Business Strategy

What is Important?

The Skunk has had a few general themes since he took on the business of publishing his due diligence. One of these themes is "What is important?" I will try and restate these in the clearest of terms. The Business Strategy of GERS is based on two essential components. Both of which are required for the success of this company. If either one fails - the company fails. If both succeed - it will be hard to fail. The first is the Deployment of the Corn Oil Extraction Systems (COEs). The second is Financing.

Once you have re-read the paragraph above until you can mumble it in your REM sleep - once you can suffer a full frontal lobotomy without forgetting either - then, Kit* you are prepared to move on to the next step - one that involves judgement.

How should I judge the actions of the GERS Board of Directors?

You should judge the actions of the Board of Directors on two principles. The first of which is: Did their actions promote the deployment of the Corn Oil Extraction Systems? The second is: Did their actions promote access to good financing?

What can an investor expect?

An Investor can expect the Chairman of GERS and the Board of Directors to do whatever it takes to first: Install as many COEs as quickly as possible. Secondly: To pursue good financing in order to build as many COEs as quickly as possible.

Now here is where the reader must be tested in order to ensure they are ready to take on even higher levels of GERS investment information. If you fail this portion - do not be alarmed - just go back to the blue paragraphs above and restudy and retest until you pass.

Final Test**

GERS Business Strategy consists of Two Key components - they are:

a. Maintaining old company divisions for tired old shareholders.

b. Losing money and issuing shares

c. COES deployment and financing

d. Starting Internet rumors and stirring the pot.

** The Correct Answer is "C" - it always is.

* FYI "Kit" or a "Kitten" is a baby Skunk

Well Congratulations! If you made it this far you graduated and you get it. (Or you cheated and skipped the test!) In either case lets take a look at the Annual Report for 2007. On Pages 18-20
we see the Official "Business Strategy". The strategy is laid out in eight items, in order of importance. The first paragraph reads:

1. Financing, Construction and Operation of Corn Oil Extraction Facilities
"Given the nature of our competitive advantages and the current and foreseeable market dynamics in our target industries, the highest and best use of our resources and our primary objective is to get as many corn oil extraction systems installed in as many corn ethanol facilities as possible, as quickly as possible. We expect that our annualized operational corn oil extraction capacity will be about 15 million gallons per year by the end of this year and our target is to have at least 50 million gallons per year of extraction online by December 31, 2009. The total market opportunity for our extraction technology is many times this extraction rate and our longer term goals involve the deployment of extraction systems corresponding to over 150 million gallons per year of extraction."

I know what you are thinking - Nearly every week the Skunk pounds on this theme - for example - here from over a month ago: "SKUNK Believes that the Corn Oil Extraction in the First 7 plants is the key to our success. In order to flourish - we must have these units on line - on time. This is what will fuel the turn-a-round for this company. This is what brought the ol'Skunk a snooping around in the first place. Without these revenue producers on the cusp of delivering - Greenshift might be just another dry dream scrawled on a wet napkin at the 2'O'clock club in downtown Hooterville."

Now the rest of these seven items listed in the Business Strategy are important - but important only in how they affect COEs Construction and COEs financing:

2. Financing, Construction and Operation of Biodiesel Production Facilities
3. Financing and Expansion of Our Oilseed Crush

4. Transition Project Execution to Strategic Vendors and Partners
5. Develop International and Other Strategic Partnerships
6. Completion of Financing
7. Pay Off and Refinance Convertible Debt
8. Applied Technology Development

The Skunk will take them one at a time to show you what I mean.

2. Financing, Construction and Operation of Biodiesel Production Facilities
This is correctly put in the second slot because otherwise we would be a victim of our own success. The market for corn oil is small. Only so much can be used to feed humans and animals. The millions of gallons we will soon be flooding the market with will overwhelm this small market, causing the price to crash. The market for bio-diesel, on the other hand, is basically limitless. Until the Skunk gets the bugs worked out of his three-dimensional FAX machine – North America will count on diesel trucks to move goods from place to place. The government does not even have a category for the production of corn oil bio-diesel. That will soon change. Our Bio-diesel technology is required to process our corn oil. That is why we are currently selling our corn oil to a third party (NEXTDiesel) who has purchased and is running our technology.

3. Financing and Expansion of Our Oilseed Crush

This is in third place because we want this Montana plant to be able to expand enough to self-finance – it then becomes a financial asset which we can leverage for more CEOs – and not a liability or distraction. I suspect it is ranked third due to GERS now having opened re-negotiations with its former owners.

4. Transition Project Execution to Strategic Vendors and Partners

We only have so many trained technicians. We must have them in house and focused to expand OUR COEs quickly – not hired out working for others.

5. Develop International and Other Strategic Partnerships.

Yeah this is great – but it can wait.

6. Completion of Financing.

Hey – if we take care of #1 and #2 this will fall into place.

7. Pay Off and Refinance Convertible Debt.

Hey – if we take care of #1 and #2 this will fall into place. (Is that an Echo?)

8. Applied Technology Development.

I covered this part last week and I see this as a part of #1 and #2. This is fixing stuff on the fly – making it work better (read more efficient & more profits).

SKUNK’s GRADE for APRIL 21-25th
BEST BUYS .9-.10 (Actual .10-.11) The Skunk got some under .11 – a couple of you got some for a dime = Skunk gets an A-
Closes above 20 - NONE this week (Actual NONE) Made it look too easy = B+
Range for the week .9-.13 (Actual .10-.12) Just tighten a Penney on each side and it was perfect = B+
Friday's close .12 (Actual .12) So what do I win? A+
This has got to be my best (or second best week) ever = A

FORECAST FOR THE WEEK OF April 28th – May 2nd
With nothing in the forecast to move the share price – I see our back against a firm dime bottom and a continued slow drift higher throughout the week. Friday we closed above the 25 day moving average. Since the 18th of April when we kissed off the bottom Bollinger Band – we have steadily moved to meet the top band. It presently sets at .14 and just as of Friday I see a hint of another contraction. I am reading this as no large movement till the end of this week at the earliest – more likely next week if the contraction continues. I saw a lot of emotion on both sides of the three major boards this week. Not sure how to factor in this sentiment. The Longs and the Shorts were both yelling at the top of their lungs. I know it means something - but I am just smart enough to know I am not smart enough to know what it means! But since you pay me to guess (not!) – I would have to combine it with the 4th successful testing of the dime low and say it was due to the psychological tension and exhaustion built up as we teetered for days on the brink of new lows. Does this mean we have finally set a base on which to grow? After the 4th test is the dime low finally secure? Have we started the long anticipated move north? Tune in next week – same skunk time – same skunk channel!

Detailed Forecast April 28th – May 2nd
Best Buys(.11-.12)
Closes above 20 (none - not this week)
Range for the week (.11-.15)
Fridays Close (.14)

Long Term Prediction FEB 2010
We stand with the details in last week’s blog.
The Skunk sees 280M Shares Outstanding - some 4.2 times the present levels. In order to have that number of OS shares - the EBITDA will be over 37 times its present amount - 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:
28.97M/280M Shares = (net income)/TotalOS) = .1035
(PE) X (Diluted EPS) = (est. PPS)
100 x .1035 = $10.35 Share Price in FEB 2010**

Afterthought:

Ever since I was a misguided child in the employ of my sometimes favorite Uncle, I thought priorities were important. Once when given a large number of tasks and a short time to achieve them - I asked for my tasker's priorities. He said "Everything is important." What that meant to me was that "Nothing was important" - in that in both cases everything had the same priority. If you are a juggler trained to juggle 4 things - but are given 6 - you had better determine quickly which items will bounce and which will break. If you are a CEO with limited resources - you had better determine quickly where your resources are best spent. I see in this annual report - decisions have been made - and priorities have been set. I agree with those priorities of COEs Construction and Financing - That is the first step in making it happen.

**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.

Long Range Price

As you can see from these pictures - I made it home to snow fall and snow melt. I saw Ethanol blended gasoline as far south as Oklahoma - although it was certainly not everywhere like around these parts. It was unusual enough that it had the cardboard Ears of Corn display on the pump. Haven't seen that in years. Its great to be home - and I hope to get through all my E-mails this week. Not to sound like a shareholder's letter - but thanks for your patience.

With all the detailed information now out - its time for the Skunk to re-evaluate his estimate of the long term share price - Feb 2010. The goal for GERS (as it has been for at least the last six months) is to have 50M gal of COE, 50M gal of bio-diesel and 16 M gal of oilseed crush annualized capacity online by the end of 2009. Based on information in the 9 November 2007 shareholder letter, the Skunk conservatively converts Extraction & Bio-diesel to EBITDA at $1.40/cents per gallon (the spot price of diesel has risen quite a bit in the last six months). With 50M gallons value enhanced that is $70M EBITDA .

The expansion in Montana is 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 $86.69M.

If we reach these goals - clearly re-stated in the 2007 Annual Report - and the previous shareholder letters - 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 $75M EBITDA - the outstanding shares will be 241,133,851 - nearly 4 times its present number. 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."

So even with the employee stock reward program and these remaining convertible debentures all paid through dilution - we get a grand total of 279,996,001 shares outstanding. Or, with your permission, the Skunk will round up to 280M Shares Outstanding. This is where we stand with the OS shares - some 4.2 times the present levels in 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 37 times its present amount - 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:

28.97M/280M Shares = (net income)/TotalOS) = .1035

(PE) X (Diluted EPS) = (est PPS)

100 x .1035 = $10.35 Share Price in FEB 2010**

Now the one item that I have not explained yet is the P/E ratio. Granted, the Skunk picked a large number here. I probably agree with most - that a P/E ratio even a significant fraction of 100 is not justified today. But the Skunk is not predicting today's price. The reason I believe 100 is totally justified in Feb 2010 is that my whole prediction is predicated on our goals having been met. We will be at 50M gallons of Corn Oil extracted and value enhanced into bio-diesel in our own facilities. We will have gotten legitimate financing. We will be looking at having achieved about 5% market penetration, with no legitimate competition over the 1B? gallon market. Our previous creditors' terms will be distant memories. With these things accomplished - GERS will be a player in the alternative energy field with both the cash flow and the customer relationships to deploy our remaining three levels of technologies. The Montana Plant will be debt free and a showcase of our technologies.

To give my projections a little flavor: Imagine you are on a ship at sea and you are trying to describe to a shipmate what the rocky mountains look like from a penthouse suite in Denver. If your shipmate cannot imagine the ship making it to port, if he cannot imagine flying in a plane to Denver and if he never stayed in motel with out a number in the name, (Hotel 6, Economy Eight, etc.) you might excuse his insistence that the world consists only of salt water, sea froth and a flat horizon. And he would be right. Our present world at sea does look like that. But I predict the ship will make it to port, the plane will not crash and the suite will be available. From that location in the future, it will be hard to remember the salt water, sea froth and flat horizon. If we make it to the location that I expect - then most would have to concede that a 100 P/E would be a conservative estimate of the potential of this company.

TWO UPDATES on the COES Gleamed from the ANNUAL REPORT:

After much deliberation, the Skunk thought he had figured out the price of an individual COEs. That is until he read this on page 66 of the 2007 of the Annual Report.

"During the year ended December 31, 2007, the Company commissioned the corn oil extraction system in Oshkosh, Wisconsin. This system was commissioned in April 2007. As of December 31, 2007, the total amount invested into the system including system upgrades was $1,285,584."

So we find numerous pieces of information here. The first and most obvious is the price of a COEs. The Skunk's first SWAG on the cost was 1.2M. I appears that he was scary close and should have kept those numbers. Instead he pulled numbers from oblique references that were first significantly less and then more. Until we get specific information from other installations and we can average the costs over different locations - I think that 1.286M for the cost of a COES will remain the gold standard for all financing calculations.

The second piece of information is the verbiage: "including system upgrades". In the message boards over the last few months it has been stated or implied that the installed systems were not producing the plate capacity of corn oil from the ddg slurry. Recently I also read a post referencing the Nov 2007 Shareholder letter where the CEO writes:

"This system is producing oil today at yields that correspond to more than 1.5 million gallons per year and about 1.125 million per year in contribution margin."

Is it possible that both opinions were right? It does appear that the first production COEs at Utica Energy had problems reaching plate capacity. What other reason would we need to install "system upgrades?" What other reason would the CEO in the SEC filed Nov 2007 shareholder letter preface his statement on production with the words "producing oil today"? These opinions are also confirmed on p. 78 of the Annual where the revenue from the Bio-fuels/COES is broken out at $270,866. Since the Utica plant was the only COEs unit owned by GERS and in production at the time - the Skunk thinks that this represents the revenues from the corn oil extraction. Since the Utica Plant was commissioned in April 2007 - if it was operating at full capacity for eight months - the revenues should be about two thirds of the annual rate. If we just take the 1.125M of contribution margin in the quote above, we see that 2/3 of 1.125 is about $750,000. Our actual revenues are about a third of that. So what we see here is the first unit put into a facility, then tweaked with significant system upgrades until it reached full capacity sometime before the 9th of November 2007. This is a technology that was basically drawn on a cocktail napkin a couple years ago - now it is producing in the field at plate capacity. If one expected the system to work in the field the first time without some sort of "system upgrades" - then those expectations were unreasonable. To insist that problems cannot and were not fixed in the field by Dave Winsness - the inventor - and a lot of experienced process engineers - the Skunk believes that is also an invalid assumption.

I did not fully appreciate this portion of the Annual Report below until I put together the information above:

8. Applied Technology Development
Among our core competencies is the ability to develop and implement incremental advances in technologies that add value to existing production infrastructure. As we build our own infrastructure in the short term, we plan to continue to enhance our extraction and bio-diesel technologies with a form of in-the-trenches commercialization that relies on and is then accretive to the cash flows of pre-existing production assets.

From this part of the Annual report on page 20, it sounds like they are talking about the improvements that were made to the COE system at the Utica Plant. They are talking about using hard learned practical improvements - ones that come from the work room floor - not the conference room table, and transferred that knowledge to all of their systems.

SKUNK's Grade for last week

Well, the Skunk saw a move coming in the second part of the week. We had started the week at .12 and were still there all Wednesday afternoon. Come Thursday we got the move as predicted - but without any news from the company - the bears managed to pull the shares back down to the all time lows for the 4th time. Previous closes at a dime have come on 8 Feb, 19 March, 30 March and now 17 April.

Actual in Blue

April 14-18th
Best Buys- 12-13 (best buys were .10-.11) D+
Range for the week: 12-.21 (.10-13.4) D-
Closes over .20 -one (none) D
Fridays close.19 (.10) F

Skunk gives himself a D+ for the week - he saved a failure since he managed to see the move coming with the Bollinger Band contraction - but he got the direction wrong.

FORECAST FOR THE WEEK OF APRIL 21-25th

BEST BUYS .9-.10

Closes above 20 - NONE this week

Range for the week .9-.13

Friday's close .12

I see this week moving generally higher - with a chance of an intraday dip below .10 for a short period. No close below a DIME however is in the cards. Stochastic and others show me an oversold position. I see a close at .12 - gaining back the losses last week. Good information on financing or COEs production or completion and all bets are off. Then we go north fast - how far depends on the news.

Our 100 day moving average is just at .20 cents - while our 20 day moving average sets at just .12 cents. As long as we do not get a close below a dime - this bottom keeps getting stronger. What this stock needs is some good news. First on my list is financing. Any kind of legitimate financing news will instantly propel this stock north. Partly due to eliminating a lot of shareholder risk. Mostly due to shareholders who need the reassurance of a financier looking at the situation and saying - "Hey - I think this is going to work - my company's money is safe here. " A couple good PR's - with maybe a COE coming on line - could certainly help here as well.

** Note/Warning: Dude -do your own DD - I can be and will be occasionally wrong. I will not intentionally mislead. I try to leave sources and page numbers to help you with your due diligence, but don't count on a guy called Skunk to pick your stocks for you. Good Luck to both of us.

The Annual Repot 2007

The Skunk is in his spring quarters. I am enjoying the warmer weather - but should be back above Kornfield Kounty by next weekend. In the meantime I'm working off a single laptop - not quite what I'm used to.

Well it surprised most of us. Not issued on 30 March, not issued at the end of the 15 day extension. Issued Monday after the bell, the first impression was man - this thing is an Encyclopedia! I skimmed through it once, read through most of it again and I am reading it cover to cover now. I have read a lot of good, some bad; and while some questions were answered, new ones come to light - such is life.

I have written a lot about what to look for in the annual and so I will first structure my comments on how the results measured up to what I was looking for. What I asked for in the 29 March blog is in parenthesis - the results I found so far are in blue.

"I would like to see a positive cash flow into ebitda from both of these and also from Bio-diesel construction. We should have real money in the net income section" Stripping away some non-recurring items we got a positive EBITDA. With the Consolidation of debt we saw no black in net income.

"The forward looking section will hopefully provide detail on the COE construction and how we are meeting the terms with YAGI." No real, specific word on how we are doing on this front.

"The Skunk would like to be ahead of schedule but would be happy with a smooth working plan. We have some previously announced 31 total COEs awaiting construction. I would like to see more names than the seven and a total number bigger than 31 would show momentum." We did get the name of the eighth COE that is required to be constructed by 30 Sept 08 to meet the YAGI debt terms. The Eighth COEs is in Richardton, North Dakota with a 1.5M gal plate capacity. All I could find about the additional unnamed facilities is this: "We are under contract to build many more corn oil extraction facilities corresponding to more than an additional 25 million gallons per year of corn oil." At 1.5M a pop - that accounts for about 17 unnamed units. Added to the 8 named units - that makes 25. That leaves 6 units either gone or covered in the "more than".

"The Skunk wants some news on the financing front. We were working with another company to try and get a 150M financing deal with decent rates closer to the 10% level. This would change the company instantly into a legitimate player and we could shake off the YAGI debt. With the YAGI deal we are paying 20% plus/10c/gal and with some free shares it’s around 30%. On the positive side - if we can show we can pay the 30% - others should feel safe giving us a loan at decent rates." I have seen the name Fieldstone Private Capital Group in other information and that is the company I referred to above. I think Northland Networks (for the oil seed expansion) is a new find. As I will painfully explain later - legitimate financing is critical to the success of this company. It needs to be done quickly. Yet nothing can be gleamed from the lack of information - unless they are on the verge of signing - we should hear nothing. Interesting note on the importance of financing: "In Mr. Carroll's case . . . 1M common shares. . . additional restriction that requires the completion by the Company of certain financing." Seems they all know this HAS to get done - and his bonus is to make sure it will get done!

"The Skunk also wants to see a minor problem that is being dealt with." Well they found a problem and are dealing with it. Called "Remediation of Material Weakness in Internal Control over Financial Reporting" the board is hiring a new corporate controller, have reassigned duties, are adding adding more people with GAAP tax accounting experience. Not sure what this means -but apparently some bean counter missed some beans and we are making sure it doesn’t happen again. This is what I was looking for.

Now for a simple? question: How many shares are outstanding? The answer is 66,200,526. In the annual report - the sentence BEFORE the start of the Table of contents reads: "The number of outstanding shares of common stock and value of the voting stock held by non-affiliates of the Registrant as of April 4, 2008 were 66,200,526 and 7,944,063 , respectively."To find how we come to those numbers is a little more complex. First the Skunk did a document search of 66,200,526 and discovered how we got that number. On page 94 of the Annual we find a breakout of 55,546,526 of Outstanding, 9,167,609 to the employee pool and 1,486,391 to Viridis Capital, LCC. As you may remember, the 9 Nov 2007 shareholder letter put aside 10M shares as an employee reserve and this is where these came from. The new annual announced a new employee reward plan that is tied to EBITDA. The awards are described on page 101. A notable amount goes to employees outside of the 4 on the board - this is good for corporate morale and a sign of corporate maturity. If we run a search on the 83,200,000 we found in the same November shareholder letter we found it in two places - pages 93 and 94. On the top of page 93 we see that this amount was set aside for Viridus Capital but is now only payable on a sliding scale - but not until after we reach 50M EBITDA. On page 94 we see the same thing - but so far only 1,486,391 shares were awarded and represent only a portion of that 83,200,000. What we have left to explain is how the 30.8M shares held by the GERS shareholders in the shareholder letter has become 55,546,526 held now. The only part accounted for in the breakout in the November shareholder letter and is yet unexplained is the 16M set aside for Pending Issuances-Derivative Securities. So we have the difference - 24,746,526 shares - sold to meet debt requirements of our senior creditor YAGI. The Skunk likes a little confirmation and here goes: If one looks at the 2nd paragraph of notes below the breakout in the November shareholder letter we see this: "If all of GS Tech's convertible securities were converted . . . the actual number (instead of 16m) of potentially issuable shares would increase to about 28,250,000 . . ."So it appears that all (or about 88%) of the GS Cleantech's convertible Legacy debt tied to Derivative Securities was converted and paid off between 9 November and 4 April 2008.

Now with that out of the way I need to talk about the need for new financing. Our present construction loan with YAGI is just a bridge loan and we must find long range legitimate financing. I have rewritten this part and have made it so simple I think even I understand it. First of all we have a Corn Oil Extraction System (COEs). This is the widget we need to make money. After much trying to find and guessing on my own - Mr. Kreisler told us in this report how much they cost. In numerous places the extraction process costs are put at $1.50 for every gallon of extraction capacity. The extraction capacity of a COEs is listed at 1.5M gallons per year. One and a half dollars times one and a half million gallons equals two and a quarter million dollars. (See I did the math without the numbers.) That is 2.25M dollars apiece. Remember that.Now let’s talk about revenues tied to production. In the November 2007 letter we were basically told that our EBITDA per gallon of production was .75* for the corn oil. If we take the .75 a gallon times the 1.5M capacity - we get $1.125M of EBITDA per machine. SO - We have to produce the $1.125M for two years to exactly pay off the principal cost of the $2.5M COEs. Now in most cases this is great. To pay off a piece of capital intensive machinery like this in two +years would produce a tremendous cash cow. But with the terms of the YAGI deal - all loans must be repaid by 31 August 2009. The deal was signed on 25 Jan 2008. The terms of the loan were for less than 20 month payback on machinery that can only self finance themselves in 24 months (more with interest and fees). So all we have now is a bridge loan - but only half way across the river. We have to get as many COEs up as quickly as possible - and get real financing soon.

Now the Skunk could be wrong if one of the following is wrong: The production capacity is more than 1.5Mgallons /year. The COEs cost is less than $1.50/gallon per year capacity. Our EBITDA is more than .75/gallon. Other than that this is just 3rd grade math. (Mrs. Anderson, my third grade teach would be proud.)

The Skunk looked to see if the planned revenues can be made up by converting the corn oil into Biodiesel in our own plants. (We plan to have 20M gallon capacity by the end of the year.) Since the gross margin doubles with the conversion and the capital expenditures are about the same for the biodiesel per gallon of production - then they have the same payoff time as the COEs.. *The .10/gallon that goes to YAGI as a fee or the .10/gallon that goes to Dave Winsness (inventor)as part of a renegotiated licensing fee- but we can safely throw those out since they are covered by the increased price of spot diesel over the last six months.

The North Dakota Plant - RED TRAIL ENERGY, LLC - also recently released its annual Report - Skunk found this on page 20 of their 10-K:

"Corn Oil Extraction — we have entered into an agreement to add corn oil extraction equipment to our facility. We do not believe the equipment will be operational during 2008 but project that it will be operational during the first quarter of 2009. At current prices and anticipated volumes, we expect that corn oil sales will add approximately $1,000,000 to our gross margin and net income on an annual basis."

and on page F-18 of the ND Plant's Annual we see more detail:

"In an effort to diversify its revenue stream, the Company entered into an agreement in March 2008 to operate third party corn oil extraction equipment that will be added to its facility. The agreement has a term of 10 years commencing from the date when the equipment installation is complete. The Company expects the equipment to be operating in 2009. In return for operating the equipment, the Company will receive a negotiated price per pound for the oil. The agreement contains guaranteed minimum pricing and yield provisions. If at any time the production or yield falls below these levels, the Company can terminate the agreement with no cost to the Plant. Corn oil can be extracted from the Plant’s process and marketed as a separate commodity. This process may have the effect of lowering the fat content of the Company’s distillers grains. "
http://www.sec.gov/Archives/edgar/data/1359687/000095013708005304/c25165e10vk.htm#104
Grading Last weeks forecast: Actual in BLUE
Forecast details for April 7-11:
Best buys? (11-12)Actual(11-12) Hit it right on the head. A+
Range for week? (11-16) Actual (11-14) Pretty Damn Close B+
Closes over .20? - not this week (Actual=None over .20) A+
Fridays close - .15 Actual (.13) Not too bad C+
Overall Grade=A This is my most accurate prediction so far. All in a days work.

What I see for next week is at least one PR . In fact I see about three PRs between now and the 1st quarter release. The Skunk will be looking for some information on financing and another COE completion. Technically we have been in a flat trading range. We have just recently closed above the 20 day moving average. I see the Bollinger Bands have started to compress. This week -in the second half - we should see a move. I see we can move north to tag (.16) and then punch through the northern band to .21 - to meet the 100 day moving average - then resting for a Friday close of .19. The last two run ups we had - Dec07 and Feb08 - we pushed through the 100 day MA. We will see what happens this time. I am going to say we rest on the lower side of the 100 day MA for this week - but I have not read the PR's yet. Surprise me GERS.

Next Weeks Forecast: April 14-18th

Best Buys- 12-13

Range for the week: 12-.21

Closes over .20 -one

Fridays close.19

Long Range Forecast:$12.50 Share Price in FEB 2010**That's right - that is over 90 times today's price. Skunk has no stinking reason to change his long range prediction. Expect the number to be further refined as information is gleamed from the before mentioned, upcoming annual and 1st quarter reports.
**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 - good or bad. And some good garage logic luck to ya.

The Skunk is gonna take it (ethanol) with him . .

Well the '73 Vega is packed and I am ready to head south at zero-dark-thirty Sunday Morn. Most of those Johnny Rebs don't have no ethanol. I have been using the same solution for the last three years. The back seat passenger side ( have to pack for balance) , I got filled with empty milk jugs, full of 190 proof. Since our local "refinery" has no "molecular sieve" we settle for 190 proof. But that's OK, it hasn't been denatured either - so it remains duel purpose - if you know what I mean. That reminds me - no hitchhikers this year. Last year the Skunk stopped for a dude 20 miles north of Waterloo for the "short" trip into town. Well he sat in the back and must have got into the squeezens - cause I couldn't get him to wake up until the next day - no matter how long or loud I played "Taking Care of Business" By BTO on the Eight Track. When I propped him up at that Texas rest stop - he was still smiling. The Vega never liked him though- he single handily cut my mileage by 20%. Remember when the hitchhikers where skinny and rich people were "rotund"? The world is upside down.

Oh - and the year before that - the damn hitchhiker smoked (before and after!) - good thing I was driving my old car that year. This year all the milk jug caps are tight - but that's another story . . . .

Lets talk business . . .
GERS traded all week in a very tight trading range. After it appeared that GERS was going to go for an extension for the annual report - and then took one - the price fell to test the dime low for the third time. Again the dime low held. And once again a move away from the low started at the end of the week. The Skunk has said it before but it bears repeating - every time a low is tested and it prevails - it becomes stronger. One cannot expect a stock - a stock that has been drifting lower for years - to all of a sudden reverse course without inflicting some pain. During each painful high volume bottom - we wash out a lot of tired sellers. New investors - or investors who are long holds - either average down - or go to the beach. Sometimes the hardest part of holding these micro-caps is to stay in tune with the news - but not be influenced by the daily price. These new investors, who can look at this stock as growing from a dime - rather than having fallen from five dollars - will be more willing to invest in its future. That is why each of these three washouts can be seen as therapeutic for the stock in the long run.

POSTS
I see the short and the long, the trader, the opportunist and the dreamer each express themselves on the message boards. They all play a function in providing liquidity, information (and humor) to the market. One group that has occasionally confused and entertained the Skunk is the tired Shareholder who cannot sell.
These are GERS Shareholders who state these seemingly different opinions in a single post:

1. Will not sell because they think the price is going up.

2. Discourage others from buying because they think the price is going down.

Now the Skunk understands that if you think the stock is going down - well you should sell. If you think the stock is going up - you should buy - or hold. I have even heard of some Varmints who tell others to buy as they sell - and I'm sure a warm spot awaits them. But this telling others not to buy because the PPS is going down - as you hold thinking it might go up - well I am not sure what to make of it. It doesn't seem logical Mr. Spock. I though it might be one of those sophisticated trading schemes they dream up in a business school - so I asked my friend "Lucky" over at the "Rutabaga Ranch" what he thought of it. Lucky has some experience with numerous money making exercises - and he assured me that no one was making any money in this deal. In fact he told me it would be like trying to sell a car for top price by putting a sign in the yard saying (This car sucks - but its not for sale). I told Lucky it was a poor example - since I have never sold a vehicle - not with all the room I still have left in the front yard. So the Skunk will just have to wait and see how this all turns out. In the end revenues and net income will drive prices and what the Skunk or anyone else says may slightly entertain - but will matter little to the stock price in the long run.

TRADING POST– I have nothing to update on the trading side - not with the flat daily range and the wait for the annual. I wait for the annual with confidence it will provide access to opportunity. As I said a week too early last week - "with the DIME bottom holding and the general move north through the week. I think the current is headed north, and this time it’s not a back eddy. "

Skunk's Grade for last week

The forecast fell apart with the news that GERS asked for an extension for the annual. As I said I needed three scenarios to line up in order to get it right last week and the first one thru me off the horse. No need to rub it in - I should have went with the odds - not my gut. But what an uninterestingly successful life that would lead to!

Skunks Grade: for 31 March - 4 April - Actual in Blue

Trading range 13-34 - How about .10-14 or so? = F

Closes above .20= Four ZERO = F

Best Buys – Monday before the report is released - .13-15 (10-11) = D-

Fridays Close .26 (that's a double, babe) .12 = F

Skunks grade for the week = A ( I said I would be bad if they asked for the extension - they did and I was) - just glad this is self grading!!

FORECAST for the week of April 7-11th I expect the rise we saw on Friday to carry into next week but with a continued flat range. I see the message boards have provided the important function of lowering expectations over the last week. When the annual is finally released - all it has to say is we are still in business - and the relief will be sudden and north - but that is for next week (unless we get a mid week surprise.)

Forecast details for April 7-11:

Best buys? (11-12)

Range for week? (11-16)

Closes over .20? - not this week

Fridays close - .15
Taking it to the Moon!

Long Range Forecast:$12.50 Share Price in FEB 2010**That's right - that is over 100 times today's price. From the Skunks Spread sheet - he has learned that with an aggressive COEs installation these kinds of numbers are possible with even the financing we presently have - and for only the COE portion of the business. Skunk has no stinking reason to change his long range prediction. Expect the number to be further refined as information is gleamed from the before mentioned, upcoming annual and 1st quarter reports.

**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 - good or bad. And some good garage logic luck to ya.

COES Spreadsheet.

Its not perfect but the COEs Spreadsheet is done for now. I am headed south - far below Kornfield Kounty for a couple weeks - I will stay connected - and should get some pictures of "some things"?? We will see how far the 1973 Chevy Vega will get. I hope the snow chains come off after the first day of driving.

I got the speadsheet on 68KB xl file - three pages. The first page is 8 COEs, the second page is a 12 COEs structure and the third page is 19 COEs and counting. All within the time frames and the YAGI debt agreement. I know this is just one part of the company - there is other revenue and other debt - but an elephant gets eaten one bite at a time.

The best part is you can customize it. All the figures in green are the Skunk's researched assumptions. But the bashers can dilute the whole thing into oblivion and say: "I told you so". The pumpers can put the price of Corn oil up to $100,000.00 a gallon and buy out Exxon. Or, like Skunk - you can update it as we get more information and use it as an investor's tool.

Put "COES" in the subject line and I will send it to you as an attachment. If you got feedback - be glad to accept that as payment - otherwise its free.

Skunk

skunkhunter13@gmail.com

MIDWEEK UPDATE

Occasionally, the Skunk needs to post an update. First of all - it looks like GERS has taken the 15 day extension - so we can expect the annual to be posted between the 15 -17 of April, with an outside chance that it is posted in the interim. This is news that is neither good nor bad in its own right - but it is news and the wait continues. With active shareholders interested and waiting for the release, the pps can move on rehash and rumor. With the mob of shareholders swelling as large and as interested as it may be all year, attempts can be made to move the share price either up or down. Absent any news from the company, I prefer to wait, watch and enjoy the circus - and be poised to latch ahold of the fleeting leg of opportunity if he strolls by. As I write this, the stock revisited and is moving off the dime low for the third time. So far, we remain with no closes below a dime. Everytime the floor is tested with success it becomes stronger. We got some huge volumes Monday and some after market trades that combined for over 900,000 shares. Yet for every seller there was a buyer - and Skunk can only guarantee in a few months there will be 900,000 regrets - on which side of those trades will be the regrets? - is yet to be determined. I remain confident in the outcome - but with both eyes open.

Having addressed current events - now the real reason for the update. I have asked for help in nailing down the cost for the COEs. All the other cost and revenue factors we have had plenty of information on which to base a reasonable opinion. I though the COE capital costs were lacking. Here again the Skunk was mistaken. Re-reading the 9 November 2007 shareholder letter I came across this gem:

"Capital Intensity (per gallon of installed capacity) 2.00 (Extraction Only) 3.00 (Biodiesel & Extraction)"


I had also remembered highlighting a part of the 19 Feb 2008 shareholder letter about bio-diesel production:"These systems correspond to 15 million gallons of annualized biodiesel production capacity and about $5.5 million in sales. We are building an additional four 10 million gallon per year biodiesel production facilities for third party clients. These facilities . . . correspond to more than $15 million in additional equipment sales."

Putting these two items together I think we may have the ROSSETTA STONE (it's software right?) for COE capital overhead. If we can make a ratio of bio-diesel production that is close to three - we can use the same ratio to solve for COE. (Since we produced for "clients I think we can take 10% markup off the top of costs since we might give ourselves wholesale prices.)

The capital intensity for Bio-diesel capacity produced= 55Mgal/$20.5M = 2.68 or if we subtract out the 10% markup suggested above we get 20.5 x .9 = 18.45M. Therefore 55Mgal/$18.45M = 2.98 or what we call 3! In short terms we get 3 gallons of annual production for each dollar of capital invested.

So Now we have proven the ratio - we can solve for COE:

The capital intensity for Extraction = 1,500,000Gal (plate capacity of a COE system) /cost of that capacity = 2 Or using those fancy algebra switcheroo rules we get:

1.5M/2 = cost of capital. Therefore each COE system costs $750,000 dollars each.

I have changed my draw assumptions accordingly. I still have a 5 month draw - from 120 days prior to 30 days post installation. The draw is 100K each month, except for 30 days prior it is 150K, and the month of installation it is 350K. This comes out to 750K total. If you see fault in this logic - please give me an E-mail.

Now when I plug the numbers in everything works in my spreadsheet. I am still working on referencing my assumptions - but I feel confident telling you this much: If we meet the minimum of 8 COEs on line as per the YAGI agreement schedule - we can make all the YAGI payments - including the $250,000 monthly debentures payments paying down the baggage debt. And we are left with 8 COEs - paid for- on 30 August 2009. My figures show these things pay for themselves/with interest in about 9 months at full production - even with the 20% interest and .10/gallon - so it will have to be a race to see how many they can have up by Thanksgiving this year! Any COEs coming on line after Christmas and before the balance comes due to YAGI on 30 August 2009 will be a net drain on these particular ledgers. (They could still be build with cash flow or with other financing.) Any online before Thanksgiving 2008 provide a positive cash flow and are in production long enough to pay for themselves and help pull the financial weight on this Greenshift dogsled.

Wishing all a Successful GERS Annual Trading Season
Skunk