GreenShift Releases Shareholder Letter - Business Wire
GreenShift Releases Shareholder Letter
GreenShift Releases Shareholder Letter
Jan. 19, 2010 (Business Wire) -- Kevin Kreisler, chairman of GreenShift Corporation (OTC Bulletin Board: GERS), issued the following letter today to the shareholders of GreenShift:
Dear Shareholders:
The state of our company has improved since our last communication in early 2009: we shed unprofitable business lines, liquidated non-core assets, streamlined overhead, reduced debt by more than 30%, and restructured the majority of our remaining debt on more favorable terms. The ethanol industry has moved favorably: oil prices are high, corn prices are expected to be stable due to a larger than expected crop, ethanol production margins are healthy again, and the industry has the capital and the desire to invest in efficiency improvements. And, our market positioning has strengthened: we were recently awarded two patents on technology that is in high demand and is widely accepted to be the best proven path to increasing the efficiency and profitability of refining corn into fuel. We have much yet to accomplish. We have more debt to eliminate, earnings to produce and shareholder value to build. This letter is to provide an update on our plans in this regard.
GreenShift targets and eliminates production inefficiencies by developing and deploying new technologies for its clients. Efficiency improvements are vital to the evolution of the still young ethanol industry and the ability of producers to maintain and enhance their competitive standing.
We successfully developed and commercialized a portfolio of technologies designed to increase the biofuel yield from corn by up to 7% while reducing the energy consumption and greenhouse gas intensity of ethanol production by as much as 21% and 29%, respectively. The U.S. ethanol fleet has a capacity of about 12 billion gallons of ethanol per year. At current market prices, a single 100 million gallon per year ethanol plant using our full portfolio of corn oil extraction technologies can generate about $14 million per year in additional profitability.
These benefits provide ethanol producers with a significant competitive advantage that reduces their exposure to market risk. As an example, more than 20% of all U.S. ethanol facilities ceased operations during 2008 and 2009 due to financial stress. Of these, we estimate that only 1 plant had corn oil extraction installed. Conversely, we estimate that more than an additional 35 plants were using our extraction technology during this same timeframe and, to our knowledge, only 1 of these plants ceased operations.
Our technology portfolio is a significant asset: the value-proposition to ethanol producers is compelling; the market dynamics are favorable; and, our intellectual property rights are very strong. First and foremost, we will build value by using this asset and our proprietary advantage to deliver the substantial benefits of extraction to our clients. To do so, we will make it easy for ethanol producers to use our patented technologies by focusing on a simple royalty-based licensing model and the provision of ancillary technical support, yield optimization and corn oil marketing services.
We have started offering ethanol producers the right to directly build, own and operate the equipment they need to use GreenShift’s patented extraction technologies in return for an ongoing royalty payment equal to 20% of the licensee’s corn oil sales. This is a departure from our historical model in several respects, the most notable of which is that we do not need to take on new debt or appreciable new equity financing to execute a model based on reasonable royalties; and, just as corn oil extraction technology increases ethanol production efficiencies and profitability, a royalty-based licensing model can lead to a leaner cost-structure and better profitability for GreenShift as compared to a model based exclusively on buying and selling the extracted oil.
Intellectual properties are typically valued in licensing and litigation settings according to a standard convention known as the “25 Percent Rule.” This basically says that a technology developer and/or owner is entitled to reasonable royalties for use of its technology based on the amount of profit the user of the technology generates with the technology. While the details are case-specific, royalties used by thousands of companies in many different industries, including the auto, consumer products, energy, food and manufacturing sectors, track this general rule of thumb and are on average equal to about 25% of profit.
This is particularly significant because corn oil extraction increases ethanol producer sales while decreasing energy costs, and an ethanol producer’s incremental costs to operate an extraction facility based on our technologies are negligible (much less than 10% of corn oil sales). For example, we estimate that more than 35 ethanol plants are currently using part of our extraction technologies (at less than half of the total extraction capability) to produce more than 265 million pounds per year of corn oil worth more than $60 million per year, at a cost of less than $6 million per year at current market prices. Thus, use of our patented technologies by these producers would yield more than about $54 million in additional profit (not including the impact of energy savings) and $13.5 million in royalties at 25% of the added profit under the “25 Percent Rule,” or $12 million at a royalty rate of 20% of sales.
We will earn the business of as many ethanol producers as possible, and we are prepared to provide additional value-added technical support and other services but we will require a license and a running royalty of 20% of corn oil sales for all use of our technology and, if necessary, we are committed to protect our investment and our ability to receive fair compensation.
Executing a business model based on royalties requires us to invest in the protection of our intellectual property rights and the prosecution of infringement. Litigation will be necessary, not to disrupt the availability of corn oil extraction technology, but rather to maximize its use by as many producers as possible on fair terms, to deter infringement, and to ensure that we receive reasonable compensation for our proprietary technologies. While we are prepared to invest aggressively in litigation and have sufficient capital commitments to do so for as long as necessary, we would rather redirect litigation expenses to additional value creation for all stakeholders by working with infringing producers to maximize their yields and minimize their costs. For example, we believe that we can increase the yield of currently unlicensed producers by an average of at least 20%, and we are prepared to do so upon execution of a license to help these producers realize additional benefit from the use of our technology.
Our key goals moving forward are simple:
1. Execute new corn oil extraction license agreements during 2010 with ethanol producers with an aggregate capacity of at least 1 billion gallons per year of ethanol;
§2. Achieve profitability by the end of this year; and,
§3. Continue the 30% debt reduction realized in 2009 by reducing debt by an additional 30% during 2010.
We are going to use our technology advantage and patent position to facilitate the widespread adoption of our extraction technologies under fair terms that allow us to satisfy our commitments to our lenders and shareholders, and we are going to stay focused on this plan until we have transitioned to consistent profitability, paid off or refinanced all of our convertible debt, built up a cash reserve, and increased shareholder value.
We are grateful for your patience and support and we look forward to our next communication.
Best Regards,
Kevin Kreisler
Chairman and Chief Executive Officer
GreenShift Corporation
Additional information regarding the “25 Percent Rule” is available online at: www.bu.edu/otd/files/2009/11/goldscheider-25-percent-rule.pdf.
About Corn Oil Extraction
GreenShift’s patented corn oil extraction technologies enable GreenShift and its licensees to “drill” into the back-end of first generation corn ethanol plants to tap into the existing reserve of inedible crude corn oil with an estimated industry-wide output of about 20 million barrels per year. This corn oil has been historically trapped in the distillers grain co-product of ethanol production (“DDGS”) and is a valuable second generation feedstock for use in the production of advanced carbon-neutral liquid fuels, such as biodiesel, biojet fuel, and renewable diesel, thereby enhancing total fuel production from corn and increasing ethanol plant profits.
GreenShift’s technical services staff are available at 888-ETHANOIL or sales@greenshift.com to respond to quotation requests and to answer any questions about GreenShift’s corn oil extraction and other technologies.
About GreenShift Corporation
GreenShift Corporation (OTC Bulletin Board: GERS) develops and commercializes clean technologies designed to address the financial and environmental needs of its clients by decreasing raw material needs, facilitating co-product reuse, and reducing the generation of wastes and emissions. At full participation by the ethanol industry, GreenShift’s commercially-available technologies can give way to disruptive gains by sustainably producing globally-meaningful quantities of new carbon-neutral liquid fuels for distribution through existing supply chains. GreenShift is focused today on supporting integration of its patented and patent-pending corn oil extraction technologies into as much of the ethanol fleet as possible. GreenShift also maintains its strong commitment to continued innovation and has many additional patents pending for its Backend Fractionation™ portfolio of strategically-compatible cleantech designed to continue driving the corn ethanol industry into increased sustainability and global competitiveness.
Additional information on GreenShift and its technologies is available online at www.greenshift.com.
Safe Harbor Statement
This press release contains statements that may constitute "forward-looking statements" within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, as amended by the Private Securities Litigation Reform Act of 1995. Those statements include statements regarding the intent, belief or current expectations of GreenShift Corporation and members of its management as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. Important factors currently known to management that could cause actual results to differ materially from those in forward-statements include fluctuation of operating results, the ability to compete successfully, and the ability to complete before-mentioned transactions. The company undertakes no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.
Source: Business Wire (January 19, 2010 - 1:55 PM EST)
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