both members of the Company's board of directors and, respectively, the
Company's Chief Technology Officer and Chief Operating Officer. For the nine
months ended September 30, 2008, the Company incurred license fees of $750,000
(corresponding to technology licenses incurred on five Systems), royalty fees of
$147,832 (corresponding to 1,478,320 gallons of corn oil), and the Company also
prepaid license fees of $300,000 on two additional Systems. The license fees
were capitalized with $133,929 being amortized and included in the Company's
costs of sales for the nine months ended September 30, 2009. On July 1, 2009,
the Company issued unsecured convertible debentures (collectively, the "TAA
Debentures") to each of David Cantrell (in the amount of $787,205), David
Winsness (in the amount of $251,103), Greg Barlage (in the amount of $267,445)
and John W. Davis (in the amount of $255,964) in consideration for the full
payment amounts due and/or accrued pursuant to the TAA (as well as accrued
salaries of $85,587 and unreimbursed expenses of $128,298). The TAA Debentures
were acquired by MIF in September 2009 (see Note 9, Debt and Purchase
Obligations, above).
16 RESTATEMENT
The Company has restated its financial statements for the three and nine months
ended September 30, 2008. Management's calculations relating to accounting for
the impact of conversion features embedded in the Company's various derivative
securities under ASC 480, Distinguishing Liabilities from Equity, increase by
$4,522.
The Company also restated balances at December 31, 2008 to reflect the
disposition of one of its subsidiaries ("Culbertson") to a company under common
control (Carbonics Capital Corporation). The financial results of Culbertson
have been omitted from the Company's results of operations for the three and
nine months ended September 30, 2008 and 2009 and the December 31, 2008 balance
sheet and statement of stockholder's equity have been restated as well. The
change due to the disposition of Culbertson resulted in an increase of
additional paid in capital of $2,783,484 as well as a decrease of retained
earnings of $3,539,639.
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 ASC 810-10-45-16, Noncontrolling
Interest in a Subsidiary.
The following shows the effect of the restatements on the financial statements:
12/31/08 12/31/08
Balance Sheets: As reported As restated
--------------------------
Line of credit $10,000,000 $11,044,838
Convertible debentures, current 11,665,309 11,792,387
Convertible debentures, related party 1,512,325 1,900,333
Liability for derivative instruments 3,869,771 --
Liability due to shareholders -- 932,328
Convertible debentures, net of current 20,726,439 21,188,196
Minority interest 942,001 --
Additional paid-in capital 83,774,424 76,878,929
Accumulated deficit (146,432,325) (136,932,585)
Non-controlling interest
in subsidiary -- 9,673
9/30/08 9/30/08
Statements of Operations: As reported As restated
--------------------------
Revenues $ -- $ --
General and administrative expenses -- --
Bad debt expense -- --
Gain on disposal of equipment -- --
Other income (expense) -- --
Change in fair value-derivatives 319,829 --
Amortization of debt discount (3,157,312) (1,569,576)
Conversion liabilities -- (224,606)
Conversion liabilities - affiliate -- --
22
Loss from continuing operations (12,862,259) (8,423,246)
Net income (loss) (12,862,259) (11,538,106)
Earnings (loss) per share:
Continuing operations $ (0.19) $ (0.12)
Discontinued operations $ -- $ (0.05)
Total, basic and diluted $ (0.19) $ (0.17)
9/30/08 9/30/08
Statements of Stockholders' Equity: 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 (52,293,334) (47,975,579)
9/30/08 9/30/08
Statements of Cash Flows: As reported As restated
--------------------------
Net loss $(12,862,259) $(11,538,106)
Amortization of debt discount
and deferred financing costs 1,561,305 1,213,718
Change in fair value of derivatives (319,829) --
Interest from conversion liabilities -- 224,606
17 SUBSEQUENT EVENTS
COMMON STOCK ISSUANCES
Between October 1, 2009 and November 20, 2009, the Company issued a total of
2,414,643,653 common shares upon the conversion of $3,370,875 debt.
23
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 designed to integrate into and
leverage established production and distribution infrastructure to address the
financial and environmental needs of our clients by decreasing raw material
needs, facilitating co-product reuse, and reducing waste and emissions.
GreenShift's founding mission is to build value by using its technologies to
catalyze disruptive environmental gain. GreenShift believes that the first, best
and most cost-effective way to achieve this is to develop technology-driven
economic incentives that motivate large groups of people and companies to make
incremental environmental contributions that are collectively very significant.
GreenShift's plan to achieve this goal is based on the extraction, beneficiation
and refining of biomass-derived co-products that create value-added renewable
energy production opportunities capable of shaving meaningful amounts of carbon
and cost off of existing liquid fuel supply chains.
Since 2004, GreenShift has invented, developed and commercialized potent new
cleantech that enables GreenShift and its clients to "drill" into the back-end
of first generation corn ethanol plants to tap into a new reserve of inedible
crude corn oil with an estimated industry-wide output of about 20 million
barrels per year. This corn oil is a valuable second generation feedstock for
use in the production of biodiesel and renewable diesel - advanced
carbon-neutral liquid fuels, thereby enhancing total fuel production from corn
and increasing ethanol plant profits.
GreenShift's patented and patent-pending Corn Oil Extraction Technologies are
widely considered to be the quickest and best path for margin improvement for
first generation corn ethanol producers today. GreenShift's extraction
technologies increase biofuel yields per bushel of corn by 7% while reducing the
energy and greenhouse gas (GHG) intensity of corn ethanol production by more
than 21% and 29%, respectively.
These benefits correspond to increased ethanol producer income of about $0.12
per gallon of ethanol produced at current market prices, and can be realized for
less than 10% of the capital cost of the host ethanol plant. No technologies
have been developed for corn ethanol producers that begin to approach even a
fraction of these results in the history of the ethanol industry.
Over 20% of the U.S. ethanol industry is using GreenShift's patented and
patent-pending extraction technologies today. At full participation by the
ethanol industry, GreenShift's commercially-available technologies can give way
to the disruptive gains that GreenShift was founded to achieve by sustainably
producing globally-meaningful quantities of new carbon-neutral liquid fuels for
distribution through existing supply chains and combustion in our nation's
boilers, generators and engines; displacing more than 20 million barrels per
year of crude oil; saving up to 10 trillion cubic feet per year of natural gas;
eliminating tens of millions of metric tons per year of greenhouse gas
emissions; and infusing up to a billion dollars per year of cash flow into the
corn ethanol industry - the foundation of North America's renewable fuel
production capability.
GreenShift is focused today on supporting integration of its patented and
patent-pending corn oil extraction technologies into as much of the ethanol
fleet as possible. GreenShift also maintains its strong commitment to continued
innovation and has many additional patents pending for its "Backend
Fractionation" portfolio of strategically-compatible cleantech designed to
continue pressing the corn ethanol industry into increased sustainability and
global competitiveness.
We currently own four corn oil extraction facilities based on our patented and
patent-pending corn oil extraction technologies that are located at our
licensee's ethanol plants in Oshkosh, Wisconsin, Medina, New York, Marion,
Indiana, and Riga, Michigan. We have installed one facility at another
licensee's ethanol plant in Albion, Michigan under a modified version of our
market offering where our licensee paid to build the extraction facility. We
have also recently entered into an agreement to finance, build and commission
two additional corn oil extraction facilities at a licensee ethanol plant in
Lakota, Iowa. We have the long-term right (10 years or more) to buy the oil
extracted from each facility in return for the use by each licensee of our
patented and patent-pending corn oil extraction technologies. These facilities
collectively are designed to extract in excess of 9 million gallons per year of
inedible corn oil. We are currently focused on securing the capital resources we
need to operate our existing facilities and to build new corn oil extraction
facilities.
During the nine months ended September 30, 2009, we also owned a 10 million
gallon per year biodiesel facility in Adrian, Michigan ("BIG") and an oilseed
24
crush facility in Culbertson, Montana ("Culbertson"). These two facilities were
idled during the first quarter 2009 due to a lack of working capital. The
Company divested both of these facilities during the second quarter of 2009. The
financial results of these subsidiaries have been presented as discontinued
operations as and for the quarter ended September 30, 2009 (see Note 6,
Discontinued Operations). The Company's specialty equipment manufacturing
operations were also idled during the nine months ended September 30, 2009. The
Company intends to liquidate certain assets of this operation during the fourth
quarter of 2009 and may 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.
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 subsequently 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 new financing to restart our
construction activities.
We were recently awarded two patents on for our corn oil extraction technologies
from the U.S. Patent and Trademark Office. 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 our
existing and planned new 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;
>> Form strategic partnerships to accelerate and amplify execution of
go-to-market strategy for corn oil extraction technologies, and to
enhance the development of pilot and bench stage technologies; and,
>> Reduce and/or restructure the substantial majority of our convertible
and other debt raised during 2004-2007 to develop and commercialize
our extraction and refining technologies.
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:
3 Months Ended September 30 9 Months Ended September 30
------------------------------- -------------------------------
2009 2008 2009 2008
------------ ------------ ------------ ------------
Summary Statement of Operations:
Revenue .................................................. $ 927,817 $ 2,494,602 $ 2,960,501 $ 11,352,176
Cost of revenues ......................................... 830,249 1,781,546 2,824,636 5,827,445
------------ ------------ ------------ ------------
Gross profit ........................................... 97,568 713,056 135,864 5,524,731
Operating expenses ....................................... 1,286,828 1,007,317 14,869,543 4,492,750
------------ ------------ ------------ ------------
Income (loss) from operations ......................... (1,189,260) (294,262) (14,733,679) 1,031,980
Other income (expense), net ............................. (2,205,536) (2,875,118) (6,379,576) (9,455,906)
------------ ------------ ------------ ------------
Loss before noncontrolling interest and taxes ......... (3,394,796) (3,169,380) (21,113,255) (8,423,925)
Noncontrolling interest in net loss of
consolidated subsidiaries............................... -- 2,489 -- 8,908
(Provision for) benefit from income taxes ................ -- (8,229) 402,347 (8,229)
Income from discontinued operations ...................... -- (2,554,787) 14,452,083 (3,114,859)
Preferred dividends ...................................... -- -- (270,000) --
------------ ------------ ------------ ------------
Net income (loss) ..................................... $ (3,394,796) $ (5,729,907) $ (7,765,533) $(11,538,106)
============ ============ ============ ============
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Other financial data:
Net cash flows (used in) provided by operating activities -- -- (683,366) 4,120,528
Net cash flows (used in) provided by investing activities -- -- (1,130,618) (10,379,875)
Net cash flow (used in) provided by financing activities . -- -- 1,804,280 6,313,537
------------ ------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents .. -- -- (9,704) 54,190
Operating data:
Corn oil extracted (gallons) ............................. 589,988 459,030 1,710,339 906,055
Average gross price of corn oil sold per gallon ($) ...... $ 1.84 $ 3.06 $ 1.50 $ 2.84
Three Months Ended September 30, 2009 Compared to Three Months Ended September
30, 2008
Revenues
Total revenues for the three months ended September 30, 2009 were $927,817
representing a decrease of 1,566,785, or 62.8%, over the three months ended
September 30, 2008 revenues of $2,494,602. Revenue for the three months ended
September 30, 2009 included $876,230 in biofuel sales and $51,586 in equipment
and technology sales. In the comparable period of last year, our revenues were
comprised of $774,027 from the sales of biofuels and $5,187,748 from sales of
equipment and technology.
Cost of Revenues
Cost of revenues for the three months ended September 30, 2009 were $830,249, or
89.5% of revenue compared to $1,781,546, or 71.4% of revenue for the same period
in 2008. During the three months ended September 30, 2009, the Company's biofuel
production costs of revenue were $548,944 as compared to $630,839 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 $147,376 for the three
months ended September 30, 2009 as compared to $1,865,908 for the same period in
2008.
Revenues in 2009 decreased due to the fact that the Company's biodiesel refinery
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 September 30, 2009, and 2008,
respectively. Depreciation and amortization expense increased by $197,866 over
the same period in 2008.
Gross Profit
Gross profit loss for three months ended September 30, 2009 was $97,568,
representing a gross margin of 10.5%. This compared to gross profit of $713,056,
representing a gross margin of 28.6%, from the comparable period in 2008.
Operating Expenses
Operating expenses for the three months ended September 30, 2009 were $1,286,828
compared to $1,007,317 for the same period in 2008. Included in the three months
ended September 30, 2009 was $0 in stock-based compensation as compared to
$33,176 for the three months ended September 30, 2008. The greatest increase in
operating expenses, $396,822 in bad debt expense, was related to the accounts
receivable due from BIG for equipment and corn oil provided by various
subsidiaries of the Company. The Company has set up an allowance for bad debt
for the total amount due.
Interest Expense
Interest expenses and financing costs for the three months ended September 30,
2009 were $2,019,355 and $1,588,899 for the three months ended September 30,
2008. Included in the three months ended September 30, 2009 was $1,567,185 of
interest expense, consisting of $1,381,442 in accrued interest, $185,743 in
accrued interest due to a related party, and $452,170 in non-cash expenses
associated with the conversion features embedded in the convertible debentures
issued by the Company during the three months ended September 30, 2009.
26
Amortization of note discount was $284,592 and $579,424, respectively for the
three months ended September 30, 2009 and 2008.
Expenses Associated with Change in Convertible Liabilities
As of September 30, 2009, the Company had several convertible debentures due to
YA Global Investments, LP. The Company accounted for the convertible debentures
in accordance with FASB Accounting Standards Codification, Topic 105, 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 $452,170 for the three months
ended September 30, 2009 have been recognized within other income (expense) as
Changes in conversion liabilities in the accompanying financial statements,
including $325,252 for related party debt.
Net Income or Loss
Net loss from continuing operations for the three months ended September 30,
2009, was $3,394,796 as compared to a loss of $3,175,120 from the same period in
2008. Gain for discontinued operations was $0 for the three months ended
September 30, 2009 as compared to $2,554,787 for the three months ended
September 30, 2008. Net loss for the three months ended September 30, 2009, was
$3,394,796 as compared to a loss of $5,729,907 from the same period in 2008.
The Company's net loss during the three months ended September 30, 2009 was
$3,394,796, which is decreased from the $5,729,907 loss recorded in the same
period of 2008. The primary reasons for net loss were the dramatic reduction in
our operating activities as compared to 2008 and expenses attributable to past
financing and restructuring activities. The income included the following
non-cash items: amortization of debt discount and deferred financing fees of
about $290,000, loss on conversion liabilities of $452,000, depreciation
expenses of about $892,000, and accrued interest of about $1,500,000.
Nine months Ended September 30, 2009 Compared to Nine months Ended September 30,
2008
Revenues
Total revenues for the nine months ended September 30, 2009 were $2,960,501
representing a decrease of $8,391,675 , or 73.9%, over the nine months ended
September 30, 2008 revenues of $11,352,176. Revenue for the nine months ended
September 30, 2009 included $2,610,795 in biofuel sales and $349,706 in
equipment and technology sales. In the comparable period of last year, our
revenues were comprised of $1,286,563 from the sales of biofuels and $10,065,613
from sales of equipment and technology.
Cost of Revenues
Cost of revenues for the nine months ended September 30, 2009 were $3,740,708 or
126.4 % of revenue compared to $5,827,445, or 51.3% of revenue for the same
period in 2008.
During the nine months ended September 30, 2009, the Company's biofuel
production costs of revenue were $1,141,307 as compared to $823,925 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 $853,081 for the nine
months ended September 30, 2009 as compared to $3,178,314 for the same period in
2008.
Revenues in 2009 decreased due to the dramatic reduction in the Company's
operating activities as compared to 2008 caused by the loss of previously
committed sources of capital and the unavailability of the working capital
resources these operations require.
Gross Profit
Gross profit for nine months ended September 30, 2009 was $135,864, representing
a gross margin of 4.6%. This compared to $5,524,731, representing a gross margin
of 48.7% in the comparable period of the prior year.
27
Operating Expenses
Operating expenses for the nine months ended September 30, 2009 were $14,869,543
compared to $4,492,750 for the same period in 2008. Included in the nine months
ended September 30, 2009 was $0 in stock-based compensation as compared to
$370,009 for the nine months ended September 30, 2008. The greatest increase in
operating expenses, $4,712,026 in bad debt expense, was related to the accounts
receivable due from BIG for equipment and corn oil provided by various
subsidiaries of the Company. The Company has set up an allowance for bad debt
for the total amount due. Included within operating expenses is depreciation and
amortization expense of $890,039 and $100,103 for the nine months ended
September 30, 2009, and 2008, respectively. Depreciation and amortization
expense increased by $789,936 over the same period in 2008.
Interest Expense
Interest expenses and financing costs for the nine months ended September 30,
2009 were $5,899,219 and $4,485,334 for the nine months ended September 30,
2008. Included in the nine months ended September 30, 2009 was $4,624,110 of
interest expense, consisting of $4,351,582 in accrued interest, $272,528 in
accrued interest due to a related party, and $1,275,109 in non-cash expenses
associated with the conversion features embedded in the convertible debentures
issued by the Company during the nine months ended September 30, 2009.
Amortization of deferred financing costs and debt discounts was $671,389 and
$1,569,576, respectively.
Expenses Associated with Change in Convertible Liabilities
As of September 30, 2009, the Company had several convertible debentures due to
YA Global Investments, LP. The Company accounted for the convertible debentures
in accordance with ASC 480, Distinguishing Liabilities from Equity, 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 $1275,109 for the nine months
ended September 30, 2009 have been recognized within other income (expense) as
Changes in conversion liabilities in the accompanying financial statements,
including $451,807 for related party debt.
Net Income or Loss
Net loss from continuing operations for the nine months ended September 30,
2009, was $20,710,907 as compared to a loss of $8,423,246 from the same period
in 2008. Gain for discontinued operations was $13,215,374 for the nine months
ended September 30, 2009 as compared to a loss of $3,114,859 for the nine months
ended September 30, 2008. Net loss for the nine months ended September 30, 2009,
was $7,765,533 as compared to a loss of $11,538,106 from the same period in
2008.
The Company's net loss during the nine months ended September 30, 2009 was
$7,765,533, which is increased from the $11,538,106 loss recorded in the same
period of 2008. The primary reasons for the magnitude of this net loss were the
dramatic reduction in our operating activities as compared to 2008 and expenses
attributable to past financing and restructuring activities. The loss also
included the following non-cash items: impairment charges relating to the
Biofuels Industries, LLC subsidiary of about $7,300,000, amortization of debt
discount and deferred financing fees of about $194,000, loss on conversion
liabilities of $1,200,000, depreciation expenses of about $890,000, and, accrued
interest of about $4,600,000.
LIQUIDITY AND CAPITAL RESOURCES
Current and Prior Year Activity
The Company had no cash as of September 30, 2009. Our primary sources of
liquidity are cash generated from proceeds from issuance of debt and common
stock. For the nine months ended September 30, 2009, cash provided by financing
activities was $1,804,280.
Our financial position and liquidity are, and will be, influenced by a variety
of factors, including our ability to properly capitalize our operating and
construction activities, our ability to generate cash flows from our operations,
and the level of our outstanding indebtedness and the interest we are obligated
to pay on this indebtedness.
28
The Company's capital resources are impacted by changes in accounts receivable
as a result of revenue fluctuations, economic trends, and collection activities.
At September 30, 2009, accounts receivable, net of allowance for doubtful
accounts, totaled $173,079 and inventories totaled $616,056. Accounts payable
and accrued expenses totaled $14,002,480.
For the nine months ended September 30, 2009, we used $683,366 in investing
activities as compared to $4,120,528 provided by investing activities for the
nine months ended September 30, 2008, and financing activities provided
$1,130,618 in cash as compared to $10,379,875 in cash provided by financing
activities during the nine months ended September 30, 2008.
The Company had a working capital deficit of $66,705,102 at September 30, 2009,
which includes convertible debentures and line of credit totaling $30,219,765,
accrued interest payable of $8,626,962, related party convertible debentures of
$5,219,438, related party debt of $39,000, $3,979,437 in purchase obligations
and $9,673 in minority interest obligations associated with inactive
subsidiaries. The Company's working capital deficit net of these amounts is
$18,598,328.
Despite their classification as current liabilities, current convertible
debentures, line of credit and accrued interest ($38,846,727) 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.
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.
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 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 previously idled other 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.
29
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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.
During the nine months ended September 30, 2009, 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 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 September 30, 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.
30
PART II - OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
On October 13, 2009, the U.S. Patent and Trademark Office issued U.S. Patent No.
7,601,858, titled "Method of Processing Ethanol Byproducts and Related
Subsystems" (the '858 Patent) to GS CleanTech Corporation, a wholly-owned
subsidiary of GreenShift Corporation. On October 27, 2009, the U.S. Patent and
Trademark Office issued U.S. Patent No. 7,608,729, titled "Method of Freeing the
Bound Oil Present in Whole Stillage and Thin Stillage" (the '729 Patent) to GS
CleanTech. Both the `858 Patent and the `729 Patent relate to the Company's corn
oil extraction technologies. On October 13, 2009, GS CleanTech filed a legal
action in the United States District Court (Southern District of New York)
captioned GS CleanTech Corporation v. GEA Westfalia Separator, Inc.; and DOES
1-20, alleging infringement of the `858 Patent. On October 13, 2009, GreenShift
filed a Motion to Dismiss with the same court relative to a separate complaint
filed previously by Westfalia alleging (1) false advertising in violation of the
Lanham Act ss. 43(a); (2) deceptive trade practices and false advertising in
violation of New York General Business Law ss.ss. 349, 350 and 350-a; and (3)
common law unfair competition. On October 13, 2009, Westfalia filed its First
Amended Complaint in the matter captioned GEA Westfalia Separator, Inc. and Ace
Ethanol, LLC v. GreenShift Corporation, which complaint included Ace Ethanol, an
ethanol production company, and added claims seeking a declaratory judgment of
invalidity and/or non-infringement of the `858 patent. On October 13, 2009, ICM,
Inc. filed a complaint in the United States District Court (District of Kansas)
in the matter captioned ICM, Inc. v. GS CleanTech Corporation and GreenShift
Corporation, alleging unfair competition, interference with existing and
prospective business and contractual relationships, and deceptive trade
practices. ICM is also seeking declaratory judgment of invalidity and
non-infringement of the `858 patent. On October 15, 2009, GS CleanTech filed a
Notice of Filing First Amended Complaint for infringement of the `858 patent,
along with a copy of the First Amended Complaint, which added ICM, Ace Ethanol,
Lifeline Foods LLC and ten additional DOES as defendants in the case pending in
the Southern District of New York. These matters were only recently commenced
and Management is unable to characterize or evaluate the probability of any
outcome at this time.
The Company's subsidiary, NextGen Fuel, Inc., 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 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, and on October 16, 2009 O'Brien &
Gere dismissed GS AgriFuels and the Company from the suit 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 relating to
the sale by the defendants of the stock of Sustainable Systems, Inc.
("Culbertson") to GS AgriFuels, and arising from the disclosure by the
defendants that Culbertson owned its Culbertson, Montana oilseed crushing
facility when in fact Culbertson merely held the right to purchase the Montana
facility at the time of the acquisition by GS AgriFuels; the failure to disclose
by the defendants that Culbertson's right to purchase the Montana facility, as
well as any investment made in the Montana facility, was subject to forfeiture
within months of entering into the acquisition agreements with GS AgriFuels;
and, the provision by the defendants of materially false financial statements.
The defendants served a separate action entitled Max, et al. v. GS AgriFuels
Corporation, et al. in the Montana Fourth Judicial District Court in response to
GS AgriFuels' New York complaint. GS AgriFuels has petitioned for dismissal of
the Montana action and three of the former shareholders of Culbertson,
corresponding to about 64% of the former shareholders' prior ownership interest
in Culbertson, have entered into settlement agreements pursuant to which GS
AgriFuels has been released from all obligations under the relevant acquisition
agreements and otherwise. Despite these settlements, Management is unable to
evaluate the probability of an unfavorable outcome at this time. An estimate of
loss cannot be determined and therefore, no accrual has been made in connection
with this contingency, however, Carbonics Capital Corporation (see Note 6,
Discontinued Operations, above) has assumed all rights and obligations of GS
AgriFuels pertaining to this litigation. Carbonics is majority owned by the
Company's majority shareholder, Viridis Capital, LLC.
31
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 nine months ended September 30, 2009, the Company
issued a total of 582,942,436 shares to the Company's various convertible debt
holders upon their conversion of convertible debenture in the aggregate amount
of $1,597,804. 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 entities
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
As of September 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 September 30, 2009. The Company intends to cure this
default and restructure its debt due to YAGI during 2009.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5 OTHER INFORMATION
None.
32
ITEM 6 EXHIBITS
The following are exhibits filed as part of GreenShift's Form 10Q for the
quarter ended September 30, 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.
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: November 24, 2009
3
