valuate their opinions - (OK - that like that could happen! LOL). I got some SCARY voting % numbers and present OS share numbers at the beginning for the Shorts - and some SCARY future OS share numbers in the Long Range Forecast for the Longs. . . . BOO00oooooo!
Lets talk about voting rights. Who is running the company now and who will be running the company in the future? Things have changed - or have they?
21 Dec 2007 Kevin Kreisler controlled 65.10%* of the voting rights. Pg 2 (14c)
On page 101 of the '07 Annual we have the voting percentages of the officers at that time:
Kevin Kreiseler: 54.98%
David Winsness: 4.15%
Greg Barlage: 3.11%
Edward Carrol: 2.49%
As I have read on the boards - It would take Kevin Kreisler and two of the three other officers to get a 60% super majority. These preferred shares are convertible to common shares and the officers seem to be able to exercise these voting privileges now. However, no one can convert these shares to common and sell them now. They must earn that right after certain EBITDA milestones have been achieved. On page 92 of the 2007 Annual the "Reduction and Restriction of Founder Shares" is covered. Mr Kreisler earns his full conversion at 75M EBITDA and Senior Management and Technical Staff earn their full conversion at 50M.
However "The times - they are a changing."
As we move to the Quarterly, the NextDiesel Acquisition makes a BIG splash in the pond. First of all, on the bottom of page 30 we see the chart x'plaining it to us. The BIG shareholder group starts the day with 20M shares. When we hit 50M EBITDA, they will be at 40M shares converted. However, like the other preferred holders - the Skunk believes they can vote their shares today. Now lets say that "Big" Founder shareholders proxy their votes to Terry Nosan who will represent their interests on the board.
This is how the Skunk sees things TODAY: Pg. 30(1st Qtr Rpt)
Kevin Kreiseler: 124,954,000 43.1%
Big Founder Shares: 40,000,000 13.8%
Employee Pool 69,133,333 23.7%
Public Float 56,044,957 19.3%
Total 290,132,290 100.00%
Looks like Mr. Kreisler lost his majority control. Does that make our world a little different? People have been saying that's what they wanted for years. Now it happened and nobody noticed. Sit down - the room will stop spinning in a minute.
Everyone knows this just cannot be true - Soooo . . .Lets play "what if": What if Terry Nosan cannot vote the other BIG founder shares? What if YAGI converts and sells a bunch of shares? What if the Employees or Mr. Kreiseler decides to sell shares after they have earned the right to convert? The answer to all of these question is the voting power of the common shareholders will increase compared to everyone else. The voting percentage of the others will decrease.
BUT WHAT IF: What if KK wants to change the number of shares he can convert???? What if he wants more shares?? What if, What if, What if? . . . Not with 43% voting rights he's not - not without the approval of another group. All the other groups will lose if he regains majority status - so what would be their motivation? Sit down - the room will stop spinning in a minute.
Since I mentioned YAGI, the senior creditor in this deal - lets talk about that. What is the deal with them and the Public Float?
How about a little history:
In the 9 November 2007 shareholder letter, we were given the plan for the consolidation:
The base of the float would consist of the shares of CleanTech Corp (10M)* after the 50:1 RS (COB 11Dec '07) and the shares issued by the old Greenshift Corp. Near the start of 2008 owners of the "old" Greenshift got the new shares of 3 companies including Clean Tech(20.8M)**. On 25 January '08 Yagi was given 6M shares to "entice" them to finance the COES.
4 Feb '08 YAGI filed a 13g claiming over 5% voting shares at 6,402,598 common shares.
Clean Tech Corp was renamed Greenshift Corp on COB 11 Feb '08. 29 Feb '08 Agrifuels stopped trading and was rolled into GERS. The consolidation basically took place as outlined in the Nov '07 letter without many surprises - even as many public investors continued to pull out tuffs of hair in frenzied worry. On 15 May '08 The BIG investors got 20,000,000 shares of common stock straight up and another 20M shares convertible only when EBITDA milestones are reached. On the first page of the Annual# (detail p. 94) and the first page of the Quarterly## (detail p. 30) we got an update of the number of shares Outstanding.
Total Shares Outstanding
*12 Dec '07 10,000,000 shares
**1 Jan "08 30,800,000 shares.
# 4 April '08 66,200,526 shares
##19 May 85,031,348 shares
Analysis:
So what does this mean? We started with 10M shares of CleanTech Corp after the R/S.* We next added the 20.8M shares from the old Greenshift shareholders.** Next we enticed YAGI to loan us 10M dollars by giving them 6M shares.# (added 3June08) We also converted almost 7M shares to settle an old $1M Lawsuit judgement. (p.23 1st Quarter)
"In February 2008, MIF subsequently fully converted this debenture at the rate of $0.16 per share into 6,875,000 shares of Company common stock."
"In January 2008, the Company issued 25,085 and 6,797,633 shares of Company common stock to relatives of Kevin Kreisler upon conversion of 1,254,244 shares of Company Series A Preferred Stock and 151,250 shares of Company Series B Preferred Stock, respectively, which Series A and Series B preferred shares were originally issued in 2003 in connection with financial accommodations provided to the Company by the holders." (p.28 1st Quarter)
Since we have nothing else to go by - We also had 15,702,808 shares of additional YAGI debt dilution in the first quarter - determined by subtraction.# Finally we purchased NEXT Diesel with 20M shares of common stock on 15 May'08.
However, we can see the difference between the last two numbers is less that 20M from the April to May dates??? A closer look shows that the Public Float increased by 498,431 shares, yet Mr. Kreisler's common shares decreased by 1,332,391 and the employee pool shrunk by 335,217 shares. This leaves us with a net loss of 1,169,177 shares in the Total Shares Outstanding. Of course if Mr. Kreisler and the other employees had sold their stock - it would have increased the Public Float by the same amount as the sale. Instead the Public Float only increased by less than .5M shares and we get an overall CONTRACTION (Subtracting out the 20M share NEXTDiesel buy) in total shares OS. The only answer the Skunk can come up with is Mr. Kreisler and the "employee pool" unconverted most of the shares in question. This has left Mr. Kreisler with only the 154,000 shares of common stock that he had purchased earlier this year.
Sorry
I know this might be too much for one to chew on in a single week - Kevin Kreisler having 43.1% of the voting power today - and having unconverted common shares back to preferred - but I am willing to listen to any other reasonable explanation that does not involve either "The Trilateral Commission", the "Masons", or a certain "grassy knoll" or other conspiracism.
NEXTDiesel
This 30,000 square foot facility is located on a 25-acre land parcel ideally located in Adrian, Michigan. The plant features an indoor heated area for feedstock storage tanks and the B100 NextDiesel bio-diesel product among other important features such as:
An on-site state-of-the-art test lab
Sophisticated environmental and fire suppression systems
Carefully chosen, highly automated processing equipment that does not emit greenhouse gases and uses only recycled water during NextDiesel bio-diesel production.
Access to three major railroads with on site space for 15 rail cars with expansion to 50 rail cars on site. With 25 acres, we also have the potential for future expansion.
Possible Scenario by the end of the year?
I have grouped each oil producer with its closest Bio-Diesel plant. The way the Skunk has it - All distances are under 350 miles - most way under. The two WI plants give us some flexibility - since the distance to Next Diesel in Adrian, MI and Lakota, IA is almost identical and they can be sent either way depending on our production needs. When you factor in the Chicago Metro area with its traffic, tolls and trouble - I think they would be going to Lakota - on a day when everything else is equal!
One thing interesting about the Marion, ID COES system that is now planned to come up in June. According to a Sept/Oct '07 article in BFJ Magazine, the President and General Manager said:
“Our goal is to have our own biodiesel plant on-line by the end of 2008,” Miller added, saying it will produce 5 MMGY of biodiesel, “all from the same corn feedstock.”
Unless things have changed this 5MMGY line may be one of the third party bio-diesel facilities that we are now producing. GERS advertises it can produce either the 5M or the more popular 10MMGY Modular Bio-diesel production line. GERS claims that no one else has the technology to refine the corn oil it produces. So I suspect that the corn oil Marion produces will be refined at NextDiesel until (if and when) their on site plant is complete - using their own bio-diesel line built by GERS. Marion, IN is 173 miles away from the NextDiesel Plant - close enough to be efficient either way.
On another front here is another tidbit from the Global Ethanol Web site:
"It is anticipated that Global Ethanol will be producing the corn oil by the third quarter of 2008 and that the bio-diesel plant will be in production by the third quarter of 2009."
Further along we have this:
"Installation of a 10 million gallon per year Biodiesel facility at Lakota. Target Completion Date: August 20, 2009"
Bio-Diesel Capacity/COES Production/Miles to closest Bio-Diesel Plant
Adrian, MI 20M/0/0
Riga, MI 0/1.5M/16 miles
Marion, IN 5M?/1.5/173miles
Fulton, NY 10M/3M/0
Medina, NY 0/1.5M/108 miles
Lakota, IA 10M/3M/0 miles
Oshkosh, WI 0/1.5M/327 miles to Lakota (401 to Adrian, MI)
Milton, WI 0/1.5M/344 to Lakota(also 344 to Adrian - but 20 min faster to IA)
Culbertson, MT 10M/16M/0 miles (Lakota is 840 miles)
Richardton, ND 0/1.5M/188 miles (Lakota is 654 miles)
Marion, IN 5M/1.5M/0 miles (173 miles to Adrian, MI)
The fuel tanker above has an 8500 gallon capacity. Moving 1.5M gallons of corn oil/year = (4110 gallons/day) would require one of these tanker trucks moving the oil to a bio-diesel plant almost every other day. By grouping the plants with a bio-diesel producer - I have attempted to minimize transportation costs. It seems obvious now that the missing 10M gallon bio-diesel plant (in order to get our 50M gallon capacity established for end of year 2009) - has to go to the MT seed crushing plant. That is the only way the Richardton, ND plant and the huge MT expansion makes any business sense. The Bio-Diesel capacity in MT can access the local customer base - and as they expand can access the lucrative west coast Bio-Diesel market by rail or truck. Although none of the plants would appear to be fully utilized - many more COES (30+ total?) are reported to be under contract. In the meantime - in order to keep the revenues coming in - all the plants have access to low-cost feedstock from various waste fats from sources scattered throughout the Midwest.
Little can be better
VERASUN
This from the VERASUN web site - this shows are at least a year behind us and have yet to see a single gallon of commercial production:
"In December 2007, work began on an oil extraction facility at VeraSun Aurora utilizing a technology to extract corn oil from distillers grains, a co-product of the ethanol production process. Construction is targeted to be completed by the end of 2008 and the process is expected to yield 8 million gallons of corn oil annually from 390,000 tons of distillers grains. The corn oil will be made available for sale to the biodiesel market. One gallon of corn oil yields approximately one gallon of biodiesel, increasing the production of renewable fuels without creating additional feedstock demand."
SKUNK's GRADE for DETAILED FORECAST FOR May 27-30th
Best Buys 8.5 -9.5 cents (Actual .81-.86 - We had 50,000 bought this level) Pretty Close = B+
Weekly range 8.5 - 11.5 ( Actual .81-.102) NOT BAD! = B+
Closes above .15 NONE this week (Actual none) - Wish I was wrong here! = B+
Friday's close .105 (Actual .92) Off by 12% - I use to like Fridays! = C
Overall Grade for the week = a good Solid B
More to come . . .
Weekly Forecasts. . .
LONG RANGE FORECAST
Detailed review of the quarterly has made two BIG changes* to my forecast. The first is the increase of value added margin found in the Quarterly due to spot price increase in the price of bio-diesel. The second is the added dilution from the BIG purchase and Series "E" employee stock conversions. From the quarterly:
"Moving forward, since we are now directly refining our extracted corn oil into biodiesel, the contribution of corn oil to our gross profit is expected to increase to more than $2.00 per gallon."
The goal for GERS (as it has been for at least the last 8 months) is to have 50M gal of COEs, 50M gal of bio-diesel and 16 M gal of oilseed crush annualized capacity online by the end of 2009. With 50M gallons value enhanced that is over $100M EBITDA. (Up from my previous 70M estimate based on $1.40 gross profit/gallon in the Nov 2007 Shareholder Letter.)
The expansion in Montana is still expected to be completed in 2008 - and a good year running near capacity in 2009 should be a solid start to paying off the $9M debt to its former owners and the service of its own debt. We are expected to add $80M in sales and $12M in EBITDA from the Montana Oilseed crush plant during the years 2009, 2010 and beyond.
We see in the Feb '08 shareholder letter a mention of more than 15M in sales for the construction of four 10M gal Bio-diesel plants to third party clients. Our focus has obviously evolved away from third party sales to building our own COEs and bio-diesel. In the shareholder letter dated 9 November 2007 the total estimated future revenue from Bio-diesel sales was 53m with an EBITDA of 13M. We will use that ratio to find the EBITDA for our 2008 sales - I will then use a conservative flat projection for 2009. Our 15M then, provides a conservative $3.68M EBITDA for our annualized third party sales projected into the future.
Totaling up our three major revenue sources in blue font above, we have a projected annualized rate of EBITDA in Feb 2010 of $115.68M
If we reach these goals - clearly re-stated in the 2007 Annual Report - and the First Quarter Report - then it will also affect the number of shares outstanding. A detailed employee stock reward program is in effect on page 93 of the 2007 Annual report. Put simply - with well over $100M EBITDA - the outstanding shares will be 290,132,290 (241,133,851 in Annual) - nearly 3.5 times its present number of 85,031,348. Since we want to include all possible dilution to find a conservative number - we also need to look at page 59 of the annual report to learn this:
"Potential future dilutive securities include 996,279 outstanding options and warrants, and 37,865,871 shares issuable for the conversion of convertible debentures."
Which now changes to this on page 13 of the Updated Quarterly:
"Potential future dilutive securities include 996,279 outstanding options and warrants, and 37,865,871 shares issuable for the conversion of convertible debentures and 56,300,942 shares issuable after the conversion of the Series B Preferred stock under the employee pool."
So with the employee stock reward program and these remaining convertible debentures all paid through dilution - we get a grand total of 388,295,382 shares "possible" outstanding in FEB 2010. Or, with your permission, the Skunk will round up to 388.3M Shares Outstanding.
This is where we may stand with the OS shares - some 4.6 times the present levels in under two years. Yet, what shareholders need to remember is in order to have that kind of number of OS shares - the EBITDA will be over 31 times its present amount ($920,324 X 4 = $3,681,296 or 1st Q at annualized rate of 3.68M) and that difference will be reflected in the share price. Using a factor of one-third to project net income from EBITDA , we can see:
34.7M/388.3M Shares = (net income)/Total OS) = .08936
(PE) X (Diluted EPS) = (est PPS)
55 x .08936 = $4.91 Share Price in FEB 2010**
NOTE:(The Skunk thinks that the 56.3M shares from the employee pool may have already factored in - and - since we may have had almost 30M shares from convertable debentatures converted in the First Quarter already - that number should have also gone down. However the Skunk will research some more and go with the highest conservative number of 388.3M shares for now. Leave me a comment or an E-Mail if you think you can help here.)
**Note: I am a shareholder - I do not work for, nor do I receive any direct or indirect payment from GERS or anyone associated with them. (But it would be Kapitalist Kool if I did) I will not intentionally mislead - but I can be wrong (ask Mrs. Skunk for specific frequencies) - so do your own due diligence - and take responsibility for your own financial decisions – (and your own life in general) good or bad. And some good garage logic luck to ya.
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