Just the Bear Facts

Well the Skunk was awaken to a bump and a crash this Wednesday night. As I grabbed my glasses and stumbled to the window I saw the problem - a 250 pound Black Bear had tore down my dang Bird Feeder. I know what your thinking - "I bet you let the dogs loose?" Right? - You figure a character like me has a least a half dozen dogs. Well of course I would - except for the marriage thing. In order to enter into this joyous union I have been limited to a single dog. But that ain't the worst of it. Did its mention its is old and blind? My dog that is. The older and blinder he gets - the closer the varmints get to the house. I got rabbits and raccoons and deer basically camping out in my yard and eating vittles out of my before mentioned garden - all the while my old blind dog sleeps. I ain't saying that dog didn't have his day - in fact at only half the Bear's weight - not tooooo long ago I still might have had to throw in on the Bear's side to make it a fair fight. Anyway, I went down, turned on all the lights and kindly asked Mr. Bear to move on. He looked like he wasn't hearing me so I raised my voice in consideration. Since he was 15 feet from the front door and I still had a young skunk needing to get in the house shortly, I reinforced the invitation to leave with a small concrete yard ornament. After a short run up a tree, he was back down eating the seeds unfazed. So hungry, in fact that when I escorted my oldest into the house Mr. Bear didn't pay us notice us till we were pretty close - startling us all - he bolted up the tree again. Mr Bear soon came back down and ate every seed before he wandered off in his due time. There was a time and place when an impatient Skunk would have done something stupid and not have let Mr. Bear off so easily. (In Kornfield Kounty we didn't wait for some dudes in black gowns to tell us we had a right to bear arms.) But like my old dog has already figured out - patience is the one blessing of age.

Well I see GERS stock hit an all time low this week. I look at the news and filings and saw no news. I looked at the volume and saw about average volumes. I looked at the boards mid week and I felt the doubt and could smell the sense of doom. The overall markets were down, oil was up and with no news from the company - seeds of doubt found fertile soil. As my buddy Forrest would say: "That's all I have to say about that." Not because I have more to say - its because there is no more to say. In these two paragraphs I just covered the entire topic of why we hit a new low on this particular week. Individual stocks and entire markets move on fear and greed. The former ruled the first four days of the week.

Since I just covered patience in handling Mr. Bear. (None of that was a market metaphor - or was it?) I will now move on to explain Friday. What motivates people to buy this stock at these prices? Why would we finish the week up 56% for the day on above average volumes?

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Question for the Skunk from a reader:
After you factor in the risk - what is this worth? 50 million gallons of crude corn oil per year, for 10 years that we refine and sell as biodiesel? (Short answer "$Billion")

As you can see from the latest government statistics below* the price of spot diesel is projected to average $4.32 per gallon through 2008 and 2009. We have a ten year contract to purchase the 50M gallons of crude corn oil we extract at 53% of the diesel spot price. That means we would be paying 2.29/gallon of corn oil and selling into the diesel market with a $2.03 gross profit. Diesel spot last Monday was even higher at $4.65 - but $2.00 seems a good conservative number for our margin - in fact $2 is what the Company uses in the 1st Qtr Rpt. That means that if this whole thing works out we are talking 100M gross profit a year - for the next ten years! Hmm, 100M times ten years is a BILLION dollars of gross profits just with the COES we have already contracted. Gee whiz Batman, that +55M dollar debt could change from being the raging Bull Elephant in the living room of our double wide - to being a petite conversation piece in our curio. There are lots of risk involved here. But we have reduced some important ones. First of all, we have guaranteed our feedstock supply for ten years. We do not have to compete in future markets with others who might try to corner our supply. Since we produce it, we control the quality of the feedstock. Most importantly, if the cost of our feedstock rises - we will have a higher sale price - which protects our margins. If the sale price of Diesel crashes - so does our feedstock costs. What other kind of business model (besides government) has such control over their margins? Remember the lesson last week of the rising feedstock for the Soy based biodiesel? A whole lot of Soy Biodiesel producers are losing money, or shut down because the price of their feedstock is higher than their product. They cannot control their feedstock prices. We have. Advantage GERS.

Again, all you have to do is read the message boards for a day or two and you will hear that everything but sunspots are aligning to do GERS in. Heck, all you have to do is read the Risk Factors in the Company Annual Report and you can see that there is plenty of things that actually could turn us belly-up in the rhubarb. Yet when you have a number that starts with a "B" as in "Billion" looking at us; contracted and feedstock hedged over the next ten years - well for some of us who are risk tolerant - that balances a lot of the "R" as in Risk. **

To review real risk factors - check out p.24 of the '07 annual report:

http://www.greenshift.com/pdf/GERS%2010K%202007%204-7-08.pdf

To see how the Skunk thinks this may turn GERS shareprice in FEB 2010 to almost $5** a share if all these 2009 goals are met - see my long range forecast.
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2nd Question from a reader . . .

How many COES does it take to feed the wolf and turn a profit? (Short answer 1 + 4)

Profit. That's a sweet word. In our case a true profit should cause even our cynics to reconsider. Well the Skunk printed a copy of page 7 from the 1st qtr rpt - you might want to do the same. We can break this down into 4 sections and we are first concerned with the totals of the first two. The first is "Income(loss) from operations". The second is "Other Income(expense)" The third part is just adding them together with taxes/misc. That is our all important net income or PROFIT. The last part is how those numbers affect our stock.

Starting from the top things start out good with 1.77M gross profit for the quarter. Things keep looking good as we dropped our General and Admin expenses by almost a third and our stock based compensation expense by over 80% from a year ago. We see we already have a positive Income from operations of almost half a million for the first quarter. This compared to a loss of over 3M for the same time last year.

As we get half way down the page - Other Expenses and Income add up to about a 4.2M dollar loss. Now this section includes interest on our debt - but that is only 1.3M. In fact if we eliminate both the one timers -1.67M disposal of an investment and the gain of a derivative investment +.32M (the first two things) - we get about 2.93M loss here. Since its a loss lets round up to 3M and be conservative. Don't want the shorts to say we're cutting corners!

Finally we see 7 G's go to taxes and then we slide down untouched to a net loss attributable to common shareholders (that's us) of 3,794,409 or -3.8M.

So how do we make a profit? Well we already decided we are going to have about a 3M loss a quarter or 12M a year from the second part or "Other Income (expense)" . So how do we get the "Income from Operations" in the first part from under half a million to over 3M? Well, what would it take to raise our gross profits by 3M a quarter? We know that every gallon of corn oil provides about $2 in gross profits. One COES producing at 1.5M nameplate provides 3M in Gross profits a year. Four COES producing at nameplate should provide the 12M in annual gross profits required for this company to post an actual PROFIT! That's NET INCOME.

These 1st Quarter numbers were basically produced with the Utica Plant COES producing well below capacity without NEXTdiesel providing added value to our product. We should have five COES installed, commissioned, tweaked and running up to capacity moving through the 3rd Quarter. So we could possibly be in the pink - and see a small profit as early as the third quarter - depending on many factors.

The Skunk sees that we should have all of the first five COES buzzing full time in the 4th Quarter. Just with these five COES we should see a real PROFIT. And these 5 should be joined along the way by the other three named COES being installed by 30 September and coming up to full capacity in the 4th quarter. We should also see the expanded Oil seed plant coming back in the 4th. All of this points to the Skunk that if we can dodge a few more arrows - the 4th quarter of this year could be the first of 10 years worth of profitable quarters. And ponder for a second what only a 1.5M dollar profit would mean in the 4th quarter. At even a hundred Million shares Outstanding that's 1.5 cents a share for the quarter or an annualized rate of 6 cents a share. At only ten times earnings that is a value of 60 cents a share. And that's another reason why the Skunk stands by his end of year stock price prediction of 60 cents** - almost 12 times last weeks low.

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30 June & YAGI (a/k/a the sky is falling scenario)

Words matter. In a legal document signed by lawyers - they really matter.

These are the "words" people are talking about since we are close to 30 June.

5.14 Build Out Draw Schedule. The Borrower shall install the COES Installations in accordance with, and subject to, the Build Out Draw Schedule. In addition, the Borrower shall have installed no less than four (4) COES Installations (in addition to the Utica System) on or before June 30, 2008 and no less than three (3) additional COES Installations on or before September 30, 2008.

Note that it does not say commissioned, hooked up, or in production. What it says is "have installed". Importantly "installed" is not defined in the agreement. The simple definition of install it to put in place - or "to place in position". So all we have to do is put the COES equipment on site, in position. According to the information I published some time ago, the 4th and 5th COES, at Riga MI and Lakota IA were set to receive the equipment in June - with start ups in Aug and Sept. So as long as that happened it looks we are in compliance?

install
The Concise Oxford Dictionary of English Etymology Date: 1996
(after F.) to place in position

"BUT SKUNK WHAT happens if YAGI says we are not in compliance anyway??" Well Skunkettes, I guess it all depends on who decided compliance?

So who gets to decide if we are in compliance? Well if we read the definitions of the agreement we find two interesting things. The first is Mr. Kreisler decides if we are in compliance with this portion of the agreement. The second is all it takes is two signatures - not a renegotiated agreement - to change the schedule.

Section 1.1 Definitions

"Compliance Certificate" shall mean a certificate in a form acceptable to
the Lender in all respects executed by the president or chief executive officer [Mr. Kreisler]
of the Borrower certifying to the Lender that . . . the installation of the COES Installations is proceeding in accordance with the Build Out Draw Schedule and Section 5.14 hereof,

Beyond all of this discussion - according to the agreement all it takes is two signatures on a note pad to change the dates when the COES are completed. The entire agreement does not need to be renegotiated.

"Build Out Draw Schedule . . . may be updated, modified and amended from time to time pursuant to the mutual agreement, in writing, of the Borrower and the Lender."

So again - this is serious business. Does the Skunk expect us to be in noncompliance on the 1st of July? Not if the equipment was delivered to the sites as Global Ethanol projected in the May newsletter:

"The skid mounted equipment is expected to be delivered in June with an
August start-up in Riga and a September start-up in Lakota."

PS - Why did Global Ethanol publish that the equipment was to arrive in June? No other COES instalation said when the equipment would be in place. Apparently that detail matters.

http://www.globalethanolservices.com/MGP%20NEWSLETER%202%20Quarter%202008.pdf

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TIDBIT
Not sure - but the Skunk may have stumbled on a secondary investor (or out of date information) in NEXTDiesel here:
New Horizons Worldwide, Inc. 1April 08
Arnold M. Jacob, 54, who was elected to the Company's Board of Directors in November 2007, is a principal of ATMF Realty and Equity Corporation in Bloomfield Hills, Michigan, a company that invests in real estate and business ventures. In addition to developing some five million square feet of commercial real estate, ATMF and its affiliates own interests in businesses including companies that distribute garden and seed products, manufacture ice cream making equipment, operate inner-city movie theaters, manufacture sausage for major grocery chains and publish weekly newspapers. Through an affiliate, ATMF Renewable Energy, LLC, the company has recently invested in NextDiesel™, a biodiesel producer in Adrian, Michigan.

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*From the EIA (June 10th Release) Energy Information Administration – U. S. Government.
Diesel fuel retail prices in 2008 and 2009 are projected to average $4.32 per gallon, up from $2.88 per gallon last year. This reflects strength in diesel demand, particularly in emerging markets, that has significantly increased the margins between diesel prices and crude oil costs from those of last year. Diesel fuel prices are projected to remain near the June 2 price of $4.71 per gallon over the next few months as refiner margins begin to weaken slightly, offsetting the projected rise in crude oil costs.

http://www.eia.doe.gov/emeu/steo/pub/contents.html
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End of Year (EOY 2008) Forecast
The Skunk stands by his detailed EOY forecast from the blog 2 weeks ago. See that previous blog for details. My prediction for the last trade in 2008 for GERS is the center of the Trading Range .60**

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LONG RANGE FORECAST (reprinted from my last detailed review 30 May 2008) You can see that blog with easier to read font in the archives - below right.

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**
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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.
PS. Flash didn't work so that picture of a black bear is not my bear - its a tad small - but the right markings and color - it also had a nice brown muzzle.
Skunk

Incredible Skunk Insight: Things Change

Do things change? These two pictures are Skunk's back yard - only 60 days apart. The second week of April and the second week of June this year. What will GERS PPS be in 60 days? Well by then the Marion IN COES PR should be a distant memory. We also should have a pretty good idea on the status of the Global Ethanol COES at Riga MI and Lakota IA as well. We should have read and digested the 2nd quarter report and even got a few questions answered we had not even thought to ask. I suspect the dam that has kept us channeled around a dime since the second week of February will have finally broken loose a bit. In which direction? Well it all depends on performance. COES and Financing. Financing and COES.


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Again thanks to lightbeam on i-hub. He has found some news where little is available. GERS was featured in the March/April 2008 edition of Biofuelsjournal P.22. http://www.nxtbook.com/nxtbooks/grainjournal/biofuelsjournal_20080304/
This is a nice little article if you missed it. Two things of particular note. The first is Dave Winsness and Ed Carroll seem to have done the interview - and the only other mention is of Dave Cantrell. No mention or quote from Kevin Kreisler - this is a change from the PRs of the recent past. How you frame this change may tell more about how you see the company and the directors - than it does about the company itself.

The other change in this article is the use of the name, quotes and phone number of Steve Roe, the General Manager of the Little Sioux Ethanol Plant – Marcus, IA. (this is the first time the Skunk has seen reference to a second system - this is "NEWS") The Skunk has learned (with help from another investor) that this second system came from ICM - ". . . no other reason than to try something different." The plant believes that "Greenshifts equipment works well." and that "They are good people." This endorsement of GERS appears to conflict with those on the boards who portrayed this relationship as less than positive. Again, how you decipher this apparent conflict will depend on your perspective.
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_G/threadview?m=tm&bn=77822&tid=2418&mid=2455&tof=9&frt=2It
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_G/threadview?m=tm&bn=77822&tid=2744&mid=2748&tof=35&frt=2

This article also ties in with the additional use of Little Sioux Ethanol Plant as a successful COES example on the GERS home page:

"Little Sioux Corn Processors operates a 50 million gallon per year corn ethanol facility and was an early adopter of our corn oil extraction technology that has been utilizing our corn oil extraction since Spring 2006. Since (then) we sold Little Sioux our demonstration system and do not own this facility. This oil extraction system has more 40,000 hours of runtime producing corn oil at rates exceeding 1.5 million gallons per year."

http://www.greenshift.com/facilities.php?mode=3

It appears that at least part of the Little Sioux extracted corn oil is sold into the local retail market as a feed supplement and as biodiesel fuel. This from their web site: "Our expansion is now complete and we will have a steady supply of DDGS, MWDGS, Syrup & Corn Oil available." "Call for availability and pricing on Syrup and Corn Oil." Also from their first quarter report:

"We directly market and sell our corn oil to regional wholesalers. Presently, the end use of our corn oil is in the livestock and biodiesel industries. In the long term, our corn oil could be marketed for human consumption; however, the feasibility of market penetration as human food is unknown at this time, as corn oil extraction in dry milling is relatively new and suitability for human consumption has not yet been determined."

And this little tidbit on the cost of the ICM COE:

"The increase (in the cost of their expansion) was due to our purchase of an oil separation unit. We did not, however, increase the amount of our construction loan to include this additional $2,000,000 cost as we will pay for the oil separation unit with our cash from operations"

The Skunk recommends that everyone pay for a $2M capital expenditure with cash out of the ol'till.

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ASTM Approves New Biodiesel Fuel Blend Specifications 06/20/08 4:36:11 PM

It will be interesting to see if the new specifications below will have any effect on GERS and the processing of corn oil. One benefit may be that the market for bio-diesel can now expand quickly with the opening for up to 5% bio-diesel within the specs for regular diesel:

" . . . and a new specification to include up to 5 percent biodiesel in the conventional diesel specification."

http://www.dtnethanolcenter.com/index.cfm?show=10&mid=72&pid=16
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Skunk Says SOY STINKS!
The Skunk sees more and more hard times for those biodiesel plants dependent on soy oil as a feed stock. The high costs of the soy oil is shutting them down left and right. Many see corn oil as the only feedstock where it is possible to make a profit. Here is an example in the first quarter report of CENTRAL IOWA ENERGY, LLC:

"We have also begun utilizing crude corn oil extracted by dry-mill ethanol plants as an alternative feedstock, which we are able to pretreat at our facility. We expect that corn oil will be a lower cost vegetable oil feedstock alternative, and we hope to be able to substitute it for soybean oil in our biodiesel blends. The amount of corn oil that we will be able to acquire will likely depend upon the rate at which ethanol plants begin installing corn oil extraction equipment at their plants and the extent to which they market their corn oil. We anticipate that our ability to utilize lower cost feedstocks will help make our biodiesel more price competitive with petroleum-based diesel, in light of historically high petroleum diesel sales prices, thereby increasing sales volume of our biodiesel."

This company has just been notified by its lender it is in default - its interest rate went up 2% and it has 90 days to raise $7M. (and we thought we had problems!)

http://www.sec.gov/Archives/edgar/data/1385952/000136231008002854/c73404e10qsb.htm#103

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Here is another one called East Fork Biodiesel:

" . . . in light of the continuing increase in the prices of our primary raw material, soybean oil, which is at or near record levels, coupled with the comparatively slower increases in diesel fuel prices, we believe it is not in our best interest to begin regular operation of our plant."

and

"DDGS Corn Oil. The most promising economical alternative to soybean oil is corn oil extracted from dried distillers grains with solubles, known as DDGS. . . We believe that corn oil, extracted from DDGS from ethanol plants, is currently the closest oil to being economically available."

So now after they build their plant - they realize they cannot make a profit when the feedstock costs more than the end product! Now they wish they had set up to run corn oil!

http://www.sec.gov/Archives/edgar/data/1424804/000118301008000047/form10-12ga3.htm#a3

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Now the Skunk could give lots and lots of examples of the trouble soy based biodiesel plants are having - but let me make one more please. I mean, look at the name of this one:

SOY ENERGY, LLC = Now listen to what they say:

"Management sought technology that would allow the biodiesel plant more flexibility in the types of feedstock that may be used. Management began exploring the use of corn oil as the primary feedstock for the production of biodiesel. Management believes that corn oil may present a more favorable feedstock for biodiesel production compared to soybean oil. Management believes this is especially true now due to the current high soybean oil prices."

http://www.sec.gov/Archives/edgar/data/1426780/000089710108001357/soy082627_10-12ga.htm#A002

DUDE! A company called "Soy Energy" is saying corn oil is the only way to make money making Biodiesel!

We are standing in the right place - at the right time - on the cusp of history!!

GERS management - LETS GET IT RIGHT! Lets get this two car funeral on the road and headed in the right direction!!! Lets get these COES up and working and lets get some decent financing! I wanna hear some pop and snap.

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The Skunk has linked the following Plants to Corn Oil Extraction - no evidence yet - but - will try to monitor for possible third party sales or other links to GERS?????

LINCOLNWAY ENERGY, LLC

"A corn oil extraction system was completed and commissioned in April 2008. Lincolnway Energy is currently working to maximize corn oil production capacity. The system is performing as expected in performance projections."

http://www.sec.gov/Archives/edgar/data/1350420/000114420408028594/v114015_10q.htm#RANGE_A1:C20

PRAIRIE CREEK ETHANOL, LLC

"We also plan to negotiate and execute finalized contracts concerning the construction of the plant and corn oil extraction technology. . ."

http://www.sec.gov/Archives/edgar/data/1389701/000114420408019244/v108752_10ksb.htm#RisksRelatedtoFinancingPlan

GRANITE FALLS ENERGY, LLC

"Subsequent to our fiscal quarter ended April 30, 2008, we completed the installation and start-up of our corn oil separation equipment at our ethanol plant and we are presently operating the new equipment. . . . . we expect the total cost of the oil separator system will be approximately $775,000."

http://www.sec.gov/Archives/edgar/data/1181749/000136231008003217/c73631e10vq.htm#102

End of Year (EOY 2008) Forecast

The Skunk stands by his detailed EOY forecast from last weeks blog. See that previous blog for details. My prediction for the last trade in 2008 for GERS is the center of the Trading Range .60**

This with a trading range of .45 to .75 during mid December '08 to mid January '09. I am making this prediction on 6 June 2008. GERS stock just closed down 9% for the day at a dime.

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LONG RANGE FORECAST
The Skunk stands with his Long Range estimate of the last couple weeks. See previous blogs for details.

$4.91 Share Price in FEB 2010**

**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

Kreisler LLCs & GERS ADS

Things sure have been quiet - kind of like my buddy Harpo.



I got a couple things for you this week as we await the Press Release announcing the commissioning of the Marion, IN COES.

The first is The Kriesler Family Corporations and Limited Liability Corporations or LLCs. If you spend much time reading the past filings you will notice that most of the Kreisler family members have a legal entity that is used to bring money into or out of the company. This is not good or bad in itself - it could be either depending on the circumstances - but everyone should be aware of it when it happens. The most common mention in the filings is Viridis Capital, LLC, which belongs to Kevin Kreisler. It is a holding company in which he is the sole owner and where he keeps all of his GERS Stock. Kevin's wife, Mrs. Rachael Kreisler is the president of and owns Candent Corp. As of March 31, 2008, the Company (GERS) owed Candent Corporation $757,853. Candent Corporation has provided IT services in the past and she has an Internet web designer background. They may have also loaned money to the company through this source? Lawrence Kreisler, the Chairman's father owns Serenity Capital, LLC. Scott Kreisler, Kevin Kreisler's brother owns Cyrus Capital, LLC. As late as the second quarter 2006, Cyrus effected conversions totaling 6,000,000 (pre R/S) shares of the Company's common stock. Kevin's mother Kathi Kreisler does not seem to have her own legal entity, although she and her son Scott still may work for the company.

The Skunk has listed some of the more current actions in the family history in the right hand column if you are interested. I suggest just go to any GERS filing and do a search on - LLC - . The amount of money moved around in these certainly has decreased in the last two years - the older filings are much more interesting in these matters. Cyrus and Serenity LLCs seem to be two years or more removed. The reason I bring this up is twofold. The first is the Skunk wants everyone to know that I include these Kreisler family members in my blog because they are involved in the business. I do not post personal information I find if it is not somehow related to the business. As the Skunk mentioned in his review of the First Quarter Report, our line of credit is getting used up on construction and the accounts payable continues to rise. So - we may see the use of these LLCs to generate cash until a new financing deal can be done. What I suspect is these LLCs may be used to effect conversions of common stock. What the Skunk imagines would happen is GERS sells company shares to the LLC on 30 days credit, the LLC sells the shares into the market, the LLC then pays the company with the proceeds. The Skunk has no knowledge this is going to happen - but it seems to have happened in the past when things got tight - and unless we see some financing quick - things may get tight again.

Now this type of thing seems to have been used to pay an old 1million dollar legal judgement in the 1st Quarter:

"During the first quarter 2008, Minority Interest Fund (II), LLC ("MIF") acquired the Kerns $1,000,000 Debenture. This debenture was due to be paid by the Company in two payments $600,000 on January 15, 2008 and $500,000 (plus residual interest and costs of $100,000) on February 15, 2008. MIF purchased the Kerns $1,000,000 Debenture and paid these sums in cash to Kerns on the requisite due dates. 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. The managing member of MIF is a relative of Kevin Kreisler, the Company's chairman and chief executive officer." (p. 23 1st Qtr Rpt)

Now, if you multiply out the 6,875,000 shares times .16 you get exactly the amount of the debt - or - $1.1M. This leaves no room for shenanigans or even valid sales commissions. Although we do not learn who the managing member is, the Skunk would guess based on past history, that it is either Lawrence or Scott Kreisler. Even though I have worn out a keyboard trying - I have not found out any more information about the MIF, LLC. When the second quarter Report comes out in August - You and the ol'Skunk will have to see if the family LLCs were used to convert some of the common shares to pay some of the bills this quarter.

********************************************

Thanks to Lightbeam on i-hub: For those who missed it - here are a couple of impressive two page spreads advertising GERS. The first is on pages 4&5 of Biodiesel Magazine for NextGen Fuels which is our bio-diesel division inside of Agrifuels.
http://mag1.olivesoftware.com/ActiveMagazine/getBookEnc.asp?Path=QkRNLzIwMDgvMDYvMDE=&BookCollection=BDM_AM&ReaderStyle=Normal&browserWindowWidth=1270&browserWindowHeight=974

The second is for Ethanol Producer Magazine, pages 18 & 19. This ad is for Greenshift Corporation, centering on Corn Oil Extraction at Ethanol Plants.

http://mag1.olivesoftware.com/ActiveMagazine/getBookEnc.asp?Path=QkJJLzIwMDgvMDcvMDE=&BookCollection=BBI_AM&ReaderStyle=Normal&browserWindowWidth=1270&browserWindowHeight=974

Thanks again Lightbeam on i-hub for that DD

***********************End of Year (EOY 2008) Forecast
The Skunk stands by his detailed EOY from last weeks blog. Here are the quick details reviewed:

12.5MMGY of Corn Oil Bio-diesel = 25M EBITDA
3.75MMGY of Waste Fat Bio-diesel = 2.625M EBITDA
$2.5M Third Party Bio-Diesel sales = 1.25M EBITDA
10MMGY Sustainable Systems = 1.25M EBITDA
TOTAL EBITDA = $30.125 at an annualized rate or $30M

With 30M EBITDA the Skunk estimates we could have 175M shares outstanding at the end of the year. This is due to the various reward programs with preferred stock tied to EBITDA. Historical indications are these stock conversions are awarded when the company reaches an annualized rate of EBITDA earnings over a quarter. (We will explore how this works at a later date)

Public Float 56,044,957
Employee Pool (B) 36,379,995
Viridis Capital, LLC (D) 49,920,000
BIG Shareholder Group (E) 32,000,000
Total 174,344,952

The Skunk is also going to throw in 25M shares as possible debenture stock conversion by YAGI. This is based on past history (and also wanting a conservative, round number to work with!) That gives us 200M shares OS. Moving only 20% of EBITDA down to Net income we have: 6M/200M Shares Outstanding = .03 *P/E factor of 15-25 = .45 - .75 Trading Range

*PE I used very conservative P/E ratio here - compared to the two year forecast - since in six months, even with these short term goals met - we will still be a work in progress - still a diamond in the rough.

My prediction for the last trade in 2008 for GERS is the center of the Trading Range =
.60**

With a trading range of .45 to .75 during mid December '08 to mid January '09. I am making this prediction on 6 June 2008. GERS stock just closed down 9% for the day at a dime.

LONG RANGE FORECAST

The Skunk stands with his Long Range estimate of the last couple weeks. Here is a quick rundown. Detail are in the Skunk archives from a couple weeks ago.

With the 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: 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

SKUNK NEWS FLASH Milton WI 7th COES

Corn oil extraction
Construction of the corn oil extraction system will begin this fall by GERS. Initial tie-ins are complete and this will allow the system to be brought online without any downtime in ethanol production.

http://www.unitedethanol.com/images/E0135601/UEspring08finalforWeb.pdf

(Mentioned p.1, 2 & 3 of June 2008 Newsletter)

Of all the formally named (8) COES this only leaves the Fulton, NY plant with no update on construction.

Molecular Sieve Beads & Ostentatious Minutiae

DANGER! Skunk predicts PPS under six cents in May of 2008! Hey isn't this June already?? Read Below for his latest EOY prediction and his interesting back-test!

WARNING! The information below, if committed to memory, may make you appear much smarter than you really are! Use it to impress others at your next social gathering!

The Skunk has mentioned before - we can only get so far with our still here in Kornfield Kounty. The question has always been - How do you get from 190 proof (95%) to 200 proof (100%) alcohol? In the early days of fuel ethanol production, this problem was overcome by azeotropic distillation. One technique involves adding an entrainer - typically benzene - that breaks the azeotrope so the ethanol can be further purified. A couple of issues with this technology are additional distillation steps are required (i.e., more equipment and more energy) and benzene is a known carcinogen. But this was used successfully for years, until more recently when molecular sieves were introduced to the industry.

Just as the name implies, molecular sieves separate molecules. The mole sieves are large vessels filled with BB sized desiccant beads – millions of them. These beads are made of a synthetic zeolite material and engineered to have tiny pores in them that are 3 Angstrom (3A) in size (an Angstrom is a unit of measure used in molecular studies; a human hair is approximately 1 million Angstrom wide. In other words, an Angstrom is really, really small). Water molecules are slightly smaller than 3A and ethanol molecules are larger than 3A.

The 190 proof (95% ethanol) vapor made in distillation is sent through a molecular sieve and the small water molecules get trapped in the pores of the beads. The larger ethanol molecules pass on through, resulting in a final product that is nearly 200 proof alcohol.

Some Ethanol Plants use three molecular sieve “bottles”, each one running in sequence for only five minutes at a time. After five minutes, the pores in the beads are full and too many water molecules begin to pass through with the alcohol. The vapor feed then switches to the next bottle, and the saturated one that just shut off goes through a regeneration cycle where negative pressure is used to pull the water out of the beads to get the bottle dried out, soon to be fed again.

The use of molecular sieves has substantially improved the energy efficiency of ethanol plants and the overall safety of the industry – and now you have the proof!

(The Skunk has read some on this subject - but this rendition seemed to have just the right balance of interesting information and ostentatious minutiae. )

SHORT TERM

EOY FORECAST

Well last week the ol'Skunk got involved in some GERS research and all of a sudden it was Monday night and I still hadn't got it my weekly forecast done. Since the price jumped pretty good on Monday - I figured I didn't want to jinx anything by doing it a day late. After a little reflection (accuracy achieved vs summertime expended) - I decided to no longer try and regularly forecast share prices a week out. I will make a comment or two whenever I get the urge. So for those few who found it slightly amusing - may I suggest the Sunday Funny Papers - LOL

To fill the spot in my weekly blog I decided to now give you something you really need - the PPS six months out. I will list my assumptions and record my prediction. I list my assumptions for two reasons - first to give myself an excuse if my prediction does not stand the test of time. And second - and on a more practical level - to allow you to insert your own assumption where ever you think mine is weak - and come up with your own prediction without doing all the work. It's always easier to fix a straw man - than to start digging clay.

My 1st assumption is that we will reach our stated end of 2008 goals:

"Our goal is to have at least 15 million gallons per year of corn oil extraction capacity, 20 million gallons per year of biodiesel production capacity, and 16 million gallons per year of oilseed crush capacity online by the end of 2008, . . "

2nd assumption is we will maintain the same gross profit as claimed in the 1st Quarter Rpt of over $2.00/gal corn oil to bio-diesel. 3rd assumption is production equals (on average) 83.3% (based on Minimum Yagi Debt standards of 1.25MMGY) of extraction capacity. This average will constantly improve into the '09 first quarter - when most 2008 commissioned COES will be then producing over 90% capacity on average. 4th assumption is only 20% of EBITDA will move to net income. Until debt is refinanced and paid down, and until more localized bio-diesel plants cut down on the average transportation cost of corn oil - this ratio will remain low. 5th assumption is Sustainable Systems will complete its expansion during mid 4th quarter;

(. . . the completion and commissioning of Sustainable's current plant expansion, which is expected to be completed in the fourth quarter of 2008. [p. 24 1st qtr rpt])

and will still be ramping up operations EOY - running at 62.5% of their new 16M gallon capacity - or 10MMGY production rate. Rate of Revenues to gross profits during the first quarter were just over 10% - the unique sales last quarter of whole seed seems to have driven this ratio abnormally down from the Company predicted 15%. The Skunk will use 12.5% and split the difference. 6th Assumption is Bio-Diesel Construction for third parties will be about $2.5M. Given we were told of about 15M in sales and the expected completion of two units in the first and second quarter each, I estimate that 50% percent of the remaining $5M in revenue will be claimed in the 4th quarter. Historically 50% of revenues move to EBITDA in this area. 7th assumption is NEXTDiesel will have 20MMGY bio-diesel capacity with or 12.5 MMGY of Corn Oil to bio-diesel production (83.3% mentioned earlier). The Skunk will assume that they will be able to utilize only 50% (or 3.75 MMGY of the unused 7.5MMGY capacity to produce bio-diesel from tallow and waste fats.) This produces .70/gallon of gross profits or $2.625M of additional EBITDA - an entirely new revenue source.

12.5MMGY of Corn Oil Bio-diesel = 25M EBITDA

3.75MMGY of Waste Fat Bio-diesel = 2.625M EBITDA

$2.5M Third Party Bio-Diesel sales = 1.25M EBITDA

10MMGY Sustainable Systems = 1.25M EBITDA

TOTAL EBITDA = $30.125 at an annualized rate or $30M

With 30M EBITDA the Skunk estimates we could have 175M shares outstanding at the end of the year. This is due to the various reward programs with preferred stock tied to EBITDA. Historical indications are these stock conversions are awarded when the company reaches an annualized rate of EBITDA earnings over a quarter. (We will explore how this works at a later date)

Public Float 56,044,957

Employee Pool (B) 36,379,995

Viridis Capital, LLC (D) 49,920,000

BIG Shareholder Group (E) 32,000,000

Total 174,344,952

The Skunk is also going to throw in 25M shares as possible debenture stock conversion by YAGI. This is based on past history and also wanting a good, round number to work with. That gives us 200M shares OS. Moving only 20% of EBITDA down to Net income we have: 6M/200M Shares Outstanding = .03 *P/E factor of 15-25 = .45 - .75

*PE I used very conservative P/E ratio here - compared to the two year forecast - since in six months, even with these short term goals met - we will still be a work in progress - still a diamond in the rough.
My prediction for the last trade in 2008 for GERS is - .60** - trading range of .45 to .75 during mid December '08 to mid January '09. I am making this prediction on 6 June 2008. GERS stock just closed down 9% for the day at a dime.

One of the things I left out of my assumptions was I based this prediction on the annualized rate of EBITDA during the 4th quarter 2008. The results for this will not be published until 30 March to 15 April 2009. Believing in the ultimate collective intuition of investors - I think we will have achieved a psychological turnaround of sorts by then - where all GERS news is no longer bad. Some of it is good and only some of it is bad. I think by 31 Dec '08 investors will have factored in the news before it comes out in the report and that will be reflected in the 31 December PPS. So besides having a blindfold on and having to sink the eight ball - I also have to use three rails - and all this while the balls are still moving.

Today's Forecast - For those who think the above is PIE-IN-THE-SKY (75%?) - Lets quickly back check this against the last price where we had good numbers and use the same assumptions. Say mid - May when the quarterly came out. $920,324 EBITDA X 4 X .2 = $245,911. Total Shares OS = 85,031.348

245,911 / 85,031,348 = .002892
.002892 X 20 = .0578

So by using the same conservative formulas and ratios used for the EOY prediction - backdated the inputs to May '08 - we have produced a price of 5.8 cents and a conservative trading range of .43 - .72

The actual trading range for the month of May was from .07 to .113 !
Maybe this ol'blind Skunk stumbled on to an acorn here ? ? ? Well I just took my three rail shot - now on to the six rail long range forecast - looks simple right?

LONG RANGE FORECAST
I stand by last weeks detailed update of my long rang forecast with two updates. First of all, the Skunk believes he has overestimated the number of shares outstanding by a likely 75M shares. What I suspect is we are counting some Employee Pool shares twice and not subtracting shares already converted. However, I would rather error on the side of caution and use those numbers until I can better analyze the situation. To give you an idea of the possible magnitude of the error, if it is as I suspect - that would increase my estimate of share price more than a dollar - to just over six dollars.

The second update has to do with the amount of 1st quarter '08 YAGI debt conversion. By accounting for everything I could, I assumed the remaining dilution was YAGI debt conversion in the area of about 30M shares. As I researched further, I was able to account for about half of those shares and I updated the blog as I found the shares in question. For those who missed it you can re-read last weeks blog or here is a quick synopsis:

"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 -This issue deserves archival research & a separate blog). We also converted almost 7M shares (using MIF) to settle an old $1M Lawsuit judgement. (p.23 1st Quarter. Which relative owns MIF?)

So now we could have had a maximum of 15,702,808 shares of YAGI debt dilution in the first quarter - not good - but better than the 30M or so first estimated.

So with the 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: 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

SKUNK NEWS FLASH

GOOD NEWS on Richardton, ND Plant - It seems in the last six weeks the completion date has moved up at least three months!

We only had this statement concerning our planned 8th COEs in North Dakota. It is from page 20 of the RED Trail Energy, LLC 2007 Annual Report published 11 April 2008:
"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."

http://www.sec.gov/Archives/edgar/data/1359687/000095013708005304/c25165e10vk.htm#104

Now we have this statement from the Power Point presentation given to the members at their Annual Meeting on 21 May 2008 and filed with the SEC:

"Corn Oil Extraction System - Projected to be on-line late 3rd Qtr or early 4th Qtr 2008"

http://www.sec.gov/Archives/edgar/data/1359687/000095013708007734/c26942c26942z0007.gif

Whole power point below - this slide is 007

http://www.sec.gov/Archives/edgar/data/1359687/000095013708007734/0000950137-08-007734-index.htm

Skunk