Consolidated SEC Viewer Rendering


Document and Entity Information

v2.4.0.8
Document and Entity Information
9 Months Ended
Sep. 30, 2013
Nov. 12, 2013
Entity Registrant Name GREENSHIFT CORP  
Document Type 10-Q  
Document Period End Date Sep. 30, 2013  
Amendment Flag false  
Entity Central Index Key 0001269127  
Current Fiscal Year End Date --12-31  
Entity Filer Category Smaller Reporting Company  
Entity Current Reporting Status Yes  
Entity Voluntary Filers No  
Entity Well-known Seasoned Issuer No  
Document Fiscal Year Focus 2013  
Document Fiscal Period Focus Q3  
Entity Common Stock, Shares Outstanding   760,391,887

CONSOLIDATED BALANCE SHEETS

v2.4.0.8
CONSOLIDATED BALANCE SHEETS (USD $)
Sep. 30, 2013
Dec. 31, 2012
Current Assets:    
Cash $ 4,296,586 $ 2,030,577
Accounts receivable, net of doubtful accounts 937,209 999,144
Inventories, net 502,796 1,837,646
Deferred financing fees, net 50,000 844,939
Prepaid expenses and other assets 59,037 106,380
Total current assets 5,845,628 5,818,686
Other Assets:    
Intangible assets, net 25,182 27,584
Minority investments 2,501,324 2,501,324
Deposits 69,730 70,634
Total other assets 2,596,236 2,599,542
TOTAL ASSETS 8,441,864 8,418,228
Current Liabilities:    
Accounts payable 5,551,726 3,933,394
Accrued expenses 4,377,267 3,729,890
Accrued expenses - deferred employee compensation 518,043 518,742
Income tax payable 84,600  
Accrued interest payable 5,350,922 4,401,372
Accrued interest payable - related party 75,211 34,774
Deferred revenue 100,000 113,750
Current portion of long term debt 1,367,045 1,367,045
Current portion of convertible debentures, net 26,208,651 28,613,818
Convertible debentures related parties, net 2,895,324 3,647,281
Amounts due to minority shareholders 545,842 545,842
Total current liabilities 47,074,631 46,905,908
Long term Liabilities:    
Liability for preferred stock - related party 777,104 807,107
Convertible debentures 175,000 192,500
Total long term liabilities 952,104 999,607
Total Liabilities 48,026,735 47,905,515
Stockholders' Equity (Deficit):    
Common stock: $0.0001 par value, 20,000,000,000 authorized 508,477,157 and 63,966,016 shares issued and outstanding, respectively 50,851 6,397
Additional paid in capital 120,405,320 119,206,897
Accumulated deficit (160,044,385) (158,703,924)
Total stockholders' equity (deficit) (39,584,871) (39,487,287)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 8,441,864 8,418,228
Class B Preferred Stock
   
Stockholders' Equity (Deficit):    
Preferred Stock 2,481 2,481
Class D Preferred Stock
   
Stockholders' Equity (Deficit):    
Preferred Stock $ 862 $ 862

CONSOLIDATED BALANCE SHEETS PARENTHETICAL

v2.4.0.8
CONSOLIDATED BALANCE SHEETS PARENTHETICAL (USD $)
Sep. 30, 2013
Dec. 31, 2012
Common stock par value $ 0.0001 $ 0.0001
Common stock shares authorized 20,000,000,000 20,000,000,000
Common stock shares issued 508,477,157 63,966,016
Common stock shares outstanding 508,477,157 63,966,016
Class B Preferred Stock
   
Convertible preferred stock par value $ 0.0001 $ 0.0001
Convertible preferred stock shares authorized 5,000,000 5,000,000
Convertible preferred stock shares issued 2,480,544 2,480,544
Convertible preferred stock shares outstanding 2,480,544 2,480,544
Class D Preferred Stock
   
Convertible preferred stock par value $ 0.0001 $ 0.0001
Convertible preferred stock shares authorized 5,000,000 5,000,000
Convertible preferred stock shares issued 862,262 862,262
Convertible preferred stock shares outstanding 862,262 862,262

CONSOLIDATED STATEMENTS OF OPERATIONS

v2.4.0.8
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
3 Months Ended 9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
Sep. 30, 2013
Sep. 30, 2012
CONSOLIDATED STATEMENTS OF OPERATIONS        
Revenue $ 4,178,501 $ 3,062,275 $ 12,079,341 $ 10,217,184
Total revenue 4,178,501 3,062,275 12,079,341 10,217,184
Costs of goods sold 1,849,279 858,124 5,482,986 3,658,172
Gross profit 2,329,222 2,204,151 6,596,355 6,559,012
Research and development 190,617 286,560 336,108 324,944
Sales, general and administrative expenses 2,290,829 1,313,281 5,779,516 3,527,827
Total operating expenses 2,481,446 1,599,841 6,115,624 3,852,771
Income from operations (152,224) 604,310 480,731 2,706,241
Gain (loss) on extinguishment of debt   4,376 10,884 3,075,913
Other expense   (48,633) (450,000) (48,633)
Amortization of debt discount & deferred financing   (112,486)   (262,467)
Interest income   9,029 18,233 27,088
Miscellaneous income 16,673 2,202 27,754 3,378
Change in conversion liabilities 68,212 (14,616) 174,189 (98,074)
Change in conversion liabilities - related party (18,025) (14,527) (138,967) 112,313
Interest expense (386,656) (409,854) (1,183,964) (1,413,220)
Interest expense - related party (43,716) (60,250) (135,582) (196,440)
Total other income (expense), net (363,512) (644,758) (1,677,453) 1,199,857
Income (loss) before provision for income taxes (515,736) (40,448) (1,196,722) 3,906,098
(Provision for)/benefit from income taxes     (143,739)  
Net income (loss) $ (515,736) $ (40,448) $ (1,340,461) $ 3,906,098
Weighted average common shares outstanding, basic 319,536,772 40,278,764 188,292,853 43,255,384
Weighted average common shares outstanding, diluted 319,536,772 40,278,764 188,292,853 94,083,545
Net income (loss) per share - basic $ 0.00 $ 0.00 $ (0.01) $ 0.09
Net income (loss) per share - diluted $ 0.00 $ 0.00 $ (0.01) $ 0.06

CONSOLIDATED STATEMENTS OF CASH FLOWS

v2.4.0.8
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
9 Months Ended
Sep. 30, 2013
Sep. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES    
Net income (loss) $ (1,340,461) $ 3,906,098
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:    
Amortization of intangibles 2,402 18,473
Amortization of debt discount and deferred financing costs   262,467
Loss (gain) on extinguishment of debt (10,884) (3,075,913)
Changes in conversion liabilities (35,222) (14,238)
Bad debt expense (recovery) (56,000) (785,000)
Changes in operating assets and liabilities:    
Change in accounts receivable 117,935 1,778,419
Change in deferred financing costs   (374,953)
Change in prepaid expenses 85,186 1,233
Change in inventory 1,334,850 (1,025,533)
Change in deposits 904 (18,723)
Change in deferred revenue (13,750) (944,255)
Change in accrued interest 1,166,247 1,411,019
Change in accrued interest - related party 105,861 190,216
Change in billings in excess 794,939  
Change in income tax payable 84,600  
Change in accounts payable and accrued expenses 2,306,817 (7,797)
Net cash provided by (used in) operating activities 4,543,424 1,321,513
Proceeds from convertible debentures - related party 250,000  
Repayment of convertible debentures (2,000,000) (650,000)
Repayment of convertible debentures - related party bridge (527,415) (356,620)
Net cash provided by (used in) financing activities (2,277,415) (1,006,620)
Net increase (decrease) in cash 2,266,009 314,893
Cash at beginning of period 2,030,577 1,364,994
Cash at end of period $ 4,296,586 $ 1,679,887

Note 1 - Basis of Presentation

v2.4.0.8
Note 1 - Basis of Presentation
9 Months Ended
Sep. 30, 2013
Notes  
Note 1 - Basis of Presentation

 

NOTE 1

BASIS OF PRESENTATION

 

REFERENCES TO THE COMPANY

 

In this Quarterly Report on Form 10-Q, the terms “we,” “our,” “us,” “GreenShift,” or the “Company” refer to GreenShift Corporation, and its subsidiaries on a consolidated basis. The term “GreenShift Corporation” refers to GreenShift Corporation on a standalone basis only, and not its subsidiaries.

 

The condensed balance sheet at December 31, 2012 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These condensed financial statements should be read in conjunction with the financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 2012.

 

CONSOLIDATED FINANCIAL STATEMENTS

 

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and entities which we control. All significant intercompany balances and transactions have been eliminated on a consolidated basis for reporting purposes.

 

COST METHOD OF ACCOUNTING FOR UNCONSOLIDATED SUBSIDIARIES

 

The Company accounts for its investment in ZeroPoint Clean Tech, Inc.  (“ZeroPoint”) under the cost method. Application of this method requires the Company to periodically review these investments in order to determine whether to maintain the current carrying value or to write off some or all of the investments. While the Company uses some objective measurements in its review, the review process involves a number of judgments on the part of the Company’s management. These judgments include assessments of the likelihood of ZeroPoint to obtain additional financing, to achieve future milestones, make sales and to compete effectively in its markets. In making these judgments the Company must also attempt to anticipate trends in ZeroPoint’s industry as well as in the general economy.

 

In April 2013, the Company’s investment in ZeroPoint was restructured in conjunction with a new preferred stock financing (See Note 6, Investment in ZeroPoint CleanTech, below). Based on the terms of the restructuring of the investment, the Company engaged a third party firm to review its investment in ZeroPoint  in order to determine whether there was any decline in the fair value of the investment below cost that was other than temporary. The third party firm concluded that the fair value of the investment in ZeroPoint exceeds the carrying value of the investment and the Company has determined that no impairment in the investment has occurred as of September 30, 2013. 

 

 

USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

 

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


Note 2 - Description of Business

v2.4.0.8
Note 2 - Description of Business
9 Months Ended
Sep. 30, 2013
Notes  
Note 2 - Description of Business

NOTE 2

DESCRIPTION OF BUSINESS

 

We develop and commercialize clean technologies that facilitate the more efficient use of natural resources. We are focused on doing so today in the U.S. and international ethanol industry, where we innovate and offer technologies that improve the profitability of licensed ethanol producers.

 

We generate revenue by licensing our technologies to ethanol producers in exchange for ongoing royalty and other license fees. During 2012, several plants were licensed to use our technologies. During the nine months ended September 30, 2013 three customers each provided over 10% of our revenue; during the nine months ended September 30, 2012, three customers each provided over 10% of our revenue.

 


Note 3 - Going Concern

v2.4.0.8
Note 3 - Going Concern
9 Months Ended
Sep. 30, 2013
Notes  
Note 3 - Going Concern

NOTE 3

GOING CONCERN

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2013, the Company had $4,296,586 in cash, and current liabilities exceeded current assets by $41,229,003. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Our ability to satisfy our obligations will depend on our success in obtaining or restructuring financing, our success in developing revenue sources, and our success in negotiating with the creditors. Management’s plans to resolve the Company’s working capital deficit include increasing revenue. There can be no assurances that the Company will be able to eliminate its working capital deficit and that the Company’s historical operating losses will not recur. The accompanying financial statements do not contain any adjustments which may be required as a result of this uncertainty.


Note 4 - Significant Accounting Policies

v2.4.0.8
Note 4 - Significant Accounting Policies
9 Months Ended
Sep. 30, 2013
Notes  
Note 4 - Significant Accounting Policies

 

NOTE 4

SIGNIFICANT ACCOUNTING POLICIES

 

SEGMENT INFORMATION

 

We determined our reporting units in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”). We evaluate a reporting unit by first identifying its operating segments under ASC 280. We then evaluate each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, we evaluate those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, we determine if the segments are economically similar and, if so, the operating segments are aggregated. We have one operating segment and reporting unit. We operate in one reportable business segment; we provide technologies and related products and services to U.S.-based ethanol producers. We are organized and operated as one business. We exclusively sell our technologies, products and services to ethanol producers that have entered into license agreements with the Company. No sales of any kind occur, and no costs of sales of any kind are incurred, in the absence of a license agreement. A single management team that reports to the chief operating decision maker comprehensively manages the entire business. We do not operate any material separate lines of business or separate business entities with respect to our technologies, products and services. The Company does not accumulate discrete financial information according to the nature or structure of any specific technology, product and/or service provided to the Company’s licensees. Instead, management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate. Discrete financial information is not available by more than one operating segment, and disaggregation of our operating results would be impracticable.

 

REVENUE RECOGNITION

 

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection is reasonably assured. The Company recognizes revenue from licensing of the Company’s corn oil extraction technologies when corn oil sales occur. Licensing royalties are recognized as earned by calculating the royalty as a percentage of gross corn oil sales by the ethanol plants. For the purposes of assessing royalties, the sale of corn oil is deemed to occur when shipped, which is when four basic criteria have been met: (i) persuasive evidence of a customer arrangement; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured, and (iv) product delivery has occurred, which is generally upon or after shipment of corn oil by the relevant ethanol producer. The same criteria are utilized in the recognition of non-recurring receipts associated with the Company’s licensing activities. Deposits from customers are not recognized as revenues, but as liabilities, until the following conditions are met: revenues are realized when cash or claims to cash (receivable) are received in exchange for goods or services, or when assets received in such exchange are readily convertible to cash or claim to cash, or when such goods or services are transferred. When an income item is earned, the related revenue item is recognized and any deferred revenue is reduced. To the extent revenues are generated from the Company’s licensing support services, the Company recognizes such revenues when the services are completed and billed. The Company provides process engineering services on fixed price contracts. These services are generally provided over a short period of less than three months.  Revenue from such fixed price contracts is recognized the relevant services are performed. The Company additionally performs under fixed-price contracts involving design, engineering, procurement, installation, and start-up of oil recovery and other production systems. Revenues and fees on these contracts are recognized using the percentage-of-completion method of accounting, and specifically the efforts-expended percentage-of-completion method using measures such as task duration and completion. The efforts-expended approach is used in situations where it is more representative of progress on a contract than the cost-to-cost or the labor-hours methods. The asset, “costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.

 

BASIC AND DILUTED INCOME (LOSS) PER SHARE

 

The Company computes its net income or loss per common share under the provisions of ASC 260, “Earnings per Share,” whereby basic net income or loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Dilutive net loss per share excludes potential common shares issuable upon conversion of all derivative securities if the effect is anti-dilutive. Thus, common stock issuable upon exercise or conversion of options, warrants, convertible preferred stock, or convertible debentures are excluded from computation of diluted net loss per share, but are included in computation of diluted net income per share. During the nine months ended September 30, 2012, we reported net income and accordingly included potentially dilutive instruments in the fully diluted net income per share calculation. However, during the three months and nine months ended September 30, 2013 and three months ended September 30, 2012, we reported net losses and, in accordance with ASC 260, dilutive instruments were excluded from the net loss per share calculation for such periods.

 

FINANCIAL INSTRUMENTS

 

The carrying values of accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values due to their short term maturities. The carrying values of the Company’s long-term debt approximate their fair values based upon a comparison of the interest rate and terms of such debt to the rates and terms of debt currently available to the Company. It was not practical to estimate the fair value of the convertible debt. In order to do so, it would be necessary to obtain an independent valuation of these unique instruments. The cost of that valuation would not be justified in light of the materiality of the instruments to the Company.

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.


Note 5 - Fair Value Disclosures

v2.4.0.8
Note 5 - Fair Value Disclosures
9 Months Ended
Sep. 30, 2013
Notes  
Note 5 - Fair Value Disclosures

NOTE 5

FAIR VALUE DISCLOSURES

 

Effective July 1 2009, the Company adopted ASC 820, Fair Value Measurements and Disclosures. This topic defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance supersedes all other accounting pronouncements that require or permit fair value measurements.  The Company accounted for the convertible debentures in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the convertible debentures could result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares.

 

Effective July 1 2009, the Company adopted ASC 820-10-55-23A, Scope Application to Certain Non-Financial Assets and Certain Non-Financial Liabilities, delaying application for non-financial assets and non-financial liabilities as permitted. ASC 820 establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In January 2010, the FASB issued an update to ASC 820, which requires additional disclosures about inputs into valuation techniques, disclosures about significant transfers into or out of Levels 1 and 2, and disaggregation of purchases, sales, issuances, and settlements in the Level 3 rollforward disclosure.

 

ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

 

Level 1

quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives

 

 

Level 2

inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges

 

 

Level 3

unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models

 

 

The following table presents the embedded derivative, the Company’s only financial assets measured and recorded at fair value on the Company’s Consolidated Balance Sheets on a recurring basis and their level within the fair value hierarchy during the nine months ended September 30, 2013:

 

Embedded conversion liabilities as of September 30, 2013:

 

 

 

 

 

 

 

Level 1

$

--

 

 

 

 

 

Level 2

 

--

 

 

 

 

 

Level 3

 

2,784,423

 

 

 

 

 

Total

$

2,784,423

 

 

 

 

 

 

The following table reconciles, for the period ended September 30, 2013, the beginning and ending balances for financial instruments that are recognized at fair value in the consolidated financial statements:

 

Balance of embedded derivatives at December 31, 2012

$

2,940,688

 

 

 

 

 

 

 

 

 

 

 

 

 

Present value of beneficial conversion features of new debentures

 

122,265

 

 

 

 

 

Accretion adjustments to fair value – beneficial conversion features

 

69,101

 

 

 

 

 

Reductions in fair value due to repayments/redemptions

 

(300,103

)

 

 

 

 

Reductions in fair value due to principal conversions

 

(47,528

)

 

 

 

 

Balance at September 30, 2013

$

2,784,423

 

 

 

 

 

 

 

 

 

 

 

 

 

The fair value of the conversion features are calculated at the time of issuance and the Company records a conversion liability for the calculated value. The Company recognizes the initial expense for the conversion liability which is added to the carrying value of the debenture or the liability for preferred stock. The Company also recognizes expense for accretion of the conversion liability to fair value over the term of the note. The Company has adopted ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in each debenture and/or convertible preferred share could result in the note principal and/or preferred shares being converted to a variable number of the Company’s common shares.

 

As discussed in Note 6, during the nine months ended September 30, 2013, a third party firm performed a valuation of the Company’s investment in ZeroPoint due to the restructuring of the investment. The assumptions utilized in the valuation are disclosed in Note 6. The investment is carried at cost in the financial statements. The estimated fair value of the investments based on the valuation is as follows:

 

Investment in Promissory Note (Level 3)

$

2,148,887

Investment in Common Stock (Level 3)

 

362,407

Total

$

2,511,294

 

The significant unobservable inputs used in the fair value measurement of the Company’s investments in ZeroPoint are the probability and loss severity of an event in which Material Contributions (as defined in Note 6) are not made in the future. Increases or decreases in those inputs in isolation are likely to result in a lower or higher fair value measurement. In general, a change in the assumption of the probability is accompanied by a directionally similar change in the assumption used for the loss severity based on expected Material Contributions.

 


Note 6 INVESTMENT IN ZEROPOINT CLEANTECH, INC.

v2.4.0.8
Note 6 INVESTMENT IN ZEROPOINT CLEANTECH, INC.
9 Months Ended
Sep. 30, 2013
Notes  
Note 6 INVESTMENT IN ZEROPOINT CLEANTECH, INC.

 

NOTE 6

INVESTMENT IN ZEROPOINT CLEAN TECH

 

The Company holds a minority investment in ZeroPoint Clean Tech, Inc. ("ZeroPoint"), a renewable energy technology and project development company. ZeroPoint believes that it has developed a highly efficient biomass gasification process capable of converting biomass into renewable synthesis gas to create carbon-neutral energy. Effective April 4, 2013, the Company and ZeroPoint entered into a series of agreements pursuant to which the Company restructured its investment in ZeroPoint. The Company agreed to exchange 113,800 shares of ZeroPoint Series A preferred stock for 113,800 shares of ZeroPoint common stock, plus a 3% promissory note with a principal balance of $2,501,324 (the "ZeroPoint Note"). The ZeroPoint Note is due and payable upon the completion by the Company of one or more transactions which leads to a successful financing for a project utilizing ZeroPoint technology (a “Material Contribution”), in which case the ZeroPoint Note shall be payable at a rate equal to 20% of the gross profit produced by any such projects (the “Contribution Payments”). The ZeroPoint Note may alternatively become due and payable upon the completion of an acquisition, merger or other sale involving ZeroPoint stock in which the valuation ascribed to ZeroPoint stock is in excess of $75,000,000. In any such event, the ZeroPoint Note shall be payable to the extent that the value of any such transaction exceeds $75,000,000. ZeroPoint shall have no obligation to repay the ZeroPoint Note in the event that none of the foregoing transactions have been completed within three years of the issuance date of the ZeroPoint Note.

The Company accounts for its investment in ZeroPoint under the cost method. Application of this method requires the Company to periodically review these investments in order to determine whether to maintain the current carrying value or to write off some or all of the investment. While the Company uses some objective measurements in its review, the review process involves a number of judgments on the part of the Company’s management. These judgments include assessments of the likelihood of ZeroPoint to obtain additional financing, to achieve future milestones, make sales and to compete effectively in its markets. In making these judgments the Company must also attempt to anticipate trends in ZeroPoint’s industry as well as in the general economy.

 

During the nine months ended September 30, 2013, the Company engaged a third party firm to review its investment in ZeroPoint  in order to determine whether there was any decline in the fair value of the investment below cost that was other than temporary. On April 4, 2013, after the restructuring of the investment, the Company now holds an investment in 113,800 shares of common stock of ZeroPoint and the ZeroPoint Note. The third party firm performed valuation procedures to determine the fair value of both the common stock and ZeroPoint Note. The valuation of the ZeroPoint Note was based on management’s projections related to expected Material Contributions to ZeroPoint within the three year term of the note. Management has projected that the Company will provide Material Contributions within the three year period that will result in Contribution Payments based on gross profits that will result in principal repayments to fully recover the principal of the ZeroPoint Note. A discounted cash flow analysis based on the expected Contribution Payments was performed to determine the present value of the ZeroPoint Note. To determine the fair value of the Company’s investment in common stock, the third party firm first estimated the enterprise value of ZeroPoint by utilization of both an income approach (under a discounted cash flow method), and a market approach (by comparison to comparable public companies and acquisition transactions in similar industries). The determined equity value of ZeroPoint was then allocated to the different security classes utilizing a Black-Scholes model based on the following assumptions: security price – estimated equity value of ZeroPoint as determined; exercise price – liquidity preferences of each class; life – three years; volatility – 72%; dividend rate – none; risk-free rate – 0.33%.

 

The third party firm concluded that the fair value of the Company’s investment in ZeroPoint exceeds the carrying value of the investment and the Company has determined that no impairment in the investment has occurred as of September 30, 2013.  The Company will continue to periodically review these investments on a non-recurring basis based on any impairment indicators in order to determine whether to maintain the current carrying value or to record impairment of some or all of the investment.


Note 7 - Inventories

v2.4.0.8
Note 7 - Inventories
9 Months Ended
Sep. 30, 2013
Notes  
Note 7 - Inventories

 

NOTE 7

INVENTORIES

 

The Company maintains an inventory of equipment and components used in systems designed to extract corn oil from licensed ethanol production facilities. The inventory, which consists of equipment and component parts, is held for sale to the Company’s licensees on an as needed basis. Inventories are stated at the lower of cost or market, with cost being determined by the specific identification method. Inventories at September 30, 2013 and December 31, 2012 were $502,796 and $1,837,646, respectively.


Note 8 - Deferred Revenue

v2.4.0.8
Note 8 - Deferred Revenue
9 Months Ended
Sep. 30, 2013
Notes  
Note 8 - Deferred Revenue

 

NOTE 8

DEFERRED REVENUE

 

Deposits from customers are not recognized as revenues, but as liabilities, until the following conditions are met: revenues are realized when cash or claims to cash (receivable) are received in exchange for goods or services or when assets received in such exchange are readily convertible to cash or claim to cash or when such goods/services are transferred. When such income item is earned, the related revenue item is recognized, and the deferred revenue is reduced. To the extent revenues are generated from the Company’s licensing support services, the Company recognizes such revenues when services are completed and billed. The Company has received deposits from its various clients that have been recorded as deferred revenue in the amount of $100,000 and $113,750 as of the periods ended September 30, 2013 and December 31, 2012, respectively.


Note 9 - Debt Obligations

v2.4.0.8
Note 9 - Debt Obligations
9 Months Ended
Sep. 30, 2013
Notes  
Note 9 - Debt Obligations

 

NOTE 9

DEBT OBLIGATIONS

 

The following is a summary of the Company’s financing arrangements as of September 30, 2013:

 

 

 

 

 

 

9/30/2013

 

Current portion of long term debt:

 

 

 

 

 

 

 

Mortgages and other term notes

 

 

 

 

$

21,743

 

Current portion of notes payable

 

 

 

 

 

1,345,302

 

Total current portion of long term debt

 

 

 

 

$

1,367,045

 

 

 

 

 

 

 

 

 

Current portion of convertible debentures:

 

 

 

 

 

 

 

YA Global Investments, L.P., 6% interest, conversion at 90% of market

 

 

 

 

$

18,790,520

 

Andypolo, LP, 6% interest, conversion at 90% of market

 

 

 

 

 

3,796,404

 

Barry Liben, 6% interest, conversion at 90% of market

 

 

 

 

 

--

 

Better Half Bloodstock, Inc., 0% interest, conversion at 90% of market

 

 

 

 

 

50,000

 

Circle Strategic Allocation Fund, LP, 6% interest, conversion at 90% of market

 

 

 

 

 

211,796

 

Dakota Capital Pty Limited, 6% interest, conversion at 90% of market

 

 

 

 

 

115,447

 

EFG Bank, 6% interest, conversion at 90% of market

 

 

 

 

 

168,670

 

Epelbaum Revocable Trust, 6% interest, conversion at 90% of market

 

 

 

 

 

130,494

 

JMC Holdings, LP, 6% interest, conversion at 90% of market

 

 

 

 

 

200,747

 

Dr. Michael Kesselbrenner, 6% interest, conversions at 90% of market

 

 

 

 

 

16,423

 

David Moran & Siobhan Hughes, 6% interest, conversion at 90% of market

 

 

 

 

 

3,430

 

Morano, LLC, 6% interest, no conversion discount

 

 

 

 

 

112,086

 

Park Place Capital, LLC, 6% interest, conversion at 90% of market

 

 

 

 

 

5,000

 

Susan Schneider, 6% interest, conversions at 90% of market

 

 

 

 

 

15,030

 

Stuttgart, LP, 6% interest, conversion at 90% of market

 

 

 

 

 

123,196

 

Westmount International Holdings Limited, 6% interest, conversion at 90% of market

 

 

 

 

 

60,000

 

Acutus Capital, LLC, 6% interest, no conversion discount

 

 

 

 

 

90,000

 

Minority Interest Fund (II), LLC, 6% interest, no conversion discount

 

 

 

 

 

2,448,119

 

Viridis Capital, LLC, 6% interest, conversion at 50% of market

 

 

 

 

 

100,000

 

Related Party Debenture, 6% interest, no conversion discount

 

 

 

 

 

161,750

 

Conversion liabilities

 

 

 

 

 

2,504,864

 

Total convertible debentures

 

 

 

 

$

29,103,975

 

 

 

 

 

 

 

 

 

Long term convertible debentures:

 

 

 

 

 

 

 

Gerova Asset Backed Holdings, LP, 2% interest, no conversion discount

 

 

 

 

 

175,000

 

Total long term convertible debentures

 

 

 

 

$

175,000

 

 

 

 

 

 

 

 

 

A total of $26,774,111 in principal from the convertible debt noted above is convertible into the common stock of the Company. The following chart is presented to assist the reader in analyzing the Company’s ability to fulfill its fixed debt service requirements (net of note discounts) as of September 30, 2013 and the Company’s ability to meet such obligations:

 

Year

 

 

 

 

 

Amount

 

2013

 

 

 

 

$

27,866,156

 

2014

 

 

 

 

 

100,000

 

2015

 

 

 

 

 

--

 

2016

 

 

 

 

 

--

 

2017

 

 

 

 

 

--

 

Thereafter

 

 

 

 

 

175,000

 

Total minimum payments due under current and long term obligations

 

 

 

 

$

28,141,156

 

 

YA GLOBAL INVESTMENTS, L.P.

 

On June 17, 2010, the Company and its subsidiaries signed a series of agreements with YA Global Investments, L.P. (“YA Global”) to reduce convertible debt due from the Company to YA Global (the “YACO Agreements”). On July 30, 2010, the Company and YA Global entered into an agreement pursuant to which the transactions contemplated by the YACO Agreements (the “YA Corn Oil Transaction”) were to close effective August 1, 2010 (the “Effective Date”) subject to satisfaction of certain closing conditions. The conditions to effectiveness of this transaction were satisfied and the transaction was deemed effective for reporting purposes as of February 15, 2011. The YACO Agreements provided for various GreenShift-owned corn oil extraction facilities based on GreenShift’s patented and patent-pending technologies to be transferred as of August 1, 2010 to a newly formed entity, YA Corn Oil Systems, LLC (“YA Corn Oil”). In exchange, $10,000,000 of the convertible debt issued by GreenShift to YA Global was deemed satisfied as of August 1, 2010. The conditions for the YA Corn Oil Transaction were satisfied as of February 15, 2011, and the Company subsequently earned a performance bonus of $2,486,568 as of February 28, 2011 and another bonus of $2,500,000 as of March 31, 2011. The Company recognized a $5.8 million gain on extinguishment of debt and reduced liabilities for asset retirement obligation and accounts payable by an additional $847,000 as a result of the completion of the YA Corn Oil Transaction. The performance bonuses earned during 2011 were recognized as revenue and applied to reduction of the Company’s convertible debt with YA Global pursuant to the terms of the YACO Agreements. Certain indemnification events subsequently occurred, resulting in the Company recording an accrued expense of about $2.1 million during the year ended December 31, 2011. The Company entered into an Amended and Restated Management Agreement with YA Corn Oil on January 17, 2012, pursuant to which the foregoing amounts were reconciled, resulting in the payment to YA Global of such expense in the form of convertible debt. The Company's accrual is evaluated at the completion of each reporting period, and additional expense or income will be recognized in the future should an event come to pass which either justifies reduction or removal of the liquidated damages accrual, or otherwise gives rise to an actual or a potential, but determinable, expense.

 

In connection with the completion of the YA Corn Oil Transaction, the Company issued YA Global an amended and restated convertible debenture in the amount of $33,308,023, inclusive of previously accrued interest (the “A&R Debenture”). During the year ended December 31, 2011, YA Global subdivided the A&R Debenture and assigned to a total of sixteen of its equity-holders portions of the A&R Debenture totaling $6,281,394 in principal, which assignments reduced the balance due to YA Global alone under the A&R Debenture as of December 31, 2011. $6,177,028 of the portion of the A&R Debenture assigned by YA Global remained outstanding at December 31, 2011. During the year ended December 31, 2011, YA Global subdivided the A&R Debenture and assigned to a total of sixteen of its equity-holders portions of the A&R Debenture totaling $ 6,350,287 in principal, which assignments reduced the balance due to YA Global alone under the A&R Debenture as of December 31, 2012. In total, $5,726,381 of the portion of the A&R Debenture assigned by YA Global remained outstanding at December 31, 2012. On March 29, 2013, the Company and YA Global entered into an amended forbearance agreement pursuant to which the maturity date of the Company's outstanding debt to YA Global and its assignees was extended to December 31, 2013. The amendment further provided for cash payments by the Company of $200,000 per month and the reimbursement of certain legal costs and expenses. The A&R Debenture bears interest at the rate of 6% per annum and provides the holder with the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. A holder of the A&R Debenture will not be permitted, however, to convert into a number of shares that would cause it to own more than 4.99% of the Company’s outstanding common shares. The A&R Debenture is additionally subject to ongoing compliance conditions, including the absence of change of control events and timely issuance of common shares upon conversion.

 

The Company accounted for the A&R Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the A&R Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company had determined the fair value of the A&R Debenture at December 31, 2012 to be $22,263,896 which represented the face value of the debenture plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company recognized an decrease in the in conversion liability relating to the A&R Debenture of $153,280 for assignments and/or repayments during the period and recorded an expense of $17,068 for the accretion of the present value of the conversion liability for the period. The carrying value of the A&R Debenture was $20,656,134 at September 30, 2013, including principal of $18,790,520 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $1,865,614 as of September 30, 2013. Interest expense of $874,627 for the A&R Debenture was accrued for the nine months ended September 30, 2013.

 

RELATED PARTY OBLIGATIONS

 

As of December 31, 2010, the Company had convertible debentures payable to Minority Interest Fund (II), LLC (“MIF”) in an aggregate principal amount of $3,988,326 (the “MIF Debenture”) and convertible debentures payable to Viridis Capital, LLC in an aggregate principal amount of $518,308 (the “Viridis 2010 Debenture”). As discussed more fully in Note 13, Related Party Transactions, below, the Company entered into agreements with MIF and Viridis to amend and restate the terms of the MIF Debenture and Viridis 2010 Debenture effective September 30, 2011 to extend the maturity date to September 30, 2013; to eliminate and contribute $502,086 in accrued interest and $1,065,308 of principal; to reduce the applicable interest rate to 6% per annum; to eliminate MIF’s and Viridis’ right to convert amounts due at a discount to the market price of the Company’s common stock; and to reverse various non-cash assignments of debt involving related parties. The restated balances due to MIF and Viridis at September 30, 2011, were $3,017,061 and $237,939, respectively. No interest was payable to either MIF or Viridis after these amendments. MIF received 62,500 shares of Series D Preferred Stock in partial consideration of the contribution of principal and accrued interest and the various other modified terms of MIF’s agreements with the Company. On September 30, 2011, the Company issued $1,090,000 and $351,000 in convertible debt to Acutus Capital, LLC (“Acutus”) and family members of the Company’s chairman, respectively, for cash investments previously provided to the Company. The terms of these debentures provide for interest at 6% per annum, a maturity date of September 30, 2013, and the right to convert amounts due into Company common stock at 100% of the market price for the Company’s common stock at the time of conversion. The foregoing debentures are subject to conditions which limit the transfer of shares issued upon conversion to 5% of the average monthly volume for the Company’s common stock.  During nine months ended September 30, 2013, Minority Interest Fund (II), LLC assigned $150,000 of its convertible debt to Magna Group, LLC and $200,000 of its convertible debt to Nicholas J. Morano, LLC.

 

As of April 1, 2013, the Company issued a $250,000 debenture to Viridis Capital, LLC (“Viridis” and the “Viridis Debenture”) in exchange for full satisfaction of expenses and costs that were incurred by Viridis in connection with its guaranty of the Company’s obligations (see Note 13, Related Party Transactions, below).  Viridis shall have the right, but not the obligation, to convert any portion of the Viridis Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 50% of the 20 day volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  $150,000 of the Viridis Debenture was paid during the nine months ended September 30, 2013. The Company accounted for the Viridis Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Viridis Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Viridis Debenture upon issuance to be $477,273 which represented the face value of the debenture of $250,000 plus the present value of the conversion feature. A $150,000 portion of the Viridis Debenture was assigned to a related party resulting in a $136,364 reduction of the fair value of the conversion liability for the period and accretion of $4,546 was recognized during the period.  The carrying value of the Viridis Debenture was $195,455 at September 30, 2013, including principal of $100,000 and the value of the conversion liability. The liability for the conversion feature shall increase from its present value of $95,455 at September 30, 2013 to its estimated settlement value of $100,000 at June 30, 2014.  Interest expense of $2,696 for these obligations was accrued for the nine months ended September 30, 2013.

 

OTHER CONVERTIBLE DEBENTURES

 

During the year ended December 31, 2011, YA Global assigned $4,391,643 in convertible debt to Andypolo, LP (“Andypolo” and the “Andypolo Debenture”). Andypolo shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Andypolo Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Andypolo Debenture could result in the note principal being converted to a variable number of the Company’s common shares. The Company determined the value of the Andypolo Debenture at December 31, 2012 to be $4,755,583 which represented the face value of the debenture of $4,280,025 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the Andypolo Debenture which resulted in a $53,735 reduction of the fair value of the conversion liability for the period. The carrying value of the Andypolo Debenture was $4,218,227 at September 30, 2013, including principal of $3,796,404 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $421,823 as of September 30, 2013.  Interest expense of $178,952 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, YA Global assigned $321,237 in convertible debt to Stuttgart, LP (“Stuttgart” and the “Stuttgart Debenture”). Stuttgart shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Stuttgart Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Stuttgart Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the Stuttgart Debenture at December 31, 2012 to be $224,435 which represented the face value of the debenture of $201,993 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the Stuttgart Debenture which resulted in a $2,230 reduction of the fair value of the conversion liability for the period. During the nine months ended September 30, 2013, $59,400 in principal was converted into common stock, and the Company recognized a reduction in conversion liability at present value of $6,600 for the conversions. The carrying value of the Stuttgart Debenture was $136,882 at September 30, 2013, including principal of $126,343 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $13,613 at September 30, 2013. Interest expense of $5,919 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, YA Global assigned $263,498 in convertible debt to JMC Holdings, LP (“JMC” and the “JMC Debenture”). JMC shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the JMC Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the JMC Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the JMC Debenture at December 31, 2012 to be $205,986 which represented the face value of the debenture of $185,387 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the JMC Debenture which resulted in a $2,313 reduction of the fair value of the conversion liability for the period. The carrying value of the JMC Debenture was $182,858 at September 30, 2013, including principal of $164,572 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $18,286 at September 30, 2013. Interest expense of $7,758 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, YA Global assigned $70,266 in convertible debt to David Moran & Siobhan Hughes (“Moran-Hughes” and the “Moran-Hughes Debenture”). Moran-Hughes shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Moran-Hughes Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Moran-Hughes Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the Moran-Hughes Debenture at December 31, 2012 to be $4,444 which represented the face value of the debenture of $4,000 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the Moran-Hughes Debenture which resulted in a $63 reduction of the fair value of the conversion liability for the period. The carrying value of the Moran-Hughes Debenture was $3,811 at September 30, 2013, including principal of $3,430 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $381 at September 30, 2013. Interest expense of $163 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, YA Global assigned $111,000 in convertible debt to Barry Liben (“Liben” and the “Liben Debenture”). Liben shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Liben Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Liben Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the Liben Debenture at December 31, 2012 to be $90,055 which represented the face value of the debenture of $80,000 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the Liben Debenture which resulted in a $1,967 reduction of the fair value of the conversion liability for the period. During the nine months ended September 30, 2013, $74,000 in principal was converted into common stock, and the Company recognized a reduction in conversion liability at present value of $8,088 for the conversions. The balance of the Liben Debenture has been paid in full as of September 30, 2013. Interest expense of $1,493 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, YA Global assigned $341,550 in convertible debt to Circle Strategic Allocation Fund, LP (“Circle Strategic” and the “Circle Strategic Debenture”). Circle Strategic shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Circle Strategic Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Circle Strategic Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the Circle Strategic Debenture at December 31, 2012 to be $300,729, which represents the face value of the debenture of $270,656 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the Circle Strategic Debenture which resulted in a $3,337 reduction of the fair value of the conversion liability for the period. During the nine months ended September 30, 2013, $29,150 in principal was converted into common stock, and the Company recognized a reduction in conversion liability at present value of $3,239 for the conversions. The carrying value of the Circle Strategic Debenture was $235,351 at September 30, 2013, including principal of $211,796 and the value of the conversion $23,497 at September 30, 2013. Interest expense of $10,819 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, YA Global assigned $75,000 in convertible debt to EFG Bank (“EFG” and the “EFG Debenture”). EFG shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date. The Company accounted for the EFG Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the EFG Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the EFG Debenture at December 31, 2012 to be $83,333 which represented the face value of the debenture of $75,000 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the EFG Debenture which resulted in a $935 reduction of the fair value of the conversion liability for the period. The carrying value of the EFG Debenture was $73,978 at September 30, 2013, including principal of $66,580 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $7,398 at September 30, 2013. Interest expense of $3,138 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, YA Global assigned an additional $115,000 in convertible debt to EFG Bank (“EFG” and the “EFG Debenture”). EFG shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the EFG Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the EFG Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the EFG Debenture at December 31, 2012 to be $127,778 which represented the face value of the debenture of $115,000 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the EFG Debenture which resulted in a $1,435 reduction of the fair value of the conversion liability for the period.  The carrying value of the EFG Debenture was $113,432 at September 30, 2013, including principal of $102,089 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $11,343 at September 30, 2013. Interest expense of $4,811 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, YA Global assigned $385,000 in convertible debt to Epelbaum Revocable Trust (“Epelbaum” and the “Epelbaum Debenture”). Epelbaum shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Epelbaum Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Epelbaum Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the Epelbaum Debenture at December 31, 2012 to be $252,613 which represented the face value of the debenture of $227,352 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the Epelbaum Debenture which resulted in a $2,558 reduction of the fair value of the conversion liability for the period. During the nine months ended September 30, 2013, $74,691 in principal was converted into common stock. During the nine months ended September 30, 2013, the Company recognized a reduction in conversion liability at present value of $8,299 for the conversions. The carrying value of the Epelbaum Debenture was $144,992 at September 30, 2013, including principal of $130,494 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $14,404 at September 30, 2013. Interest expense of $6,549 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, YA Global assigned an additional $40,750 in convertible debt to JMC Holdings, LP (“JMC” and the “JMC Debenture”). JMC shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the JMC Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the JMC Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the JMC Debenture at December 31, 2012 to be $45,278 which represented the face value of the debenture of $40,750 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the JMC Debenture which resulted in a $508 reduction of the fair value of the conversion liability for the period. The carrying value of the JMC Debenture was $40,195 at September 30, 2013, including principal of $36,175 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $4,020 at September 30, 2013. Interest expense of $1,705 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, YA Global assigned $18,500 in convertible debt to Dr. Michael Kesselbrenner TTEE Money Purchase Plan (“Kesselbrenner” and the “Kesselbrenner Debenture”). Kesselbrenner shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Kesselbrenner Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Kesselbrenner Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the Kesselbrenner Debenture at December 31, 2012 to be $20,556 which represented the face value of the debenture of $18,500 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the Kesselbrenner Debenture which resulted in a $231 reduction of the fair value of the conversion liability for the period. The carrying value of the Kesselbrenner Debenture was $18,248 at September 30, 2013, including principal of $16,423 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $1,825 at September 30, 2013. Interest expense of $774 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, YA Global assigned $20,500 in convertible debt to Susan Schneider (“Schneider” and the “Schneider Debenture”). Schneider shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Schneider Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Schneider Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the Schneider Debenture at December 31, 2012 to be $18,889 which represented the face value of the debenture of $17,000 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company made payments against the Schneider Debenture which resulted in a $220 reduction of the fair value of the conversion liability for the period. The carrying value of the Schneider Debenture was $16,699 at September 30, 2013 including principal of $15,030 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $1,669 at September 30, 2013. Interest expense of $709 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2011, Cascade assigned $70,718 in convertible debt to Yorkville Advisors, LLC (“Yorkville” and the “Yorkville Debenture”). Yorkville shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Yorkville Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Yorkville Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the Yorkville Debenture at December 31, 2012 to be $78,576 which represented the face value of the debenture of $70,718 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company recognized a reduction in conversion liability at present value of $7,765 for the conversions. During the nine months ended September 30, 2013, the Company made payments against the Yorkville Debenture which resulted in a $93 reduction of the fair value of the conversion liability for the period. The Yorkville Debenture has been paid in full as of September 30, 2013. Interest expense of $527 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2012, YA Global assigned $15,000 in accrued interest to Better Half Bloodstock, Inc. (“Better Half” and the “Better Half Debenture”) and an additional $50,000 in accrued interest during the nine months ended September 30, 2013. Better Half shall have the right, but not the obligation, to convert any portion of the accrued interest into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Better Half Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Better Half Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the Better Half Debenture at December 31, 2012 to be $16,667, including principal of $15,000 and the value of the conversion liability. During the nine months ended September 30, 2013, YA Global assigned an additional $50,000 in accrued interest to Better Half Bloodstock, Inc which resulted in an additional $5,493 in conversion liability at present value.  During the nine months ended September 30, 2013, the Company recorded an expense of $63 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $1,667 for the conversions related to the first assignment. The carrying value of the Better Half Debenture was $55,556 at September 30, 2013, including principal of $50,000 and the value of the conversion liability. The present value of the liability for the conversion feature for the new assignment has reached its estimated settlement value of $5,556 at September 30, 2013. Interest expense is not being incurred for this obligation.

 

During the nine months ended September 30, 2013, YA Global assigned $60,000 in accrued interest to Park Place Capital, LLC (“Park Place” and the “Park Place Debenture”). Park Place shall have the right, but not the obligation, to convert any portion of the accrued interest into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Park Place Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Park Place Debenture could result in the note principal being converted to a variable number of the Company’s common shares.  The assignment resulted in recognition of a $6,591 conversion liability at present value. During the nine months ended September 30, 2013, the Company recorded an expense of $76 for the accretion to fair value of the conversion liability for the period and recognized a reduction in conversion liability at present value of $6,180 for the conversions. During the nine months ended September 30, 2013, $55,000 in interest was converted into common stock. The carrying value of the Park Place Debenture was $5,487 at September 30, 2013, including principal of $5,000 and the value of the conversion liability. Interest expense is not being incurred for this obligation.

 

During the nine months ended September 30, 2013 YA Global assigned $115,447 in convertible debt and $115,447 in accrued interest to Dakota Capital Pty Limited atf Dakota SP Master Fund (“Dakota Capital” and the “Dakota Capital Debenture”). Dakota Capital shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Dakota Capital Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Dakota Capital Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the Dakota Capital Debenture upon assignment to be $128,128 which represented the face value of the debenture of $115,447 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company recorded an expense of $146 for the accretion to fair value of the conversion liability for the period. The carrying value of the Dakota Capital Debenture was $128,274 at September 30, 2013, including principal of $115,447 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $12,827 at September 30, 2013. Interest expense of $5,162 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the nine months ended September 30, 2013 YA Global assigned $60,000 in convertible debt and $40,000 in accrued interest to Westmount International Holdings Limited (“Westmount” and the “Westmount Debenture”). Westmount shall have the right, but not the obligation, to convert any portion of the A&R Debenture into the Company’s common stock at a rate equal to the lesser of (a) $1.00 or (b) 90% of the lowest daily volume weighted average price of the Company’s common stock during the 20 consecutive trading days immediately preceding the conversion date.  The Company accounted for the Westmount Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Westmount Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The Company determined the value of the Westmount Debenture upon assignment to be $66,591 which represented the face value of the debenture of $60,000 plus the present value of the conversion feature. During the nine months ended September 30, 2013, the Company recorded an expense of $76 for the accretion to fair value of the conversion liability for the period. The carrying value of the Westmount Debenture was $66,667 at September 30, 2013, including principal of $60,000 and the value of the conversion liability. The present value of the liability for the conversion feature has reached its estimated settlement value of $6,667 at September 30, 2013. Interest expense of $1,193 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2012, the Company issued a convertible debenture in the principal amount of $17,500 (the “Consultant Debenture”) in payment for fees incurred to a consultant (“Consultant”).  Consultant shall have the right, but not the obligation, to convert any portion of the convertible debt into the Company’s common stock at a rate equal to 100% of the closing market price for the Company’s common stock for the day preceding the conversion date.  The Company accounted for the Consultant Debenture in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the Consultant Debenture could result in the note principal being converted to a variable number of the Company’s common shares.   The balance of the Consultant Debenture was $17,500 at December 31, 2012. As of September 30, 2013, the balance on the Consultant Debenture had been paid in full. Interest expense of $43 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2012, the Company issued a convertible debenture in the principal amount of $175,000 to Gerova Asset Back Holdings, LP (“Gerova” and the “Gerova Debenture”). In consideration if the debenture, Gerova delivered a release in favor of the Company in respect of any and all amounts that may have been due under the Company’s former guaranty agreement with Gerova. Gerova shall have the right, but not the obligation, to convert any portion of the convertible debenture into the Company’s common stock at a rate equal to 100% of the closing market price for the Company’s common stock for the day preceding the conversion date. The balance of the Gerova Debenture was $175,000 at September 30, 2013. Interest expense of $2,618 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the year ended December 31, 2012, Minority Interest Fund (II), LLC assigned $150,000 of its convertible debt to Magna Group, LLC (“Magna” and the “Magna Debenture”).  Magna shall have the right, but not the obligation, to convert any portion of the accrued interest into the Company’s common stock at 100% of the market price for the Company’s common stock at the time of conversion.  The balance of the Magna Debenture was $125,000 at December 31, 2012.  As of September 30, 2013, the balance on the Consultant Debenture had been paid in full.  Interest expense of $1,207 for these obligations was accrued for the nine months ended September 30, 2013.

 

During the nine months ended September 30, 2013, Minority Interest Fund (II), LLC assigned $200,000 of its convertible debt to Nicholas J. Morano, LLC (“Morano” and the “Morano Debenture”).  Morano shall have the right, but not the obligation, to convert any portion of the accrued interest into the Company’s common stock at 100% of the market price for the Company’s common stock at the time of conversion.  During the nine months ended September 30, 2013, $150,000 in principal was converted into common stock.  The balance of the Morano Debenture was $112,086 at September 30, 2013. Interest expense of $6,626 for these obligations was accrued for the nine months ended September 30, 2013.

 

ASC 480, Distinguishing Liabilities from Equity, sets forth the requirements for determination of whether a financial instrument contains an embedded derivative that must be bifurcated from the host contract, therefore the Company evaluated whether the conversion feature for Series D Preferred Stock would require such treatment; one of the exceptions to bifurcation of the embedded conversion feature is that the conversion feature as a standalone instrument would be classified in stockholders’ equity. Management has determined that the conversion option would not be classified as a liability as a standalone instrument, therefore it meets the exception for bifurcation of the embedded derivative under ASC 815, Derivatives and Hedging. ASC 815, Derivatives and Hedging, addresses whether an instrument that is not under the scope of ASC 480, Distinguishing Liabilities from Equity, would be classified as liability or equity; one of the factors that would require liability classification is if the Company does not have sufficient authorized shares to effect the conversion. If a company could be required to obtain shareholder approval to increase the company's authorized shares in order to net-share or physically settle a contract, share settlement is not controlled by the company. The majority of the Company’s outstanding shares of Series D Preferred Stock are owned by Viridis Capital, LLC, an entity controlled by Kevin Kreisler, the chairman of the Company. If all the Series D shares held by Viridis Capital were converted and exceeded the number of authorized common shares, there would be no contingent factors or events that a third party could bring up that would prevent Mr. Kreisler from authorizing the additional shares. There would be no need to have to go to anyone outside the Company for approval since Mr. Kreisler, through Viridis Capital, is the Company’s majority shareholder. As a result, the share settlement is controlled by the Company and with ASC 815, Derivatives and Hedging. The Company assessed all other factors in ASC 815, Derivatives and Hedging, to determine how the conversion feature would be classified.

 


Note 10 - Guaranty Agreement

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Note 10 - Guaranty Agreement
9 Months Ended
Sep. 30, 2013
Notes  
Note 10 - Guaranty Agreement

NOTE 10

GUARANTY AGREEMENT

 

Viridis Capital, LLC (“Viridis”) is the majority shareholder of the Company and is solely owned by Kevin Kreisler, the Company’s founder and chairman. Viridis has guaranteed all of the Company’s senior debt and has pledged all of its assets, including its shares of Company Series D Preferred Stock, to YA Global to secure the repayment by the Company of its obligations to YA Global (see Note 11, Stockholders’ Equity, below). Viridis has also guaranteed all amounts due to Cantrell Winsness Technologies, LLC in connection with the acquisition by the Company’s subsidiary of its patented and patent-pending extraction technologies (see Note 13, Related Party Transactions, below). The Company has separately agreed to indemnify and hold Viridis harmless from any and all losses, costs and expenses incurred by Viridis in connection with its guaranty of the Company’s obligations and its investments with the Company.


Note 11 - Stockholders' Equity

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Note 11 - Stockholders' Equity
9 Months Ended
Sep. 30, 2013
Notes  
Note 11 - Stockholders' Equity

 

NOTE 11

STOCKHOLDERS’ EQUITY

 

SERIES B PREFERRED STOCK

 

Each share of Series B Preferred Stock may be converted by the holder into 0.025 shares of common stock. Upon the declaration of dividends on common stock, the holders would be entitled to cumulative dividend rights equal to that of the holders of the number of shares into which the Series B Preferred Shares are convertible, and have voting privileges of one vote to every one common share. At September 30, 2013 and December 31, 2012, there were 2,480,544 shares of Series B Preferred Stock issued and outstanding.

 

SERIES D PREFERRED STOCK

 

Shares of the Series D Preferred Stock (the “Series D Shares”) may be converted by the holder into Company common stock. The conversion ratio is such that the full 1,000,000 Series D Shares originally issued convert into Company common shares representing 80% of the fully diluted outstanding common shares outstanding after the conversion (which includes all common shares outstanding plus all common shares potentially issuable upon the conversion of all derivative securities not held by the holder). The holder of Series D Shares may cast the number of votes at a shareholders meeting or by written consent that equals the number of common shares into which the Series D Shares are convertible on the record date for the shareholder action. In the event the Board of Directors declares a dividend payable to Company common shareholders, the holders of Series D Shares will receive the dividend that would be payable if the Series D Shares were converted into Company common shares prior to the dividend. In the event of a liquidation of the Company, the holders of Series D Shares will receive a preferential distribution of $0.001 per share, and will share in the distribution as if the Series D Shares had been converted into common shares. The Company has issued 800,000 Series D Shares to Viridis Capital, LLC, and 62,500 Series D Shares to Minority Interest Fund (II), LLC. However, Viridis and the Company are subject to an additional agreements which, if performed, provide for additional (but currently unissued) shares of the Company’s Series D Preferred Stock to be beneficially owned by Edward Carroll (187,500 shares), Acutus Capital, LLC (124,875 shares) and Minority Interest Fund (II), LLC (41,034 additional shares).

 

ASC 480, Distinguishing Liabilities from Equity, sets forth the requirements for determination of whether a financial instrument contains an embedded derivative that must be bifurcated from the host contract, therefore the Company evaluated whether the conversion feature for Series D Preferred Stock would require such treatment; one of the exceptions to bifurcation of the embedded conversion feature is that the conversion feature as a standalone instrument would be classified in stockholders’ equity. Management has determined that the conversion option would not be classified as a liability as a standalone instrument, therefore it meets the exception for bifurcation of the embedded derivative under ASC 815, Derivatives and Hedging. ASC 815 addresses whether an instrument that is not under the scope of ASC 480 would be classified as liability or equity; one of the factors that would require liability classification is if the Company does not have sufficient authorized shares to effect the conversion. If a company could be required to obtain shareholder approval to increase the company's authorized shares in order to net-share or physically settle a contract, share settlement is not controlled by the company. The majority of the Company’s outstanding shares of Series D Preferred Stock are owned by Viridis Capital, LLC, an entity controlled by Kevin Kreisler, the chairman of the Company. If all the Series D shares held by Viridis Capital were converted and exceeded the number of authorized common shares, there would be no contingent factors or events that a third party could bring up that would prevent Mr. Kreisler from authorizing the additional shares. There would be no need to have to go to anyone outside the Company for approval since Mr. Kreisler, through Viridis Capital, is the Company’s majority shareholder. As a result, the share settlement is controlled by the Company and with ASC 815. The Company assessed all other factors in ASC 815 to determine how the conversion feature would be classified.

 

SERIES F PREFERRED STOCK

 

Effective January 1, 2010, GS CleanTech Corporation, a wholly-owned subsidiary of the Company, executed an Amended and Restated Technology Acquisition Agreement (“TAA”) with Cantrell Winsness Technologies, LLC (“CWT”), David F. Cantrell, David Winsness, Gregory P. Barlage and John W. Davis (the “Sellers”) pursuant to which the parties amended and restated the method of calculating the purchase price for the Company’s corn oil extraction technology (the “Technology”). The TAA provides for the payment by the Company of royalties in connection with the Company’s corn oil extraction technologies, the reduction of those royalties as the Sellers receive payment, and a mechanism for conversion of accrued or prepaid royalties into Company common stock. To achieve this latter mechanism, the Company agreed to issue to the Sellers a one-time prepayment in the form of 1,000,000 shares of redeemable Series F Preferred Stock with a face value of $10 per preferred share. The Series F preferred shares are redeemable at face value and a rate equal to the amount royalties paid or prepaid under the TAA. In addition, the Sellers have the right to convert the Series F preferred shares to pay or prepay royalties at a rate equal to the cash proceeds received by the Sellers upon sale of the common shares issued upon conversion Series F preferred shares. The TAA provides for the payment to the Sellers of an initial royalty fee equal to the lesser of $0.10 per gallon or a percentage of net cash flows, both of which are reduced ratably to $0.025 per gallon upon payment, prepayment or conversion as described above. The Company’s obligations under the TAA are guaranteed by Viridis Capital, LLC, which guarantee was subordinated by the Sellers to the rights of YA Global under its guaranty agreement with Viridis Capital (see Note 10, Guaranty Agreements, above). The Company accounted for the Series F preferred shares in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the convertible Series F preferred shares could result in the preferred shares being converted to a variable number of the Company’s common shares.  The Company determined the value of the Series F preferred shares at the grant date to be $925,926 which represented the estimated value of the preferred shares based on common shares into which they could be converted at the grant date, which included the present value of the conversion feature, which was determined to be $428,381. During the nine months ended September 30, 2013, the Company recognized a reduction in conversion liability at present value of $74,028 for royalties paid under the agreement, and recorded an expense of $44,025 for the accretion to fair value at September 30, 2013, including the grant date value plus the accretion less redemptions of the conversion liability during the year. The liability for the conversion feature shall increase from its present value of $279,558 at September 30, 2013 to its estimated settlement value of $660,527 at June 10, 2020.

 

The only conditions under which the Company would be required to redeem its convertible preferred stock for cash would be in the event of a liquidation of the Company or in the event of a cash-out merger of the Company.

 

COMMON STOCK

 

During the nine months ended September 30, 2013 and 2012, the Company issued a total of 444,511,141 shares and 17,103,123 shares of common stock, respectively, upon conversion in period of $1,116,041 and $738,654, respectively, of principal and accrued interest due pursuant to the Company’s various convertible debentures (see Note 9, Debt Obligations, above).

 


Note 12 - Commitments and Contingencies

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Note 12 - Commitments and Contingencies
9 Months Ended
Sep. 30, 2013
Notes  
Note 12 - Commitments and Contingencies

 

 

NOTE 12

COMMITMENTS AND CONTINGENCIES

 

INFRINGEMENT

 

On October 13, 2009, the U.S. Patent and Trademark Office (“PTO”) issued U.S. Patent No. 7,601,858, titled "Method of Processing Ethanol Byproducts and Related Subsystems” (the ’858 Patent) to GS CleanTech Corporation, a wholly-owned subsidiary of GreenShift Corporation. On October 27, 2009, the PTO issued U.S. Patent No. 7,608,729, titled "Method of Freeing the Bound Oil Present in Whole Stillage and Thin Stillage” (the ’729 Patent) to GS CleanTech. Both the ‘858 Patent and the ‘729 Patent relate to the Company’s corn oil extraction technologies.

 

On October 13, 2009, GS CleanTech filed a legal action in the United States District Court, Southern District of New York captioned GS CleanTech Corporation v. GEA Westfalia Separator, Inc.; and DOES 1-20, alleging infringement of the ‘858 Patent ("New York I Action"). On October 13, 2009, GS CleanTech filed a Motion to Dismiss with the same court relative to a separate complaint filed previously by Westfalia captioned GEA Westfalia Separator, Inc.  v. GreenShift Corporation that alleged (1) false advertising in violation of the Lanham Act § 43(a); (2) deceptive trade practices and false advertising in violation of New York General Business Law §§ 349, 350 and 350-a; and (3) common law unfair competition ("New York II Action"). On October 13, 2009, Westfalia filed its First Amended Complaint in the New York II Action to include as a plaintiff, ethanol production company Ace Ethanol, LLC , and to add claims seeking a declaratory judgment of invalidity and non-infringement of the ‘858 Patent.  On October 13, 2009, ICM, Inc. filed a complaint in the United States District Court, District of Kansas in the matter captioned ICM, Inc. v. GS CleanTech Corporation and GreenShift Corporation, alleging unfair competition, interference with existing and prospective business and contractual relationships, and deceptive trade practices and also seeking a declaratory judgment of invalidity and non-infringement of the ‘858 Patent.

 

On October 15, 2009, in the New York I Action, GS CleanTech filed a Notice of Filing First Amended Complaint for infringement of the ‘858 Patent, along with a copy of the First Amended Complaint, which added ICM, Ace Ethanol, Lifeline Foods LLC and ten additional DOES as defendants in the New York I Action. On October 23, 2009, GS CleanTech's First Amended Complaint in the New York I Action was entered by the court. On November 5, 2009, in ICM’s Kansas lawsuit, GS CleanTech filed a motion to dismiss or, in the alternative, to transfer the Kansas case to New York for inclusion in the New York I Action. Also on November 5, 2009, in ICM’s Kansas lawsuit, ICM filed a motion to enjoin CleanTech and GreenShift from prosecuting the claims against ICM in the New York I Action.

 

During February 2010, GS CleanTech commenced a legal action in the United States District Court, Southern District of Indiana captioned GS CleanTech Corporation v. Cardinal Ethanol, LLC, and a separate legal action in the United States District Court, Northern District of Illinois captioned GS CleanTech Corporation v. Big River Resources Galva, LLC and Big River Resources West Burlington, LLC. ICM sold Cardinal and Big River the equipment that each of Cardinal and Big River have used and are using to infringe the ‘858 Patent as alleged by GS CleanTech. ICM has assumed the defense of each of the above matters.

 

During May 2010, GS CleanTech commenced the following additional actions: GS CleanTech Corporation v. Lincolnland Agri-Energy, LLC, in the United States District Court, Northern District of Illinois; GS CleanTech Corporation v. Al-Corn Clean Fuel, LLC; Chippewa Valley Ethanol Company, LLLP; Heartland Corn Products, LLC and Bushmills Ethanol, Inc., in the United States District Court, District of Minnesota; GS CleanTech Corporation v. United Wisconsin Grain Producers, LLC, in the United States District Court, Western District of Wisconsin; GS CleanTech Corporation v. Iroquois BioEnergy Company, LLC, in the United States District Court, Northern District of Indiana; GS CleanTech Corporation v. Blue Flint Ethanol, LLC, in the United States District Court, District of North Dakota; and, GS CleanTech Corporation v. Lincolnway Energy, LLC, in the United States District Court, Northern District of Iowa.

 

On May 6, 2010, GreenShift submitted a "Motion to Transfer Pursuant to 28 U.S.C. § 1407 for Consolidated Pretrial Proceedings" to the United States Judicial Panel on Multidistrict Litigation (the "Panel") located in Washington, D.C. In this motion, GreenShift moved the Panel to transfer and consolidate all pending suits involving infringement of GreenShift’s patents to one federal court for orderly and efficient review of all pre-trial matters. On August 6, 2010, the Panel ordered the consolidation and transfer of all pending suits in the U.S. District Court, Southern District of Indiana for pretrial proceedings (the "MDL Case").

 

On July 14, 2010, GS CleanTech commenced an action entitled GS CleanTech Corporation v. Adkins Energy, LLC, in the United States District Court, Northern District of Illinois alleging infringement of the ‘858 Patent.  On August 4, 2010, Adkins filed an answer to the complaint and included counterclaims seeking a declaratory judgment that Adkins does not infringe the '858 Patent and that the '858 Patent is invalid, and also alleging breach of contract.  On November 30, 2010, the Adkins action was transferred to the MDL Case. 

 

On October 14, 2010, GS CleanTech commenced an action entitled GS CleanTech Corporation v. Flottweg Separation Technology, Inc. and Flottweg AG, in the United States District Court, District of Connecticut alleging infringement of the ‘858 Patent. On November 15, 2010, GS CleanTech filed an amended complaint alleging that Flottweg Separation Technology, Inc., has infringed the ‘858 Patent.  On November 15, 2010, the Flottweg action was transferred to the MDL Case.

 

As part of the MDL Case, on November 15, 2010, GS CleanTech amended its complaint filed in the New York I Action to include a claim of patent infringement personally against the founder, CEO and President of ICM, and ICM amended its complaint filed in the Kansas action to include a claim seeking a declaratory judgment that the '858 Patent is unenforceable. On November 30, 2010, in the MDL Case, GS CleanTech filed a motion to dismiss ICM's amended complaint (including its claim seeking a declaratory judgment that the '858 Patent is unenforceable) or, in the alternative, to transfer the Kansas case to New York for inclusion in the New York I Action.  ICM has opposed the motion to dismiss. On December 10, 2010, in the MDL Case, GS CleanTech filed motions to strike the affirmative defenses that the '858 Patent is unenforceable asserted by Cardinal Ethanol, LLC; Big River Resources Galva, LLC; and Big River Resources West Burlington, LLC; and Lincolnland Agri-Energy, LLC. Each defendant has opposed the respective motion to strike. On February 14, 2011, GS CleanTech notified the court in the MDL Case that it will not be proceeding with a motion for preliminary injunction. On February 24, 2011, in the MDL Case, in connection with its breach of contract counterclaim against GreenShift Corporation, Adkins Ethanol, LLC filed a motion for judgment on the pleadings or in the alternative partial summary judgment on the issue of liability on the issue of breach of contract and partial summary judgment on the issue of damages.   On March 24, 2011, GreenShift filed an opposition to Adkins’ motion.

 

All of the parties in the MDL Action filed their respective briefs with the Court in connection with proposed claim construction for certain claim limitations in the '858 Patent.  A hearing on the claim construction matter was then held by the Court in the MDL Action on August 22, 2011. On September 29, 2011, the Court issued its ruling with respect to claim construction. 

 

On December 2, 2011, the Court clarified its earlier claim construction order.  On February 6, 2012, the Court granted the Company’s motion to amend its various complaints to include the recently issued U.S. Pat. No. 8,008,516 (the “‘516 Patent”).  On February 27, 2012, the Company filed amended complaints alleging that the Defendants infringed the ‘516 Patent.

 

On May 23, 2012, several defendants filed motions for summary judgment of noninfringement.  The Company filed oppositions against the defendants’ motions for summary judgment of noninfringement on July 25, 2012, and July 30, 2012, and filed its own motions for summary judgment of infringement on September 14, 2012.  On June 20, 2012, the Company dismissed with prejudice all claims asserted against Amaizing Energy Atlantic, LLC; Amaizing Energy Cooperative; Amaizing Energy Denison, LLC Amaizing  Energy Holding Company pursuant to a settlement agreement.  The Court approved this dismissal on August 1, 2012. 

 

On August 6, 2012, the Court granted the Company’s motion to amend its various complaints to include the recently issued U.S. Pat. No. 8,168,037 (the “‘037 Patent”).  On August 31 2012, the Company filed amended complaints alleging that certain Defendants infringed the ‘037 Patent.  On November 7, 2012, the Court granted the Company’s motion to amend its various complaints to include other patents directed to similar technology.  On November 9, 2012, the Company filed amended complaints alleging that the Defendants infringed U.S. Pat. No. 8,008,517 (the “‘517 Patent”) and U.S. Pat. No.8,283,484 (the “‘484 patent).

 

On November 19, 2012, the Court denied Adkins Energy, LLC’s Motion for judgment on the pleadings or, in the alternative, for partial summary judgment on the issue of liability for breach of contract, and for partial summary judgment on one part of Adkins’ damages.  The Court found that Adkins had not established its substantial performance under the contract or that the Company breached its terms with Adkins.

 

On January 29, 2013, the Court issued a supplemental order on claim construction.   Because this order modified the Court’s earlier claim construction, the Court stayed all briefing in the pending summary judgment motions regarding infringement.

 

On February 12, 2013, the Company filed a motion for summary judgment against Adkins’ counterclaims of breach of contract (and related defenses).  Adkins filed its opposition on March 22, 2013.  On May 21, 2013, the Court denied the Company’s motion for summary judgment against Adkins’ counterclaims of breach of contract (and related defenses).

 

On February 27, 2013, the Court dismissed a number of unfair competition claims asserted by ICM against the Company, but the Court allowed ICM to proceed with a federal Lanham Act claim against the Company.

 

On May 8, 2013, the Court issued an order on claim construction for the ‘037 Patent.

 

On May 24, 2013, GS CleanTech commenced an action entitled GS CleanTech Corporation v. Pacific Ethanol, Inc., in the United States District Court, Eastern District of California alleging infringement of the ‘858 Patent.  On July 18, 2013, Pacific filed an answer to the complaint and included counterclaims seeking a declaratory judgment that Pacific does not infringe the '858 Patent and that the '858 Patent is invalid and unenforceable.  On August 8, 2013, GS CleanTech answered Pacific’s counterclaims.

 

On June 7, 2013, GS CleanTech commenced an action entitled GS CleanTech Corporation v. Guardian Energy, LLC, in the United States District Court, District of Minnesota alleging infringement of the ‘858, ‘516, ‘517, and ‘484 Patents. 

 

On July 12, 2013, GS CleanTech commenced an action entitled GS CleanTech Corporation v. Western New York Energy, LLC, in the United States District Court, Western District of New York alleging infringement of the ‘858, ‘516, ‘517, and ‘484 Patents. 

 

On July 19, 2013, GS CleanTech commenced an action entitled GS CleanTech Corporation v. Little Sioux Corn Processors, LLLP, in the United States District Court, Northern District of Iowa alleging infringement of the ‘858, ‘516, ‘517, and ‘484 Patents. 

 

On August 5, 2013, GS CleanTech commenced an action entitled GS CleanTech Corporation v. Southwest Iowa Renewable Energy, LLC, in the United States District Court, Southern District of Iowa alleging infringement of the ‘858, ‘516, ‘517, and ‘484 Patents. 

 

On August 10, 2013, GS CleanTech commenced an action entitled GS CleanTech Corporation v. Homeland Energy Solutions, LLC, in the United States District Court, Northern District of Iowa alleging infringement of the ‘858, ‘516, ‘517, ‘484 and ‘037 Patents. 

 

On September 10, 2013, GS CleanTech commenced an action entitled GS CleanTech Corporation v. Aemetis, Inc. and Aemetis Advanced Fuels Keyes, Inc., in the United States District Court, Southern District of Indiana alleging infringement of the ‘858 Patent.   On September 13, 2013, Aemetis filed an answer to the complaint and included counterclaims seeking a declaratory judgment that Aemetis does not infringe the '858 Patent and that the '858 Patent is invalid and unenforceable.

 

On July 23, 2013, GS CleanTech filed motions for summary judgment of infringement of the ‘858, ‘516, ‘517, and ‘484 Patents against the following defendants: Ace Ethanol, LLC, Adkins Energy, LLC, Al-Corn Clean Fuel, Big River Resources Galva, LLC, Big River Resources West Burlington, LLC, Blue Flint Ethanol, LLC, Bushmills Ethanol, Inc., Cardinal Ethanol, LLC, Chippewa Valley Ethanol Company, LLLP, Heartland Corn Products, Iroquois Bio-Energy Company, LLC, Lincolnland Agri-Energy, LLC, Lincolnway Energy LLC, and United Wisconsin Grain Producers, LLC.

 

On September 23, 2013, the above Defendants filed their oppositions (and cross-motions) asserting their non-infringement and invalidity positions regarding the ‘858, ‘516, ‘517, and ‘484 Patents.

 

There have been no other substantive rulings on the merits on any of the actions included in the MDL Case and Management is unable to characterize or evaluate the probability of any outcome at this time. The Company intends to take all necessary steps to bring infringement of its patents to an end, including filing additional lawsuits involving any and all infringing use of the Company’s patents. The Company further plans to seek additional relief for instances of willful infringement. The Company’s position is that any infringing ethanol producer is liable for any infringing use of the Company’s patented technologies beginning on the publication date of the application that led to the ‘858 Patent.

 

OTHER MATTERS

 

On June 28, 2010 JMJ Financials commenced an action entitled JMJ Financial v. GreenShift et. al., in the Circuit Court of the 11th Judicial Circuit in and for Miami-Dade County, State of Florida, alleging breach of contract and other causes of action for which the plaintiff seeks damages of about $300,000 plus costs. In January 2013 judgment in the amount of $600,026 was entered by default against GreenShift and its co-defendants.  The Company is currently negotiating a settlement with the plaintiff. 

 

On September 10, 2012, Long Side Ventures commenced an action entitled Long Side Ventures and Sunny Isles Ventures, LLC, LLC v. GreenShift et. al., in the United States District Court for the Southern District of New York,  alleging breach of contract and other causes of action for which the plaintiff seeks damages of about $250,000 plus costs. The Company intends to vigorously defend this action. At this stage of the proceedings, we cannot evaluate the likelihood of an unfavorable outcome in excess of the amounts previously accrued.

 

The Company is also involved in various collection matters for which vendors are seeking payment for services rendered and goods provided. The Company and its subsidiaries are party to numerous matters pertaining to outstanding amounts alleged to be due. Management is unable to characterize or evaluate the probability of any outcome at this time.

 

Under the Company’s insurance programs, coverage is obtained for catastrophic exposures, as well as those risks required to be insured by law or contract. There is a $2,500 deductible per occurrence for environmental impairments. Environmental liability insurance is carried with policy limits of $1,000,000 per occurrence and $2,000,000 aggregate.

 

The Company is party to employment agreements with Kevin Kreisler, the Company’s Chairman, Ed Carroll, the Company’s Chief Executive Officer and Chief Financial Officer, David Winsness, the Company’s Chief Technology Officer, Greg Barlage, the Company’s Chief Operating Officer, and Richard Krablin, the Company’s Vice President. Each agreement also included terms for reimbursement of expenses, periodic bonuses, four weeks’ vacation and participation in any employee benefits provided to all employees of GreenShift Corporation.

 

The Company’s Articles of Incorporation provide that the Company shall indemnify its officers, directors, employees and agents to the full extent permitted by Delaware law. The Company’s Bylaws include provisions to indemnify its officers and directors and other persons against expenses (including attorney’s fees, judgments, fines and amounts paid for settlement) incurred in connection with actions or proceedings brought against them by reason of their serving or having served as officers, directors or in other capacities.  The Company does not, however, indemnify them in actions in which it is determined that they have not acted in good faith or have acted unlawfully. The Company is further subject to various indemnification agreements with various parties pursuant to which the Company has agreed to indemnify and hold such parties harmless from and against expenses and costs incurred (including attorney’s fees, judgments, fines and amounts paid for settlement) in connection with the provision by such parties of certain financial accommodations to the Company. Such parties indemnified by the Company include YA Global Investments, L.P., YA Corn Oil Systems, LLC, Viridis Capital, LLC, Minority Interest Fund (II), LLC, Acutus Capital, LLC, and various family members of the Company’s chairman that have provided the Company with cash investments.

 


Note 13 - Related Party Transactions

v2.4.0.8
Note 13 - Related Party Transactions
9 Months Ended
Sep. 30, 2013
Notes  
Note 13 - Related Party Transactions

NOTE 13

RELATED PARTY TRANSACTIONS

 

Minority Interest Fund (II), LLC (“MIF”) is party to certain convertible debentures issued by the Company (see Note 9, Debt Obligations, above). The managing member of MIF is a relative of the Company’s chairman.

 

Viridis Capital LLC (“Viridis”) is party to certain convertible debentures issued by the Company (see Note 9, Debt Obligations, above). The managing member of Viridis is the Company’s chairman, Kevin Kreisler.

 

The Company entered into agreements with MIF and Viridis to amend and restate the terms of the MIF Debenture and Viridis Debenture effective September 30, 2011 to extend the maturity date to June 30, 2013; to eliminate and contribute $502,086 in accrued interest and $1,065,308 of principal; to reduce the applicable interest rate to 6% per annum; to eliminate MIF’s and Viridis’ right to convert amounts due at a discount to the market price of the Company’s common stock; and to reverse various non-cash assignments of debt involving related parties (see Note 9, Debt Obligations, above). The restated balances due to MIF and Viridis at September 30, 2011, were $3,017,061 and $237,939, respectively. No interest was payable to either MIF or Viridis after these amendments. In addition, the balances of convertible debt due to Acutus Capital, LLC (“Acutus”) and family members of the Company’s chairman were amended and restated at September 30, 2011, to $1,090,000 and $351,000, respectively, in connection with cash investments previously provided to the Company. The terms of these debentures provide for interest at 6% per annum, a maturity date of June 30, 2013, and the right to convert amounts due into Company common stock at 100% of the market price for the Company’s common stock at the time of conversion. MIF received 62,500 shares of Series D Preferred Stock in partial consideration of the contribution of principal and accrued interest and the various other modified terms of MIF’s agreements with the Company. The foregoing debentures are subject to conditions which limit the transfer of shares issued upon conversion to 5% of the average monthly volume for the Company’s common stock.

 

During the nine months ended September 30, 2013, MIF forgave $5,793 of the amount due from the Company for no additional consideration. During the year ended December 31, 2012, MIF forgave $187,500 of the amount due from the Company for no additional consideration. Also during the year ended December 31, 2012, the Company’s chairman transferred approximately $146,000 in deferred salaries owed to him by the Company to Viridis Capital, LLC in the form of additional principal under a debenture held by Viridis. On the same date, all principal and interest owed to Viridis by the Company were assigned to MIF.  During the year ended December 31, 2012, various other related party employees waived an aggregate of $637,111 in deferred compensation from prior years.

 

 

Between January 1, 2008 and December 31, 2010, Viridis, MIF, Acutus, and management personnel provided the Company with the cash resources we needed 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. In addition, Viridis has guaranteed all of the Company’s debt due to YA Global and all amounts due to Cantrell Winsness Technologies, LLC, in connection with the acquisition by the Company’s subsidiary of its patented and patent-pending extraction technologies (see Note 10, Guaranty Agreements, above). The Company has separately agreed to indemnify and hold Viridis and its affiliates harmless from any and all losses, costs and expenses incurred by Viridis and its affiliates in connection with its and their various investments with the Company as well as Viridis’ guarantees of Company’s obligations. During the nine months ended September 30, 2013, the Company paid an indemnification obligation to Viridis of $450,000, $250,000 of which was paid in the form of a debenture (see Note 9, Debt Obligations, above). These amounts are shown as other expense in the accompanying financial statements. The Company has agreed to indemnify and hold Viridis harmless from any and all losses, costs and expenses incurred by Viridis in connection with its guaranty of the Company’s obligations and its investments with the Company.

 

Effective January 1, 2010, GS CleanTech Corporation, a wholly-owned subsidiary of the Company, executed an Amended and Restated Technology Acquisition Agreement (“TAA”) with Cantrell Winsness Technologies, LLC (“CWT”), David F. Cantrell, David Winsness, Gregory P. Barlage and John W. Davis (the “Sellers”) pursuant to which the parties amended and restated the method of calculating the purchase price for the Company’s corn oil extraction technology (the “Technology”). The TAA provides for the payment by the Company of royalties in connection with the Company’s corn oil extraction technologies, the reduction of those royalties as the Sellers receive payment, and a mechanism for conversion of accrued or prepaid royalties into Company common stock. To achieve this latter mechanism, the Company agreed to issue to the Sellers a one-time prepayment in the form of 1,000,000 shares of redeemable Series F Preferred Stock (“CWT Preferred Shares”) with a face value of $10 per preferred share (see Note 11, Shareholders’ Equity, above). The CWT Preferred Shares are redeemable at face value and a rate equal to the amount royalties paid or prepaid under the TAA. In addition, the Sellers have the right to convert the CWT Preferred Shares to pay or prepay royalties at a rate equal to the cash proceeds received by the Sellers upon sale of the common shares issued upon conversion CWT Preferred Shares. The TAA provides for the payment to the Sellers of an initial royalty fee equal to the lesser of $0.10 per gallon or a percentage of net cash flows, both of which are reduced ratably to $0.025 per gallon upon payment, prepayment or conversion as described above. The Company’s obligations under the TAA are guaranteed by Viridis Capital, LLC, which guarantee was subordinated by the Sellers to the rights of YA Global under its guaranty agreement with Viridis Capital (see Note 10, Guaranty Agreement, above).

 


Note 14 - Supplemental Disclosure of Cash Flow Information

v2.4.0.8
Note 14 - Supplemental Disclosure of Cash Flow Information
9 Months Ended
Sep. 30, 2013
Notes  
Note 14 - Supplemental Disclosure of Cash Flow Information

NOTE 14

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

The following is a summary of supplemental disclosures of cash flow information for the nine months ended September 30, 2013 and 2012:

 

 

9/30/2013

 

 

 

9/30/2012

 

 

 

 

 

 

 

 

 

Cash paid for the following:

 

 

 

 

 

 

 

Interest

$

--

 

 

$

--

 

Taxes

 

59,139

 

 

 

--

 

  Total

 

59,139

 

 

 

--

 

Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

Debentures converted into common stock

 

909,978

 

 

 

834,728

 

Forgiveness of affiliate receivable charged against paid in capital

 

5,793

 

 

 

--

 

 

 

 

 

 

 

 

 

 


Note 15 Subsequent Events

v2.4.0.8
Note 15 Subsequent Events
9 Months Ended
Sep. 30, 2013
Notes  
Note 15 Subsequent Events

 

NOTE 15

SUBSEQUENT EVENTS

 

Negotiations to Extend Maturity Date of Debentures

 

On November 12, 2013, the Company and YA Global Investments, L.P., entered into an amended forbearance agreement pursuant to which the maturity date of the Company's outstanding debt to YA Global and its assignees (see Note 9, Debt Obligations, above) was extended to December 31, 2014. The amendment further provided for a mandatory prepayment of $500,000 on or before December 15, 2013, cash payments by the Company of $250,000 per month for the first six months of 2014, $300,000 per month for the second six months of 2014 and the reimbursement of certain legal costs and expenses. The Company will also be required to pay an amount equal to twenty percent (20%) of all gross proceeds received from any defendant in any patent infringement litigation, whether now existing or hereafter arising, within one (1) Business Day of receipt.


Note 1 - Basis of Presentation: References To The Company (Policies)

v2.4.0.8
Note 1 - Basis of Presentation: References To The Company (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
References To The Company

 

REFERENCES TO THE COMPANY

 

In this Quarterly Report on Form 10-Q, the terms “we,” “our,” “us,” “GreenShift,” or the “Company” refer to GreenShift Corporation, and its subsidiaries on a consolidated basis. The term “GreenShift Corporation” refers to GreenShift Corporation on a standalone basis only, and not its subsidiaries.

 

The condensed balance sheet at December 31, 2012 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The other information in these condensed financial statements is unaudited but, in the opinion of management, reflects all adjustments necessary for a fair presentation of the results for the periods covered. All such adjustments are of a normal recurring nature unless disclosed otherwise. These condensed financial statements, including notes, have been prepared in accordance with the applicable rules of the Securities and Exchange Commission and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. These condensed financial statements should be read in conjunction with the financial statements and additional information as contained in our Annual Report on Form 10-K for the year ended December 31, 2012.

 


Note 1 - Basis of Presentation: Consolidated Financial Statements (Policies)

v2.4.0.8
Note 1 - Basis of Presentation: Consolidated Financial Statements (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
Consolidated Financial Statements

CONSOLIDATED FINANCIAL STATEMENTS

 

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and entities which we control. All significant intercompany balances and transactions have been eliminated on a consolidated basis for reporting purposes.

 


Note 1 - Basis of Presentation: Cost Method of Accounting For Unconsolidated Subsidiaries (Policies)

v2.4.0.8
Note 1 - Basis of Presentation: Cost Method of Accounting For Unconsolidated Subsidiaries (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
Cost Method of Accounting For Unconsolidated Subsidiaries

COST METHOD OF ACCOUNTING FOR UNCONSOLIDATED SUBSIDIARIES

 

The Company accounts for its investment in ZeroPoint Clean Tech, Inc.  (“ZeroPoint”) under the cost method. Application of this method requires the Company to periodically review these investments in order to determine whether to maintain the current carrying value or to write off some or all of the investments. While the Company uses some objective measurements in its review, the review process involves a number of judgments on the part of the Company’s management. These judgments include assessments of the likelihood of ZeroPoint to obtain additional financing, to achieve future milestones, make sales and to compete effectively in its markets. In making these judgments the Company must also attempt to anticipate trends in ZeroPoint’s industry as well as in the general economy.

 

In April 2013, the Company’s investment in ZeroPoint was restructured in conjunction with a new preferred stock financing (See Note 6, Investment in ZeroPoint CleanTech, below). Based on the terms of the restructuring of the investment, the Company engaged a third party firm to review its investment in ZeroPoint  in order to determine whether there was any decline in the fair value of the investment below cost that was other than temporary. The third party firm concluded that the fair value of the investment in ZeroPoint exceeds the carrying value of the investment and the Company has determined that no impairment in the investment has occurred as of September 30, 2013. 

 


Note 1 - Basis of Presentation: Use of Estimates in The Preparation of Consolidated Financial Statements (Policies)

v2.4.0.8
Note 1 - Basis of Presentation: Use of Estimates in The Preparation of Consolidated Financial Statements (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
Use of Estimates in The Preparation of Consolidated Financial Statements

 

USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS

 

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


Note 4 - Significant Accounting Policies: Segment Information (Policies)

v2.4.0.8
Note 4 - Significant Accounting Policies: Segment Information (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
Segment Information

 

SEGMENT INFORMATION

 

We determined our reporting units in accordance with FASB ASC 280, “Segment Reporting” (“ASC 280”). We evaluate a reporting unit by first identifying its operating segments under ASC 280. We then evaluate each operating segment to determine if it includes one or more components that constitute a business. If there are components within an operating segment that meet the definition of a business, we evaluate those components to determine if they must be aggregated into one or more reporting units. If applicable, when determining if it is appropriate to aggregate different operating segments, we determine if the segments are economically similar and, if so, the operating segments are aggregated. We have one operating segment and reporting unit. We operate in one reportable business segment; we provide technologies and related products and services to U.S.-based ethanol producers. We are organized and operated as one business. We exclusively sell our technologies, products and services to ethanol producers that have entered into license agreements with the Company. No sales of any kind occur, and no costs of sales of any kind are incurred, in the absence of a license agreement. A single management team that reports to the chief operating decision maker comprehensively manages the entire business. We do not operate any material separate lines of business or separate business entities with respect to our technologies, products and services. The Company does not accumulate discrete financial information according to the nature or structure of any specific technology, product and/or service provided to the Company’s licensees. Instead, management reviews its business as a single operating segment, using financial and other information rendered meaningful only by the fact that such information is presented and reviewed in the aggregate. Discrete financial information is not available by more than one operating segment, and disaggregation of our operating results would be impracticable.


Note 4 - Significant Accounting Policies: Revenue Recognition (Policies)

v2.4.0.8
Note 4 - Significant Accounting Policies: Revenue Recognition (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
Revenue Recognition

 

REVENUE RECOGNITION

 

The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection is reasonably assured. The Company recognizes revenue from licensing of the Company’s corn oil extraction technologies when corn oil sales occur. Licensing royalties are recognized as earned by calculating the royalty as a percentage of gross corn oil sales by the ethanol plants. For the purposes of assessing royalties, the sale of corn oil is deemed to occur when shipped, which is when four basic criteria have been met: (i) persuasive evidence of a customer arrangement; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured, and (iv) product delivery has occurred, which is generally upon or after shipment of corn oil by the relevant ethanol producer. The same criteria are utilized in the recognition of non-recurring receipts associated with the Company’s licensing activities. Deposits from customers are not recognized as revenues, but as liabilities, until the following conditions are met: revenues are realized when cash or claims to cash (receivable) are received in exchange for goods or services, or when assets received in such exchange are readily convertible to cash or claim to cash, or when such goods or services are transferred. When an income item is earned, the related revenue item is recognized and any deferred revenue is reduced. To the extent revenues are generated from the Company’s licensing support services, the Company recognizes such revenues when the services are completed and billed. The Company provides process engineering services on fixed price contracts. These services are generally provided over a short period of less than three months.  Revenue from such fixed price contracts is recognized the relevant services are performed. The Company additionally performs under fixed-price contracts involving design, engineering, procurement, installation, and start-up of oil recovery and other production systems. Revenues and fees on these contracts are recognized using the percentage-of-completion method of accounting, and specifically the efforts-expended percentage-of-completion method using measures such as task duration and completion. The efforts-expended approach is used in situations where it is more representative of progress on a contract than the cost-to-cost or the labor-hours methods. The asset, “costs and estimated earnings in excess of billings on uncompleted contracts,” represents revenues recognized in excess of amounts billed. The liability, “billings in excess of costs and estimated earnings on uncompleted contracts,” represents billings in excess of revenues recognized.


Note 4 - Significant Accounting Policies: Basic and Diluted Income (loss) Per Share (Policies)

v2.4.0.8
Note 4 - Significant Accounting Policies: Basic and Diluted Income (loss) Per Share (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
Basic and Diluted Income (loss) Per Share

 

BASIC AND DILUTED INCOME (LOSS) PER SHARE

 

The Company computes its net income or loss per common share under the provisions of ASC 260, “Earnings per Share,” whereby basic net income or loss per share is computed by dividing the net loss for the period by the weighted-average number of shares of common stock outstanding during the period. Dilutive net loss per share excludes potential common shares issuable upon conversion of all derivative securities if the effect is anti-dilutive. Thus, common stock issuable upon exercise or conversion of options, warrants, convertible preferred stock, or convertible debentures are excluded from computation of diluted net loss per share, but are included in computation of diluted net income per share. During the nine months ended September 30, 2012, we reported net income and accordingly included potentially dilutive instruments in the fully diluted net income per share calculation. However, during the three months and nine months ended September 30, 2013 and three months ended September 30, 2012, we reported net losses and, in accordance with ASC 260, dilutive instruments were excluded from the net loss per share calculation for such periods.


Note 4 - Significant Accounting Policies: Financial Instruments Policy (Policies)

v2.4.0.8
Note 4 - Significant Accounting Policies: Financial Instruments Policy (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
Financial Instruments Policy

 

FINANCIAL INSTRUMENTS

 

The carrying values of accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values due to their short term maturities. The carrying values of the Company’s long-term debt approximate their fair values based upon a comparison of the interest rate and terms of such debt to the rates and terms of debt currently available to the Company. It was not practical to estimate the fair value of the convertible debt. In order to do so, it would be necessary to obtain an independent valuation of these unique instruments. The cost of that valuation would not be justified in light of the materiality of the instruments to the Company.


Note 4 - Significant Accounting Policies: Recent Accounting Pronouncements (Policies)

v2.4.0.8
Note 4 - Significant Accounting Policies: Recent Accounting Pronouncements (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
Recent Accounting Pronouncements

 

RECENT ACCOUNTING PRONOUNCEMENTS

 

Management does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying financial statements.


Note 5 - Fair Value Disclosures: Fair Value Measeurement Policy (Policies)

v2.4.0.8
Note 5 - Fair Value Disclosures: Fair Value Measeurement Policy (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
Fair Value Measeurement Policy

 

Effective July 1 2009, the Company adopted ASC 820, Fair Value Measurements and Disclosures. This topic defines fair value for certain financial and nonfinancial assets and liabilities that are recorded at fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance supersedes all other accounting pronouncements that require or permit fair value measurements.  The Company accounted for the convertible debentures in accordance with ASC 480, Distinguishing Liabilities from Equity, as the conversion feature embedded in the convertible debentures could result in the note principal and related accrued interest being converted to a variable number of the Company’s common shares.

 

Effective July 1 2009, the Company adopted ASC 820-10-55-23A, Scope Application to Certain Non-Financial Assets and Certain Non-Financial Liabilities, delaying application for non-financial assets and non-financial liabilities as permitted. ASC 820 establishes a framework for measuring fair value, and expands disclosures about fair value measurements. In January 2010, the FASB issued an update to ASC 820, which requires additional disclosures about inputs into valuation techniques, disclosures about significant transfers into or out of Levels 1 and 2, and disaggregation of purchases, sales, issuances, and settlements in the Level 3 rollforward disclosure.

 

ASC 820 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three levels as follows:

 

Level 1

quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access as of the measurement date. Financial assets and liabilities utilizing Level 1 inputs include active exchange-traded securities and exchange-based derivatives

 

 

Level 2

inputs other than quoted prices included within Level 1 that are directly observable for the asset or liability or indirectly observable through corroboration with observable market data. Financial assets and liabilities utilizing Level 2 inputs include fixed income securities, non-exchange-based derivatives, mutual funds, and fair-value hedges

 

 

Level 3

unobservable inputs for the asset or liability only used when there is little, if any, market activity for the asset or liability at the measurement date. Financial assets and liabilities utilizing Level 3 inputs include infrequently-traded, non-exchange-based derivatives and commingled investment funds, and are measured using present value pricing models

 

 

 


Note 7 - Inventories: Inventories and Supplies Policy (Policies)

v2.4.0.8
Note 7 - Inventories: Inventories and Supplies Policy (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
Inventories and Supplies Policy Inventories are stated at the lower of cost or market, with cost being determined by the specific identification method. Inventories at September 30, 2013 and December 31, 2012 were $502,796 and $1,837,646, respectively.

Note 8 - Deferred Revenue: Deferred Revenue Recognition Policy (Policies)

v2.4.0.8
Note 8 - Deferred Revenue: Deferred Revenue Recognition Policy (Policies)
9 Months Ended
Sep. 30, 2013
Policies  
Deferred Revenue Recognition Policy

 

Deposits from customers are not recognized as revenues, but as liabilities, until the following conditions are met: revenues are realized when cash or claims to cash (receivable) are received in exchange for goods or services or when assets received in such exchange are readily convertible to cash or claim to cash or when such goods/services are transferred. When such income item is earned, the related revenue item is recognized, and the deferred revenue is reduced. To the extent revenues are generated from the Company’s licensing support services, the Company recognizes such revenues when services are completed and billed.


Note 5 - Fair Value Disclosures: Schedule of Embedded Conversion Liabilities (Tables)

v2.4.0.8
Note 5 - Fair Value Disclosures: Schedule of Embedded Conversion Liabilities (Tables)
9 Months Ended
Sep. 30, 2013
Tables/Schedules  
Schedule of Embedded Conversion Liabilities

 

Embedded conversion liabilities as of September 30, 2013:

 

 

 

 

 

 

 

Level 1

$

--

 

 

 

 

 

Level 2

 

--

 

 

 

 

 

Level 3

 

2,784,423

 

 

 

 

 

Total

$

2,784,423

 

 

 

 

 


Note 5 - Fair Value Disclosures: Schedule of Balance of embedded derivatives (Tables)

v2.4.0.8
Note 5 - Fair Value Disclosures: Schedule of Balance of embedded derivatives (Tables)
9 Months Ended
Sep. 30, 2013
Tables/Schedules  
Schedule of Balance of embedded derivatives

 

Balance of embedded derivatives at December 31, 2012

$

2,940,688

 

 

 

 

 

 

 

 

 

 

 

 

 

Present value of beneficial conversion features of new debentures

 

122,265

 

 

 

 

 

Accretion adjustments to fair value – beneficial conversion features

 

69,101

 

 

 

 

 

Reductions in fair value due to repayments/redemptions

 

(300,103

)

 

 

 

 

Reductions in fair value due to principal conversions

 

(47,528

)

 

 

 

 

Balance at September 30, 2013

$

2,784,423

 

 

 

 

 

 

 

 

 

 

 

 

 


Note 5 - Fair Value Disclosures: Valuation of the Comanys investment (Tables)

v2.4.0.8
Note 5 - Fair Value Disclosures: Valuation of the Comanys investment (Tables)
9 Months Ended
Sep. 30, 2013
Tables/Schedules  
Valuation of the Comanys investment

 

Investment in Promissory Note (Level 3)

$

2,148,887

Investment in Common Stock (Level 3)

 

362,407

Total

$

2,511,294


Note 9 - Debt Obligations: Schedule of Debt (Tables)

v2.4.0.8
Note 9 - Debt Obligations: Schedule of Debt (Tables)
9 Months Ended
Sep. 30, 2013
Tables/Schedules  
Schedule of Debt

 

 

 

 

 

 

9/30/2013

 

Current portion of long term debt:

 

 

 

 

 

 

 

Mortgages and other term notes

 

 

 

 

$

21,743

 

Current portion of notes payable

 

 

 

 

 

1,345,302

 

Total current portion of long term debt

 

 

 

 

$

1,367,045

 

 

 

 

 

 

 

 

 

Current portion of convertible debentures:

 

 

 

 

 

 

 

YA Global Investments, L.P., 6% interest, conversion at 90% of market

 

 

 

 

$

18,790,520

 

Andypolo, LP, 6% interest, conversion at 90% of market

 

 

 

 

 

3,796,404

 

Barry Liben, 6% interest, conversion at 90% of market

 

 

 

 

 

--

 

Better Half Bloodstock, Inc., 0% interest, conversion at 90% of market

 

 

 

 

 

50,000

 

Circle Strategic Allocation Fund, LP, 6% interest, conversion at 90% of market

 

 

 

 

 

211,796

 

Dakota Capital Pty Limited, 6% interest, conversion at 90% of market

 

 

 

 

 

115,447

 

EFG Bank, 6% interest, conversion at 90% of market

 

 

 

 

 

168,670

 

Epelbaum Revocable Trust, 6% interest, conversion at 90% of market

 

 

 

 

 

130,494

 

JMC Holdings, LP, 6% interest, conversion at 90% of market

 

 

 

 

 

200,747

 

Dr. Michael Kesselbrenner, 6% interest, conversions at 90% of market

 

 

 

 

 

16,423

 

David Moran & Siobhan Hughes, 6% interest, conversion at 90% of market

 

 

 

 

 

3,430

 

Morano, LLC, 6% interest, no conversion discount

 

 

 

 

 

112,086

 

Park Place Capital, LLC, 6% interest, conversion at 90% of market

 

 

 

 

 

5,000

 

Susan Schneider, 6% interest, conversions at 90% of market

 

 

 

 

 

15,030

 

Stuttgart, LP, 6% interest, conversion at 90% of market

 

 

 

 

 

123,196

 

Westmount International Holdings Limited, 6% interest, conversion at 90% of market

 

 

 

 

 

60,000

 

Acutus Capital, LLC, 6% interest, no conversion discount

 

 

 

 

 

90,000

 

Minority Interest Fund (II), LLC, 6% interest, no conversion discount

 

 

 

 

 

2,448,119

 

Viridis Capital, LLC, 6% interest, conversion at 50% of market

 

 

 

 

 

100,000

 

Related Party Debenture, 6% interest, no conversion discount

 

 

 

 

 

161,750

 

Conversion liabilities

 

 

 

 

 

2,504,864

 

Total convertible debentures

 

 

 

 

$

29,103,975

 

 

 

 

 

 

 

 

 

Long term convertible debentures:

 

 

 

 

 

 

 

Gerova Asset Backed Holdings, LP, 2% interest, no conversion discount

 

 

 

 

 

175,000

 

Total long term convertible debentures

 

 

 

 

$

175,000

 

 

 

 

 

 

 

 

 


Note 9 - Debt Obligations: Schedule of Company's ability to fulfill its fixed debt service requirements (net of note discounts) (Tables)

v2.4.0.8
Note 9 - Debt Obligations: Schedule of Company's ability to fulfill its fixed debt service requirements (net of note discounts) (Tables)
9 Months Ended
Sep. 30, 2013
Tables/Schedules  
Schedule of Company's ability to fulfill its fixed debt service requirements (net of note discounts)

 

Year

 

 

 

 

 

Amount

 

2013

 

 

 

 

$

27,866,156

 

2014

 

 

 

 

 

100,000

 

2015

 

 

 

 

 

--

 

2016

 

 

 

 

 

--

 

2017

 

 

 

 

 

--

 

Thereafter

 

 

 

 

 

175,000

 

Total minimum payments due under current and long term obligations

 

 

 

 

$

28,141,156

 


Note 14 - Supplemental Disclosure of Cash Flow Information: Schedule of Cash Flow, Supplemental Disclosures (Tables)

v2.4.0.8
Note 14 - Supplemental Disclosure of Cash Flow Information: Schedule of Cash Flow, Supplemental Disclosures (Tables)
9 Months Ended
Sep. 30, 2013
Tables/Schedules  
Schedule of Cash Flow, Supplemental Disclosures

 

 

9/30/2013

 

 

 

9/30/2012

 

 

 

 

 

 

 

 

 

Cash paid for the following:

 

 

 

 

 

 

 

Interest

$

--

 

 

$

--

 

Taxes

 

59,139

 

 

 

--

 

  Total

 

59,139

 

 

 

--

 

Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

Debentures converted into common stock

 

909,978

 

 

 

834,728

 

Forgiveness of affiliate receivable charged against paid in capital

 

5,793

 

 

 

--

 

 

 

 

 

 

 

 

 

 


Note 3 - Going Concern (Details)

v2.4.0.8
Note 3 - Going Concern (Details) (USD $)
Sep. 30, 2013
Dec. 31, 2012
Sep. 30, 2012
Dec. 31, 2011
Details        
Cash $ 4,296,586 $ 2,030,577 $ 1,679,887 $ 1,364,994
Excess of Liabilities over Assets $ 41,229,003      

Note 5 - Fair Value Disclosures: Schedule of Embedded Conversion Liabilities (Details)

v2.4.0.8
Note 5 - Fair Value Disclosures: Schedule of Embedded Conversion Liabilities (Details) (USD $)
Sep. 30, 2013
Embedded Conversion Liability $ 2,784,423
Fair Value, Inputs, Level 3
 
Embedded Conversion Liability $ 2,784,423

Note 5 - Fair Value Disclosures: Schedule of Balance of embedded derivatives (Details)

v2.4.0.8
Note 5 - Fair Value Disclosures: Schedule of Balance of embedded derivatives (Details) (USD $)
9 Months Ended
Sep. 30, 2013
Dec. 31, 2012
Details    
Balance of embedded derivatives $ 2,784,423 $ 2,940,688
Present value of beneficial conversion features of new debentures 122,265  
Accretion adjustments to fair value - beneficial conversion features 69,101  
Reductions in fair value due to repayments/redemptions (300,103)  
Reductions in fair value due to principal conversions $ (47,528)