LIQUIDITY AND CAPITAL RESOURCES
Our financial position and liquidity are, and will be, influenced by a variety of factors, including our ability to
properly capitalize and generate cash flows from our operations, the level of our outstanding indebtedness and the interest we are obligated to pay on that indebtedness. Our primary sources of liquidity during the three months ended June 30, 2010, included commodity sales and the proceeds from issuance of debt and common stock. During the six months ended June 30, 2010, net cash used in our operating activities was $1,104,080, as compared to the $334,586 used by our operating activities during the same period last year. The primary reason for the different results was that cash produced from licensing activities during 2010 was used to reduce certain liabilities. In addition, during the six months ended June 30, 2010 we obtained $1,608,163 in net proceeds from the sale of convertible debentures and used almost all of that for our operations. We also used $145,573 to expand our property and equipment during the first six months of 2010. During the six months ended June 30, 2009 we obtained $1,180,579 in net proceeds from the sale of convertible debentures but used about $779,000 in construction activities. Any cash we generate from our operating activities in the future will be applied to our operations until we exceed our cash flow break even point and thereafter, albeit at a planned decreasing percentage of sales; and, until we have reduced our current liabilities to equal or less than our current assets, the amount of cash that we have available for use in operations beyond break even will also be determined by the amount of cash that we can obtain from our financing activities.
(Revenues from production goes to operations - till now hasn't been enough - difference is being made up by CDs. As revenues increase beyond break even - cash will be used to lower debt until current liabilities equal assets.)
Access to Capital
We received proceeds from financing activities totaling $1,608,136 during the six months ended June 30, 2010. Viridis Capital, LLC ("Viridis"), Minority Interest Fund (II), LLC ("MIF"), Acutus Capital, LLC("Acutus"), and management personnel continue to provide us with the cash resources we require for our overhead needs, including all legal expenses incurred in the prosecution of infringing use of our patented technologies. Viridis is owned by our chairman, MIF is owned by a family member of our chairman, and Acutus is owned by our chairman's attorney and former professor. These investors collectively provided us with a total of $3,821,670 during the year ended December 31, 2009.
(The CDs are converted to cash for operations (A biggy is legal costs to prosecute infringment. Provided by three LLCs. Viridis Capital (Kevin Kreisler), MIF (Lawrence Kreisler?) and Acutus Capital.)
In total, Viridis (along with our chairman personally and an entity held in trust for the benefit of our chairman's wife (the "Kreisler Trust")), MIF, Acutus and current management have provided GreenShift and its affiliated companies and subsidiaries with more than $14,432,307 in cash between January 1, 2005 and June 30, 2010. Viridis, the Kreisler Trust and our chairman collectively loaned $8,329,355 of this cash amount, about half of which was subsequently canceled, forgiven and contributed to shareholders' equity.
(Insiders pushing close to all-in)
We plan to continue to rely on proceeds from financing activities completed with these and other investors while we execute on our plan to increase sales to generate sufficient cash flows from operating activities to cover all of our overhead needs on an ongoing basis. We have recently executed new license agreements that we expect will generate royalties in excess of our break-even costs and possibly at a level sufficient to realize profitability. We expect that we will start realizing these increased revenues upon the completion of assembly and installation of the equipment and components needed to apply our patented technologies at the relevant licensed ethanol plants in late 2010 or early 2011.
(On cusp of making money)
In the meantime, we intend to use our available capital resources as judiciously as possible. Thus, while we would prefer to have a sizeable cash reserve (we only had about $14,944 cash as of June 30, 2010), the most cost-effective use of our resources under current market circumstances is to receive a number of small investments on a quarterly or more frequent basis at levels that match our ongoing operating cash needs.
(Cash reserves are down, but cash is available in small investments to meet operating needs.)
We have limited alternatives available to us for capital formation due to the state of our balance sheet and our capital structure. The available financing options typically take the form of convertible debt and similar derivative structures through which investors purchase securities in the Company that are convertible into our common stock in the future at a discount to either current prices or the market price at the time of conversion. This type of structure helps to mitigate risk for the source of the investment but it is also expensive and potentially very dilutive to the Company. Raising capital with these structures is not desirable moving forward. This type of debt can, however, be cost-effective if the proceeds are used to generate sufficient recurring earnings to justify refinancing of the convertible debt at higher equity values and thus lower overall costs of capital to the Company and its shareholders. We used over $50 million of this type of financing to invent, develop and commercialize our portfolio of cleantech, importantly including our now-patented corn oil extraction technologies. The cost-effective repayment of this debt remains a key objective. For example, we entered into agreements with a subsidiary of GE Energy Financial Services and YA Global Investments, L.P. in late 2008 for $38 million in equity financing to repay a significant amount of our debt and to build new facilities based on our patented and patentpending technologies (this financing unfortunately did not close as expected in the first quarter of 2009 due to turmoil in global commodity and financial markets at the time). We were successful in positioning GreenShift to receive significant capital for debt reduction and growth from strategically valuable capital sources in the past, and we intend to do so again in the future.
(Balance sheet makes it hard to get reasonable financing, pay down the debt and doors will open)
Repayment of Technology Development Debt
During 2009 and the first six months of 2010, we satisfied a total of $5,670,000 and $2,681,304 in convertible debt, respectively, by issuing Company common shares upon conversion by the debt holders. A key challenge and objective for us is to decrease and satisfy our existing convertible debt to YA Global in cost-effective ways by both avoiding the issuance of new convertible debt on expensive terms and by minimizing the issuance of common stock as much as possible. While the cash proceeds provided by our financing activities during 2009 and the first quarter 2010 mostly involved issuance of new convertible debt to Viridis, MIF, Acutus and management, the pricing and other terms of that debt were on average much more favorable to the Company than terms available from any other investors; and, Viridis and MIF have expressed a willingness to fully convert all debt into equity on advantageous terms for GreenShift after we have satisfied the substantial majority of the convertible debt due to YA Global.
(CDs to Viridis, MIF, Acutus and management are currently best financing available. Once YA Global debt is mostly paid, Viridis and MIF may pay off rest of debt for a stock position. The SkunK believes that once YA Global is mostly paid off, the preferred shares that Mr. Kreisler holds for them as collateral becomes no longer required. Getting rid of that situation will make the position of common shareholders as well as any future equity offering much more attractive.)
Our ambition is to reduce and satisfy as much as possible of the remaining convertible debt that we currently owe to YA Global from sources not involving issuance of new common shares. We executed agreements in June 2010 for a transaction that closed during the third quarter 2010 involving the transfer of four partially completed GreenShift owned corn oil extraction facilities to a joint venture with YA Global. The transfer of these facilities to our joint venture with YA Global allows us to repay a significant amount of our existing debt in a way that stabilizes our balance sheet and preserves the value of our shareholders’ equity. Importantly, we reduced debt by $10,000,000 under this transaction without issuing common shares, and we have the ability to reduce debt by another $7,700,000 without issuing stock by meeting moving forward goals tied to the joint venture’s performance. We are currently evaluating opportunities for additional debt reduction.
(Saved 10M of shareholder dilution, chance to save 7.7M more.)
We have a great deal of resources invested into the development of our patented and patent-pending technologies, specifically our now-patented corn oil extraction technologies. Each of our stated goals for 2010 above (increase sales, achieve profitability, and repay our technology development debt) are based on using our patented corn oil extraction technologies and the balance of our Backend Fractionation™ technology portfolio to earn business and to partner with ethanol producers to increase their profitability.
(Focused on earning new business.)
2Q P29-30
SkunK
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1 comment:
Why would the Chairman Wiridis and the Kreisler Trust cancel or forgive $4 million of debt? KK is a businessman - it doesn't make sense?
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