Equipment & Technology Sales
The SkunK sees this segment down. Here is the guidance from the 2Q.
Revenues from our equipment sales activities increased during the second quarter 2008 but are expected to decrease during the third quarter 2008 and will thereafter remain episodic and dependent on our clients’ ability to obtain financing. While we are party to a number of agreements to design, build and commission biofuels production equipment and facilities for several domestic third party clients, the volatility in the commodity markets has made financing very difficult to obtain for clients that lack a robust feedstock and risk management strategy.
We have also received additional guidance from an Email:
"The ‘purchase option’ version of our business model allows an ethanol client to purchase the COES equipment and pay us to build the COES facility at their plant while we retain the long term right to buy the extracted oil at a higher percentage of diesel spot. This is a sale of equipment and construction services only and it does not include any sale of technology. We only have one of these contracts today. "
What the SkunK believes this tells us is that one of the COES (Riga?) was built for cash and they sell us the corn oil for a higher price that what GERS would have paid if GERS had financed the deal. I suspect that these COES cost about 1.3M to build and bring in just over 2M in revenues. Our 2Q numbers were $5,187,749. Unless we have an ear of corn up our sleeve, ["At June 30, 2008, accounts receivable, net of allowance for doubtful accounts, totaled $1,722,926. . . "] I think we should see something even under our sales of $2,564,428 in the 1Q. Guessing cash exchanged hands on the COES deal in the 3Q and maybe some various billed work at the start of the quarter before the height of the credit crunch, I am just gonna silly wag us here at 2.3M. Historically this is the hardest area to pin down, so I admit we will have a significant probable error on both the up and down side.
Culinary Oils Production and SalesThe SkunK sees this segment slightly down.
The guidance is from the 2Q: "Revenues are expected to remain at historical levels for the foreseeable future. . ." 2qp29
If we look at historical numbers for the trailing 6 quarters for the Montana seed crushing plant we see this:
1Q 07 = $1,903,517 [proforma]
2Q 07 = $1,882,946
3Q 07 = $1,925,248
4Q 07 = $861,119
1Q 08 = $3,659,954
2Q 08 = $2,523,489
1. The average of the previous 4 quarters is $2,242,453
2. The average of the previous 6 quarters is $2,126,046
The increase of the 2Q 08 over the 2Q 07 is 34%
3. Increase of 3Q o7 by 34% is $2,579,832
4. Increase of 3Q 07 by 34% is $2579,832
5. Increase of 3Q 07 by 34% is $2579,832
The SkunK has to work with what he has. By taking the five sums the way we did we were able to give additional weight to the more recent quarters, especially the seasonal reflected 3Q 07 - without losing the significant historical data or the inflationary increase in commodity prices. You are certainly allowed to laugh at the Ol'SkunK's unorthodox methodology here - but only after the 3Q shows they were ineffective. Taking the average of 1,2,3,4,5 above we get a projection of $2,421,599 for the 3Q.
Biofuel Production and Sales
Expect the overall revenues here to be down, but the Corn Oil Production and Production as a percentage of Capacity to be significantly up. Last quarter we saw $3,804,553 in revenues from this sector, a huge increase from the previous quarter of only $331,371. About 53% of these revenues were from the lower margin greases used to utilize the untapped 10mmgy capacity of the biodiesl plant at NextDiesel. According to our guidance below this capacity was not used due to the increased feedstock costs of greases. The most important thing we need to look for here is increasing corn oil production vs capacity over the quarter. The second thing is we should start to see is increasing margins in the biofuels production and sales. Does the system of clustering COES around a biodiesel plant work? Or will the cost of transporting first the oil and then the biodiesel use too much of the generated income? Can those margins make it from the chalk board to the bottom line? The SkunK thinks so, but it is by no means a done deal, a forgone conclusion or a fait accompli.
Here is the guidance from the 2Q
"While we have since stopped purchasing choice white grease and are exclusively refining corn oil into biodiesel today at reduced volumes with higher margins, we plan to take advantage of opportunities in the conventional feedstock markets as they materialize. . ."
Later, a communication implies the opportunity for higher margins in waste greases did not materialize in the 3Q:
". . . intentionally operating at a fraction of capacity since July due to the prohibitively high cost of conventional feedstocks)."
So what we are left with is the all important extracted Corn Oil to generate revenues. At the end of the 2nd quarter we had two COES producing at 77% and 33% level for a 55% average. During the 3Q we had two more COES come on line doubling our capacity, with the third COE producing oil at the start of August?
The SkunK deciphers 1 August from the 1 July interview:
"We expect Marion's commissioning to wrap up in July 2008."
That date is reinforced with the 2Q dated 19 August with Marion is listed as "Operational".
The Skunk will attribute one week of production in the 3Q for the 4th COES. COES #4 is addressed in the COES update:
"COES#4 is currently being commissioned and is expected to produce oil later this month." (October).
So to figure our capacity for the 3Q the SkunK sees 2 COES at three months, 1 COES at 2 months and 1 COES at a quarter month, for a total of 8.25 months x 1.5mmgy/12months = 1,031,250 gallons capacity for the quarter. Now on to production.
Production:
This from the 1 July Interview:
"These systems will operate at or in excess of Nameplate after installation of each Upgrade. The Utica Upgrade is nearly complete and is expected to be brought online in July 2008. The Western NY Upgrade is slated for commissioning in August 2008, the Central Indiana Upgrade will be commissioned in September 2008, and the Global Ethanol – Riga Upgrade will be commissioned with the Riga core MI COES in September 2008."
Now if we figure that the 2 COES continued into the 3Q at the same rate of production as at the end of the 2Q ["Our Oshkosh, Wisconsin and Medina, New York MI COES are currently operating at about 77% and 33% of Nameplate" - (1 July)] and if we figure that the first two COES were updated as scheduled and operated as advertised - at 100% after completion - then we get this:
1. Oshkosh= 1 month at 77% and 2 months at 100% of capacity = 96,250+250,000=346,250
2. Medina= 2 month at 33% and 1 month at 100% of capacity = 82,500+125,000=207,500
The SkunK sees a typical start (30%) and a strong finish (90%) for CIE for a two month production average of 60%. This is based on start up history of other COES and this statement:
COES#3 is operating today at slightly less than our 1.5MMGY nameplate (without the upgrade)
3. Central Indiana Ethanol=2 month at 60% = 150,000
4. Riga=1/4 month at 30% = 9,375
The SkunK sees a total corn oil/biodiesel production for the 3Q at 713,125 gallons. This is 69.2% of the SkunKs estimated capacity. The SkunK put together this history of corn oil production. The percentage is the SkunKs estimate of the production as a percentage describing production over capacity - over the entire quarter.
1Q 08: 26% 152,787 gallons of corn oil
2Q 08: 40% 296,727 gallons of corn oil
3Q 08 69% 713,125 gallons of corn oil (Estimated)
During the 2Q the average price GERS was able to get for their biodiesel was $4.59. Since then we have seen a lowering of the price of oil and diesel. Union Pacific's average cost for diesel during the 3Q was $3.70 and that seems about right to the SkunK. With that we see 713,125 X $3.70 = $2,638,562 in revenues.
***************
In conclusion
3Q '08 Estimates
$ 2,300,00 in equipment and technology sales
$ 2,421,599 culinary oil production & sales;
$2,638,562 in biofuel production and sales
__________________
$7,360,161 Total Revenues
Email/Blogs/Sources
http://greenshift-gers.blogspot.com/2008/08/coes-information.html
http://greenshift-gers.blogspot.com/2008/08/2q-predictions.html
http://greenshift-gers.blogspot.com/2008/07/interview-with-kevin-kreisler-president.html
http://greenshift-gers.blogspot.com/2008/10/message-from-greenshift-ceo.html
SkunK
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