Thoughts on the Interview

Well that was sure exciting, wasn't it. The Skunk has held off on any commentary on the interview with Kevin Kreisler for a number of reasons. First as a courtesy to you, the readers of this blog, who deserve time to form your own first impressions based on what you read. Second, as a courtesy to the interviewee: Since Mr. Kreisler had the floor, it obviously would be presumptuous for me to stand behind him and tell you what he was saying as he was saying it. Lastly the Skunk needed a little time to shift through the answers (and at least try) to gleam more than the obvious.

THE REACTION

The blog got a lot of hits. The message boards had a lot of analysis and opinion. A lot of time and effort went into that and I think that's great for all investors who read the threads. I posted a few of the links that grabbed my attention although there were many more comments that deserve to be read. I don't agree with everyone (hard to, since they are all different!) but that doesn't mean I can't learn something from each.

The FORMAT

I submitted the questions. The CEO provided the answers. I posted those questions and answers. Now the obvious weakness here is there were no immediate follow up questions and free form discussion that might have flushed out more information. However that wish assumes o'l Skunk is some kinda financial Tim Russert reincarnate. He is not. My mind works like my '73 Vega. Sure, it will go almost anywhere, but I likely won't be the first one there. Like my friend Clint told me: "A man's gotta know his limitations." It also assumes any CEO would be willing to enter into an on-the-record free for all. I haven't seem much of that anywhere. So after a bit of time goes by, I suspect I will submit more questions and we will go from there.

The Skunk didn't have a license to ask questions - so if you got some questions - You should just go ahead and ask. You can post the answers on the investment boards - or if you want to - give Greenshift my email and ask them to info me a copy of the reply. That way you can keep your autonomy (if you wish), I will post it on the blog, and you might escape some bar stool quarterbacking on the boards. I would get the info e-mail directly from Greenshift so other readers can have some assurance it was from the source. Since I just though of this, Greenshift has no idea about it, but it seems "cricket" to share answers to our questions.

I would like to start by listing what information from the Interview the Skunk thinks is new.

1. COES - The schedule has changed.

2. Investor Relations - Expect no PRs. August 15 is next Filing. Open House.

3. Montana - expansion is on hold awaiting USDA guaranty/financing.

4. NEXTDiesel - is operating at 10MMgy (today).

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1. COES - the schedule has changed:

The new COES agreement does three main things. First, (a minus) it calls for 4 COES online and at 100% capacity by 30 Sept. This is a step back from the Eight that were originally planned for this time. Now we have an end of year deadline as well. We see five more are planned to be completed by the end of the year. Second, (a plus) this total of nine COES is one more than we originally had scheduled. If Lakota, IA and Fulton NY remain at stage two units with 3mmgy name plate and this new unit is at 1.5mmgy like the other six, then we are set to achieve 16.5mmgy COES capacity by years end, exceeding our 15mmgy goal. Third (a plus) we have a reason for the low production numbers in the 1Q Report. First, we were told on the boards that the production numbers were low. Then the Skunk tried to take everything into account and estimated that the COES production revenues should be about $800K. Next the 1stQ Report came in under half of my estimate. The lack of any explanation caused everyone to wonder: Was this company on firm ground - if its entire base was built on something that didn't work very good??? The only thread we had from the Filing was that the Utica plant was undergoing an upgrade and we already knew the Medina, NY plant had come up late in the first quarter. These problems were a part of the reason I reduced my long range forecast by half: from over $10 to under $5. When I see higher production in the COES, I will revisit these numbers. From the interview we learned that the low production numbers were part of a money decision to deploy basic versions to the field in order to increase immediate cash flow. Although I have nothing but a hunch, I suspect these bare-boned units may have also been the cause of any low quality extracted corn oil we have seen informally reported on the message boards. Hopefully any such existing problem will disappear completely as the new upgrades are installed. Investors could have absorbed this information better on the front side, rather than after the fact. In any case, having a reason for the low numbers and an ongoing fix in place is exactly what investors needed. In the Skunk's view - regardless of your position - this was the most important sentence of the Interview:

"These systems will operate at or in excess of Nameplate after installation of each Upgrade."

Investors were going by the build out schedule in the YAGI Debt agreement which was 5 COES installed by 30 June and total of 8 COES installed by 30 Sept. I do not remember the Company having pointed out those install dates to investors. Perhaps, because the Company knew all along: 1. those dates could be changed by mutual agreement without renegotiating the contract; 2. Our CEO certifies if they were "installed" on time; and 3. What the heck does "install" mean anyway?

This is typical of what the company has said to investors and this still holds true today(19 Feb shareholder letter):

We recently closed on sufficient financing to build an additional 12 million gallons per year of corn oil extraction capacity. These facilities are expected to become operational in a staggered fashion over the next nine months . . ."

And of course we have had a long standing Company goal of 15MMgy of extracted corn oil capacity by the end of this year, which may now be exceeded.

In any case the CEO has said the schedule has changed. So that tells the Skunk that YAGI and the company have changed the schedule. I think that I made a good argument in last weeks Blog that we were not in violation of the original agreement. That is now a moot point. The agreement has changed.

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2. Investor Relations - August 15 is next Filing. Open House

Until we make some money, don't expect to see any Public Relations. We have not seen any since the three releases in late February. We got the mandatory 8K during the NEXTDiesel close - but that was it. I think they realize they cannot talk about potential without being accused of pump. I think they have seen a negative return on public relations so they simply decided to halt it. Its not so much that press releases cost too much. Its that they simply do not work at this point. Expect no PRs - until the day GERS makes a quarterly profit - expect that to get the attention that it deserves. I do not tell you to buy or sell, but IF you are a buyer of this stock - get it done BEFORE the day they announce they have positive earnings per share. IF you are a seller of this stock and think GERS will never post a profit, you may be waiting the spike after a clever Public Relations statement. You might want to adjust your sell trigger. I expect profitability could happen as early as 4Q '08. Remember last week the Skunk concluded we could be profitable with 5 COES. In the 4th quarter we should have 4 COES going at full steam and with five more coming up at different times - together those five might contribute enough to put us over the edge. Since 4th Q information is not normally issued until the Annual Report comes out Mid-April, - we might see a Press Release as early as late January 2009 announcing profitability. That is the kind of information that this company will want to get out as soon as possibly. Once we have reached profitability, with the amount of COES in the pipeline, I do not expect a staggered start.

I would encourage all investors and potential investors to try and visit any GERS open house. I would like to scheduled in various parts of the country, at different times, for investor convenience. A COES site in New York and the Middle West, the Adrian Plant, maybe even the Montana plant when the expansion is complete? What a great opportunity to see some machinery in action and your fellow posters. Some of us spend a lot of time writing about the effort the +100 Greenshift employees are making. It should be worth some time to see if our efforts have been wise.

The "B" Word

Yes Sir, the Skunk dropped the "B" word in the interview. I though it was very important to set up the official version of the company's potential versus the present value that the markets place on it. To me, this is the biggest story of GERS. How can a company that has the potential for a "B"illion dollars of gross profits (under contract over ten years), have a market cap last week of under $5M?

But the Skunk isn't the first to use the "B" word - here is an excerpt from the February Shareholder letter:

The potential size of this market opportunity to us is more than 1 billion gallons per year of oil. Our initial goal is to achieve 20% market share as quickly as possible. Importantly, we can do this almost entirely out of our cash flows after we finance and deploy the first 50 million gallons per year of corn oil extraction and biodiesel production capacity.

Notice, the billion gallons is the potential market/year. Skunk based his long range PPS estimate based on 5% market share or the 50M gallons which is contracted and a company goal for the end of 2009. So if you really want to "count your chickens before they hatch" - just set your sites four or five years out when we could have 20% market share - then multiple my long range forecast by 5-10. Just so you know, I have only called and made one 7 rail bank shot in a real pocket billiard game. And yes it was years ago, and no I wasn't sober. But yes it can happen. And no, I am not even going to do the math!

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3. Montana - expansion is on hold awaiting USDA guaranty/financing. After reading this answer a few times, I am not sure if the expansion was begun and stopped - or - did it never start? In either case it will not be completed until financing is finalized. The Montana Plant is in an area where you do not want to be working unsheltered or pouring concrete in January. Its not just suffering through the cold - its also the considerable added expense of heating the ground and the materials. Men will work when it is below zero. Unprotected, Uncured Concrete is ruined way before that temperature. If foundations are not poured by a date certain (about Thanksgiving in Kornfield Kounty) - then its wait until next spring - even if we have the money.

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4. NEXTDiesel - is operating at 10MMgy (today). Investors should be wary of the word "today" in descriptions of performance. It can literally mean "today." Hopefully "today" is representative of many days both past and future. We see the word twice in this answer:

"We are on a 24/7 production schedule today. We are converting and selling corn oil today at NextDiesel’s nameplate capacity and at optimal yields."

Not sure what condition we found the NEXTDiesel Plant when we purchased it with stock. Since GERS had a contract to manage the biodiesel conversion I suspect the plant did not have the technical expertize on staff to make it happen. Like any piece of equipment it costs money to have it sit idle. It appears we converted the operation to 24/7 and full capacity runs. That is great news for revenues - (take 10M and multiple by the price of Diesel/gallon). Notice that just a single 10mmgy biodiesel line running at capacity has the potential to generate over 45 million dollars in revenues. One line can produce 150% of the entire company's revenues for all of last year. We hope to see word in the 2Q Report on that second 10mmgy line that was in the process of construction when we obtained the plant. A second line could be set to just process waste grease and tallow until we have enough COES on line next year to keep two lines busy. And of course we should tell by the numbers just how many "todays" where in the 2nd quarter and 3rd Quarters.

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Anticipating your Questions - the Skunk has done some research into the "upgrades" we have gone through with the COES. This from FEB 2006:

"The system is extracting corn oil from DDG at the rate of about 800,000 gallons per year. After upgrades, Veridium expects the production rate to increase to between 1.2 and 1.5 million gallons per year. "

So it appears that we have had (at least) a three step technology upgrade improvement along the way. But Skunk, it there a piece of compartmentalized equipment that may have been the section left out to save money? Looking . . , looking . found it!

An additional pretreatment step was recently added (Nov 2006) to the GS CleanTech Corn Oil Extraction System. The extra step helps to bump up yields for a 50 MMgy ethanol plant from 1 MMgy to 1.5 MMgy.

The Skunk suspects this was at least part of the section left out to hurry along cash flow. And he also suspects this may be the central part of the upgrade now being completed.

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GS EnviroServices SOLD

ITEM 2.01 COMPLETION OF DISPOSITION OF ASSETS
On June 20, 2008 GS EnviroServices completed the sale to Triumvirate Environmental, Inc.

At the closing on June 20, 2008, Triumvirate Environmental paid $5,000,000 for the assets. The cash proceeds were applied as follows:
- $2,092,092.75 was paid to YA Global Investments, LP to satisfy all of GS EnviroServices obligations to YA Global Investments, LP and obtain a release from any future obligations

From GERS Q1 P 17:

This letter agreement was amended during the second quarter 2008 in connection with the sale by GS EnviroServices of substantially all of its assets (see below) to provide for the payment of $1,200,000 to redeem the remaining 6,266,667 shares of GS EnviroServices held by the Company. This payment shall be made to YAGI in return for the reduction of the Company's convertible debt obligations to YAGI.

The Company expects that a successful closing of this transaction will result in the cash repayment of $1,200,000 of the Company's convertible debt due to YAGI.

GOODNEWS: So the Skunk thinks this went down as planned and another 1.2M in convertable debt has taken off the books with YAGI.

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FORECASTS

EOY 60 cents with 45 -75 trading range**

(using pre-interview assumptions)

$4.91 Share Price in FEB 2010**

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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. Skunk