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Discount Reductions Had a Price ...
Some of those creditors got a nice chunk of Series D, apparently in exchange for some debt restructuring, including a change in the discount to market price.
They are tilting more towards equity, reflecting some optimism about the revenue growth.
Now, the Series D is all outstanding, reducing the share of equity available to the Common Stockholders.
Odds ...
The GERS patents look pretty solid to me, and I am confident that GERS will eventually win the lawsuits. But, I have less confidence in trying to figures out WHEN the settlement(s) will actually be paid to GERS.
Will the cash flow pay off the debts? Again, I have a lot of confidence in saying, "YES, EVENTUALLY." But, again, it is difficult to predict the actual timing of complete debt repayments.
In other words, its not a question of IF, but WHEN, on both of these issues.
But, the timing of these events is not an insignificant question. It could have HUGE IMPACT on the O/S, if these events are delayed so long as to require more dilution.
If these events are delayed until 2013 or 2014 or 2015, then we may get stuck with a whole lot more dilution before the stock starts to perform. For example, we may have to pay off another $5 - $10 Million of debt with stock, before the dilution ends. $10 Million / $0.05 per share = 200 Million new shares. That's more than 10X the current shares outstanding of 16 Million shares. Or, what if we have to pay off $20 Million at $0.01 per share, before the dilution stops? That's another 2 Billion Shares, or more than 100X the current O/S of 16 Million.
On the other hand, if there is a settlement very soon, and that settlement is enough to pay down a chunk of debt, and there is no more dilution, things would look much better.
There is a very wide range of possible outcomes.
The big question mark is DILUTION ...
How much more dilution will the Common Stock holders suffer before the debts are finally paid off?
In order to account for the risk of more dilution, I am planning to buy more shares down around the $0.01 price range.
Not the end of the story ...
It is not unusual for the first office action on a patent application to include a lot of claim rejection.
This is not the end of the story on this ICM patent application.
ICM has a chance to respond to this office action, and there will probably be quite a lot of back and forth, before any final rulings are issued by the USPTO.
It would not be a safe assumption to assume that ICM will not get a patent out of this ... at least not yet. That may be the final outcome, but it may not. We've still got at least a year of back-and-forth with the USPTO, before we will know for sure one way or the other.
Houston, we have a problem ...
On page 19 ...
"The Company’s Series D Preferred Stock is beneficially owned by Viridis Capital, LLC (625,125 shares), Edward Carroll (187,500 shares), Acutus Capital, LLC (124,875 shares) and Minority Interest Fund (II), LLC (103,534 shares)."
The total number of shares outstanding of the Series D Preferred Stock is now greater than the number of authorized shares of Series D Preferred Stock.
That's kind of like selling the same home to two different buyers at the same time, and it is illegal.
625,125 + 187,500 + 124,875 + 103,534 = 1,041,034.
The Company is only authorized to issue 1,000,000 shares.
This constitutes securities fraud. Someone needs to return 41,034 shares of Series D.
5,000 - 6,000 - 7,000... WHO'S COUNTING ANYWAYS ...
What's another thousand years, or two, when you've got non-diluteable, Series D Preferred Stock, eh?
I am 5,000 years old ...
My real name is Moses. I have been waiting for GERS to become profitable since I led the People out of Egypt.
It's been a long wait!
Exact wording from the NT 10-Q ...
"The subject annual report, semi-annual report, transition report on Form 10-K, Form 20-F, Form 11-K, Form N-SAR or Form N-CSR, or portion thereof, will be filed on or before the fifteenth calendar day following the prescribed due date; or the subject quarterly report or transition report on Form 10-Q or subject distribution report on Form 10-D, or portion thereof, will be filed on or before the fifth calendar day following the prescribed due date;"
Bold & Italics added by jlglex.
TEchnically speaking, the 10-Q is due ...
TODAY. 5 Calendar Days after the 11/15 deadline ...
According to the NT10-Q.
Someone said something about hiring at Greenshift. It looks like they need some help in the finance group.
$50 Million per Year Revenue ...
Those calculations seem reasonable to me. I will carry them a step further ...
50% Gross Profit Margin = $25 Million per year.
Less $6 Million per Year S, G, & A = $19 million per year.
$19 Million * 10 Multiple = $190 Million Enterprise Value.
But, we aren't yet running at 2.3 Billion gallons per year. It will probably be until year end 2012, before we are up and running at that level. So, we have to discount that back to get the present value. Let's use 25% as the discount rate.
$190 Million / 1.25 = $152 Million.
less $51 Million of Total Liabilites = $101 Million.
Common Stock gets only 23% of that, which = $23 Million.
$23 Million / 17 Million shares = $1.35 per share.
That is the "base case" without a litigation settlement, without equipment sales, without any value for the other technologies, and without a stock buyback. It also assumes that dilution stops right away, which is probably not accurate.
The stock trades at $0.09.
$23 Million / $0.09 = 256 Million shares.
The stock is trading at a price that assumes another 240 Million new shares are issued by the Company, before the dilution stops.
"BEGIN" is the operative word
"We expect that realization of these goals will enable us to begin repaying our remaining debt out of cash flow by the end of this year. Achieving this milestone is a key objective for 2011."
That doesn't mean that dilution will "cease altogether." It just means that it will "begin to decline."
Litigation and Equipment Sales Are Upside Wildcards ...
My analysis, mentioned in the previous post, is based on the signed contracts alone.
There was some mention of equipment sales, but I don't know if that is happening or not. If it does happen, it will be an upside bonus.
And, of course, favorable litigation settlement(s) could also create a positive surprise.
But, the base case is pretty clear that more shares will be issued.
Stock Sales Coming From Company, IMO
It is probably the Company selling new stock into the market.
As far as I know, the pre R/S shares are all still locked up by the mechanics of the R/S. I cannot sell my Pre-R/S Etrade shares. That is for sure. And, I don't think anyone else can either.
Thus, the shares being sold right now are new shares issued subsequent to the R/S by the Company.
While the sales & cash flows are improving, there is still quite a pile of liabilities that must be satisfied, including the "Current Liabilites". "Current Liabilities" are those debts that are due and payable within one year.
When he says that the Company will soon be able to pay off debts from cash flow, that doesn't mean that the dilution will stop. It just means that operations are finally generating some free cash flow that can be used to pay down debt. They still may issue new stock, IN ADDITION TO the cash flows.
I believe that this stock will go lower before it goes higher, and it could go a lot lower before it goes higher.
When & if they ever get to a stock buyback, then it will go up a lot; but as far as I can tell, that is still a ways off. And, I believe we are going to see quite a few new shares before we reach that point.
Late, due to R/S
My guess is that they are simply late filing, due to the extra workload of the R/S.
They also have a steadily increasing number of contracts to administer, which also puts some strain on the management's time.
Doldrums
If you stay in long enough, you will realize that it is actually an extended period of "doldrums", not the "calm before the storm".
As I recall, the PRE-14C
Says that the R/S will occur during the "second half of Q3 2011."
Looks like they are getting the Q2 report out the door, first, and then they will do the R/S after that.
If you have more cash with which to average down,
Then you are in good shape, because it looks like we will all have another chance to average down on this thing, before we finally turn up in earnest.
If you are short on cash, and don't have any more with which to average down, then the coming decline (after the R/S) will hurt ... big time.
R/S Coming Soon ...
While there is likely to be a spate of good news, not only in the coming Q2, but in future quarters, as well, it will not be enough to overcome the extreme dilution and coming R/S.
The coming good news could be compared to the news from a car mechanic that he has been able to successfully turn on the engine of the broken down 60 year old automobile with 500,000 miles on it, which he has been working on his backyard for the past 10 years.
It is good news. It is forward progress, but the automobile still has 4 flat tires, two broken axles, seats torn to shreds with foam all over the place, massive dents and huge rust spots on the body of the car, and a windshield that is splintered all the way across.
Getting the engine started helps, but there is still A LOT of work to be done before the thing is a showpiece worthy of an auto show.
GERS is still a broken down vehicle in the Kreislers' back yard, which is littered with junk and swimming in debt, as they try to fix it up for the show. Management's hands are covered with grease, and they haven't had a shower in years. They have made progress in getting the 'engine' started, but GERS is stil not ready for the show quite yet.
And, besides that, the show itself may even be cancelled this year, due to difficult economic conditions.
THIS CHICAGO MERCANTILE EXCHANGE REPORT
Shows the dramatic increase in the ethanol crush spreads in the past 4-6 weeks. Page 12 is the place to look. It may not strike you as a huge move, on this chart, but the impact on the profitability of GPRE of that little move is dramatic...
http://cmegroup.barchart.com/ethanol/archive/1311599359CME-Weekly-Ethanol-25-July-2011.pdf
Tough to say, really.
Theoretically, it could happen this month ... or, it won't happen until 2013, or it might never happen. My guess is somewhere in the middle, if that helps at all!
The range of possible outcomes is very wide. That's why this stock is so cheap. HUGE UNCERTAINTIES.
He was talking about the Q2 report for GPRE, not GERS
GPRE is GERS' most important customer, and you can learn things about GERS' business by reading GPRE's Q2 financial report. For example, GPRE reports its Corn Oil Sales as a separate line item, now. That tells you something about GERS' royalty.
And, BTW, GPRE is a great stock pick right now. You won't get the kind of 100-bagger that you might get out of GERS, but you can get a solid double out of GPRE, in the next 12 months, in my opinion.
THIS INDUSTRY LEADER WILL POST ABOUT $2.00 PER SHARE FOR Q3 2011
... and ANOTHER $2.00 PER SHARE in Q4
This thing is highly levered to the Ethanol Crush Margin, which has opened up dramatically. Company's hedging program is probably locking in these juicy margins for the next 2-3 years, as we speak.
We are looking at 2-3 Years of kick-a$$ margins.
End of Ethanol Subsidies will be a big benefit to this industry leader. New Corn Oil Extraction Technololgy adds another $50 - $100 Million of profit PER YEAR. (That's another $1.00+ per share)
In the 5-10 Year Horizon, the new algae technology is enough to position this company to takeover Exxon Mobil. When GPRE takes over Exxon Mobil, then you will know the peak has been reached.
Until then, hop on and enjoy the ride!!!
We are headed higher!!!
END-OF-DAY CLOSE CONFIRMS UPSIDE BREAKOUT
End-of-day closing price confirms near term upside breakout.
This stock is about to blow a gasket on the upside. Wave the Flag, Pop the Bag, we are headed higher!!!
Look at today's chart. This thing just doesn't want to go down.
Fundamentals confirm this, beyond a reasonable doubt. Ethanol Crush Spreads Have widened to $0.20 - $0.30 per gallon of ethanol. GPRE produces 740 MILLION gallons per year. So, we are looking at $250 Million run rate from the ethanol production ALONE. Other businesses will add to that.
We are talking $65 - $85 MILLION bottom line for Q3 ALONE, and more to come beyond that!!!
ALL ABOARD. Next Stop $14.00 per share. This is the EXPRESS! We're not stopping at $12.50 to test that peak.
Don't miss the boat!
END OF SUBSIDIES WILL BE A BIG PLUS FOR GPRE
This is a bit counter intuitive, but think about Supply/Demand 101.
When the subsidies end, the industry will come under pressure. This will probably knock out the weaker players. 10% of the industry, or so, may simply disappear.
With the industry being 10% smaller, the demand for Corn will be lower. Lower demand for corn will mean lower corn prices. And, lower corn prices will mean stronger margins for the surviving companies.
GPRE will not only be a survivor, it will be one of the leaders, because it is well financed, well managed, AND an early adopter of important, new technologies, like GERS' Corn Oil Extraction Systems!!!
The end of the ethanol subsidies will be a BIG PLUS FOR GPRE.
When it comes to ending the subsidies, I say, "BRING IT ON. I OWN GPRE!!!"
ETHANOL CRUSH MARGIN HAS WIDENED DRAMATICALLY ...
in the past 4-6 weeks. We are looking at $0.25, or more, per gallon of ethanol this quarter, up from near zero last quarter.
And, they can now lock in some juicy margins in future quarters, with their hedging strategy.
Combine this with the GERS supplied COES, and a very low valuation, and this stock is really looking ripe for breakout to the upside.
I bought at $11.74 minutes ago.
Upside target? $14+ per share, maybe higher.
GPRE Breaking Out to the UPSIDE
Ethanol crush margins have widened dramatically during the past 4-6 weeks. Wall Street is just catching on that GPRE's profits will jump in a big way, as a result of this widening of the margin.
GPRE is GERS' most important customer.
If you are looking for a quick trade on the long side, GPRE looks ripe right now.
You've probably got a longer wait in GERS, due to the R/S and the debt repayments.
Jack-be-nimble, Jack-be-quick, Jack-jumped-over-the-candle-stick ... The candlestick chart, that is!
Anyone care to join me on this trade? I bought at $11.74, just minutes ago.
Actually, GPRE Sold 10.1 Million Pounds in Q1.
It's right there on the Q1 Press Release from GPRE.
AMEN, TRUE BLUE!
"When we have a system of 1 person working and 10 people with free rides it won't take long to destroy all of it! With your idea of global warming we had one of the coldest and most snow seasons on record this last winter! I know I shoveled the shit! Global warming is a farse!"
I realize that many liberals are concerned about global warming, and they cite periodic episodes of warm weather in America as their evidence.
In Texas, we don't call it "periodic episode of hot weather" or "global warming". We have a uniquely Texan word for it. We call it "summer."
In Texas, there are 4 seasons:
1. Almost Summer.
2. Summer.
3. Still Summer.
4. Hunting Season.
And, while we are at it, the ethanol industry would be a whole lot stronger WITHOUT ANY MANDATES or SUBSIDIES. It may contract a little bit when the subsidies are turned off, and some of the smaller players might die off. But, that will take the pressure off of corn prices and allow the rest of the industry to become more profitable.
With the industry producing more profits, it will be better positioned to develop new technologies and attract investment capital for future growth.
The free markets work best when you leave them alone.
AMEN TO THAT, WELDERMAN.
Handouts only perpetuate the poverty. We need to cut the handouts, in order to push people towards getting a job.
I say cut Medicaid altogether, for all but the most disabled of people who are unable to work. Any working age adults, without some sort of major disability, should not get ANY MEDICAID whatsoever. They should work for their healthcare.
And, that would save $200 - $300 Billion per year on the federal budget.
More on Corporate Bonds, growth, etc.
"And we had our most prosperous decades after we borowed our a$$es off from world war II. Look at history instead of thinking u have a f777ing clue what u r talking about."
Take a look at a chart of debt/gdp. The WW2 debt spiked DURING the war, and the prosperity came AFTER the war, as you pointed out, during a decade in which debt was being REDUCED in a big way, relative to GDP.
During the decade of prosperity to which you refer, the Debt-to-GDP ratio came DOWN DRAMATICALLY, from the WW2 spike to a far lower, post-war level.
Look, either way, there is an increase in debt, which stimulates growth. In my scenario, that debt capital flows into the private sector ... to companies like Greenshift Corporation, to riskier mortgages, and to individuals and families with riskier credit profiles.
In your scenario, that debt flows into Washington, where it:
1. Take forever to decide what to spend it on, which slows down growth.
2. Is primarily spent, based on politics, not invested, based on market conditions and/or the chances of making a return. Witness the Government's repeated bailouts of GM, for which the Government has not received a good return.
It is OK to some government stimulus during a recession, but after the recession (like NOW), you cut back on that and reduce debt.
Corporate Bond Market Rally ...
Will stimulate growth, without question.
Yields will come down, riskier credits will rally, and there will be a huge round of new issues.
Companies like Greenshift sure aren't swimming in cash, are they?
There are lots of companies, out on the risk curve, like Greenshift, with very tight cash situations, who will benefit from a junk rally and a new issue boom.
Mark my words, this is the best path to economic growth for the economy, and a critically important rally for many, many companies that are way out on the risk curve, like Greenshift.
It is already starting to happen ...
Bond investors are pulling money out of Treasuries and putting it into Corporate Bonds, instead. This is causing a big rally in the more risky credits. In other words, the risk spreads in the credit markets are shrinking, because Treasuries are now being perceived as being more and more risky, as a result of the debt negotiations.
Big asset reallocations like this can have a HUGE, POSITIVE impact on the economy and particularly on riskier companies like Greenshift Corp. The Treasury market is pretty big. When it tanks, which it will sometime soon, hundreds of billions, maybe even trillions of dollars, will come out of Treasuries and flow into corporates.
This will make borrowing easier for all kinds of small companies, as well as for individuals and families with tight credit situations. And, it will have a huge, positive impact on the economy, jobs, and possibly GERS, too.
This is uncharted waters for the markets. Never before have US Treasuries been downgraded. This trend is not yet firmly established, but I have a hunch that this is going to be an important investment trend over the coming 1-2 years ....
See this article from the WSJ last week:
http://online.wsj.com/article/SB10001424053111903635604576476380758956952.html?mod=googlenews_wsj
PS: Consider voting Tea Party in your state and district next year. They know what they are doing. The Republicans and Democrats, both, are big government spenders, which kills the high yield markets, because the Treasuries sop up all the investment cash from the bond market. The hard line on the deficit and the debt, espoused by real Tea Partiers, on the other hand, will be hugely stimulative for the economy, because it will push more money into the high yield market.
(But make sure that they are REAL Tea Partiers. Some Democrats have been known to pose as Tea Partiers, in order to suck votes away from Republicans, so that the Democrat ends up winning.)
US TREASURY DEFAULT IS GOOD!
Default on US Treasury Bonds is in the best interests of the economy. Money will come out of Treasuries and into corporates, which is the most powerful economic stimulant you can ask for!!!
IT DEPENDS ...
It totally depends on the terms of the deal.
How much equity do they take? How much equity does KK keep? How much equity does EC keep? Stock for other employees? Are there any warrants? options? Investment banking coverage? Nasdaq listing?
Look, anything could happen.
Worst case scenario is that they do a go-private for $0.0001 per share. If that happens, we get our $0.0001 per share in cash, and that's it. The company goes private, the message boards shut down, and its game over ... unless you want to try and litigate for a better price.
Best case scenario, in my opinion, they do a $100 Million deal that values the company at $400 Million, post-money. KK reduces his stake to a more reasonable level (say 5%), EC gets a more reasonable stake (say 2%), other employees get a total of 5% more, three investment banks initiate coverage, the stock goes onto the Nasdaq and rises to $500 Million in the first day of trading on the Nasdaq:
In the best case scenario, things look like this:
$50 Million Cash Balance
NO DEBT
New Investors: 33%
KK, EC, & Others: 12%
Old Common (you & me): 55%
At $500 Million market cap, the old Common is worth:
55% * $500 = $275 Million
$275 Million / 14 Billion Shares = $0.019 per share.
NB: as you can see, these figures are based on 14 Billion shares outstanding, which is Pre-Reverse-Split.
Now, the average selling price on the stock at issue is $113 Million / 14 Billion = $0.0081 per share. In other words, that's is the average price at which the Company sold new stock into the market.
So, in this scenario, the the average return on investment for investors who purchased the stock directly from the Company and held it until the Nasdaq listing would be about ...
$0.019 / $0.0081 = 234%.
The average holding period is about 3 years.
So, in the optmistic scenario, the average return on the shares from issue to Nasdaq listing would be: 234% / 3 years = roughly 75% per year.
Ed Carroll's stock grant was given very quietly, earlier this year.
It was a no fuss, no muss, bare minimum disclosure necessary to squeak by SEC regulations. If memory serves, it first appeared in the 2010 10-K. There was no discussion or disclosure of the exact date and/or reasons for the grant.
Unless he has a rabbit in his hat somewhere, which he is about to reveal in a burst of trumpets, pomp, & circumstance, he has done nothing in particular to deserve it.
I did notice a step up in the quality of the writing and presentation in the SEC filings this year. I don't know if that was Ed, or a new accountant, or a consultant, or what. But, all of the sudden, this year, the grammar started looking better; and they put in some nice charts to illustrate the value of the technology.
Still, 15% seems pretty high, unless there really is some unseen rabbit in the hat, for a guy who has gotten a $150K salary all along. KK's 63% is even worse, in terms of the "balance of the equities".
It seems to me that more balanced and equitable distribution of the stock across the company might help improve morale and team spirit and productivity, not to mention the returns of investors.
But, nobody listens to me. I'm just a working stiff who earns $10 per hour to throw newspapers around a neighborhood every morning in Rockwall, TX.
5 POST LIMIT:
I am restricted to only 5 I-HUB posts per day, and I am approaching that limit as we speak. This may be my last post of the day.
To answer the question, it very much depends on HOW IT IS DONE ... ie what is the new capital structure going forward ... exactly?\
It also depends on the new management going forward. In situations like this, the bad reputation of the CEO who led stockholders from a price of $5 per share to $0.0001 is not forgotten by the capital markets, even after a favorable, capital restructuring.
There is a "physchological overhang" ... a "cloud of uncertainty" ... that follows a CEO, after a 5-year stint like this. Even if they truly believe that the guy has learned his lesson and won't make the same mistakes twice, they will usually require a new CEO, in order to clear away that physchological overhang in the stock. Remember, their goal is to make as much money as possible. They are not Christ-like Saviors, offering redemption to failed CEO's. Rather, they are self-interested investors seeking the greatest possible financial returns.
The injection of a "fresh face" in the top job, generally has an uplifting impact on the stock. Consider how differently you feel with Obama as President, compared to how you might have felt with George W. Bush as President. Whether you favor the left or the right, politically speaking, I think most would agree that they feel differently about this country under Obama than they did under Bush. And, more to the point, people are investing very differently under Obama than they did under Bush.
In addition, it is often important to "shuffle the deck", when it comes to the relationships that the old CEO has developed. For example, in this case, KK's acquisition decisions may have been, in part, driven by peer pressure from financiers, lawyers and accountants in his social circles, who egged him on and encouraged him to make acquisitions, so that they could benefit from the substantial fees generated by such acquisitions.
Indeed, I believe I am correct is saying that KK's principal contact at YAGI is his old college roommate. And, YAGI reaps substantial upfront fees, simply for closing on a new financing deal, like those used for the acquisitions. So, KK's old roomy may have really egged him on to do those acquisitions, irregardless of their expected impact on the company and the stock.
Anyway, the point is that the new CEO is not just for appearances. The new CEO is also important to shaking up the business relationships that got us into this mess in the first place. A new CEO brings new relationships: new accountants, new lawyers, new friends, etc. And, one hopes, that the new incentive structures are more correctly aligned with the interests of the Common Stockholder.
MORE THAN BRAKES NEEDED ...
Look, we need a lot more than "putting the brakes on dilution" at this point.
We need to run the dilution machine in REVERSE for a while ... a good, long while.
IE: Stock Repurchases.
The Archimedes Fallacy
Anyone who has been following this story for many years, as I have, will recall that Kreisler used to have a quote from Archimedes on the Greenshift website, which read:
"Give me a lever large enough, and I can move the world."
As a physics buff myself, I agree that it is fascinating to contemplate the power of levers and leverage in the world of mechanical physics and astronomy, which are the fields in which Archimedes worked.
But, such principles should not be applied to financial engineering, as Kevin has so publicly proven to us all.
And, in the realm of law and ethics, the outcome of such disgraceful experiments with other peoples' money, remains to be seen.