---

---

 

Delaware		59-3764931
(State or other jurisdiction		(IRS Employer
of incorporation or organization)		Identification No.)
5950 Shiloh Road East, Suite N, Alpharetta, Georgia		30005
(Address of principal executive offices)		(Zip Code)
	(212) 994-5374
	(Registrant’s telephone number)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 406 of the Securities Act.		Yes		No	X
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.		Yes		No	X
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.		Yes	X	No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the prior 12 months (or for such shorter period that the registrant was required to submit and post such files).		Yes	X	No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.		Yes	X	No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [  ] Accelerated filer [  ] Non-accelerated filer [  ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).		Yes		No	X
As of June 30, 2012 (the last business day of the most recently completed second fiscal quarter) the aggregate market value of the common stock held by non-affiliates was approximately $2,541,929.
As of March 29, 2013, there were 116,755,437 ­­­­­­­­­ shares of common stock outstanding.

 

Part I		Page No
Item 1	Business	3
Item 1A	Risk Factors	14
Item 2	Description of Properties	24
Item 3	Legal Proceedings	24
Item 4	Mine Safety Disclosure	27
Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer
	Purchase of Equity Securities	27
Item 6	Selected Financial Data	28
Item 7	Management’s Discussion and Analysis	30
Item 8	Financial Statements and Supplementary Schedules	33
Item 9	Changes and Disagreements with Accountants on Accounting and Financial Disclosure	66
Item 9A	Controls and Procedures	66
Part III
Item 10	Directors, Executive Officers and Corporate Governance	67
Item 11	Executive Compensation	68
Item 12	Security Ownership of Certain Beneficial Owners, and Management and
	Related Stockholder Matters	69
Item 13	Certain Relationships and Related Transactions and Director Independence	70
Item 14	Principal Accountant Fees and Services	72
Part IV
Item 15	Exhibits and Financial Statement Schedules	73
	Signatures	75

 

CARB	refers to the Air Resources Board of the California Environmental Protection Agency;
USEPA	refers to the U.S. Environmental Protection Agency;
EIA	refers to the U.S. Energy Information Association;
NBB	refers to the National Biodiesel Board;
RFA	refers to the Renewable Fuels Association;
RFS or RFS2	refers to the Renewable Fuel Standard published by the EPA
TJPC	refers to The Jacobsen Publishing Company;
TNS	refers to the Trade News Service;
USDA	refers to the U.S. Department of Agriculture;
SEC	refers to the U.S. Securities and Exchange Commission;
MMGY	refers to million gallons per year;
BGY	refers to billion gallons per year;
Btu	refers to British thermal units;
MMBtu	refers to million British thermal units; and,
gCO2	refers to grams of carbon dioxide.

This document includes data and forecasts that the Company has prepared based, in part, upon information obtained from industry publications. Third-party industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but do not guarantee the accuracy and completeness of such information. In particular, we have based much of our discussion of the biodiesel and ethanol industries, including government regulation relevant to the industry, on information published by the NBB, the national trade association for the U.S. biodiesel industry, and the RFA, the national trade association for the U.S. corn ethanol industry. Each is a trade organization for their respective industry and they may present information in a manner that is more favorable than would be presented by an independent source. We have also used data and other information in this document that was published by the TNS, TJPC, the EIA, the USEPA, the USDA, and CARB. Forecasts in particular are subject to a high risk of inaccuracy, especially forecasts projected over long periods of time.

-	the volatility and uncertainty of commodity prices;
-	operational disruptions at ethanol production facilities;
-	the costs and business risks associated with developing new technologies;
-	our ability to develop and commercialize our technologies;
-	the impact of new, emerging and competing technologies on our business;
-	the possibility of one or more of the markets in which we compete being impacted by political, legal and regulatory changes or other external factors over which they have no control;
-	the effects of mergers and consolidations in the biofuels industry and unexpected announcements or developments from others in the renewable fuels industry;
-	our reliance on key management personnel;
-	changes in or elimination of governmental laws, tariffs, trade or other controls or enforcement practices;
-	limitations and restrictions contained in the instruments and agreements governing our indebtedness;
-	our ability to raise additional capital and secure additional financing;
-	our ability to implement additional financial and management controls, reporting systems and procedures and comply with Section 404 of the Sarbanes-Oxley Act, as amended; and
-	other risks referenced from time to time in our filings with the SEC and those factors listed in this Annual Report on Form 10-K for the year ended December 31, 2012 under Item 1A, Risk Factors.

ITEM 1

BUSINESS

We also maintain our strong commitment to continued innovation and have many additional patents pending for our portfolio of strategically-compatible cleantech designed to leverage our extraction platform and further strengthen the significant competitive advantages that our technologies provide to licensed ethanol producers.

Environmental Benefits	Ethanol, as an oxygenate, reduces tailpipe emissions when added to gasoline. The additional oxygen in the ethanol results in a more complete combustion of the fuel in the engine cylinder, resulting in reduced carbon monoxide and nitrogen oxide emissions. Prior federal programs that mandated the use of oxygenated gasoline in areas with high levels of air pollution spurred widespread use of ethanol in the United States. The federal Clean Air Act requires the use of oxygenated gasoline during winter months in areas with unhealthy levels of carbon monoxide.
Blending Benefits	Ethanol has an octane rating of 113, and is added to gasoline to raise the octane level of gasoline. Unblended gasoline typically has a base octane level of approximately 84. Typical gasoline and ethanol blends have octane ratings ranging from 87 to 93. Higher octane gasoline has the benefit of reducing engine knocking. Gasoline with higher octane typically has been sold at a higher price per gallon than lower octane gasoline. Ethanol is also a strategically valuable fuel stock extender given energy independence concerns. Use of ethanol in the U.S. gasoline supply has grown from 1.3% in 2000 to about 10% in 2012 according to the EIA. In 2011 alone, ethanol replaced the need for approximately 297 million barrels of crude oil in the U.S. In March 2009, an ethanol industry trade association and 54 ethanol producers requested that the EPA approve the use of up to 15% ethanol blended with gasoline (E15). The EPA recently approved the use of E15 for passenger vehicles manufactured after 2001, paving the way for more than 60% of the 129 million domestic passenger vehicles in service to run on E15. We believe that ethanol blended in the U.S. gasoline supply is an important first step towards the long-term introduction of renewable fuels into the transportation sector.
Use Mandates	In addition to the blender’s credit, the growth in ethanol usage has also been supported by legislative requirements dictating the use of renewable fuels, including ethanol. The Energy Independence and Security Act of 2007, confirmed by the EPA regulations on the Renewable Fuel Standard, or RFS2, issued on February 3, 2010 mandated a minimum usage of corn-derived renewable fuels of 12.6 billion gallons in 2011 and 13.2 billion gallons in 2012. The upper mandate for corn-based ethanol is 15.0 billion gallons by 2015.

 

 

 

 

 

 

 

 

 

 

 

The net reduction in total energy consumed by ethanol producers results in reduced greenhouse gas emissions and a corresponding carbon intensity credit of 1.616 gCO2 per MJ of ethanol produced, or about 130 gCO2 per gallon of ethanol produced. At 6.5 gallons of corn oil recovered for each 100 gallons of ethanol, this credit is equivalent to 15.9 gCO2 per MJ of corn oil produced (after taking into account the difference in energy between corn oil and ethanol), or about 2,010 gCO2 per gallon of corn oil produced. These rates correspond to about 12.2 million metric tons of carbon emissions that could have been avoided between 1982 and 2012 had our corn oil extraction technologies been used by all dry mill ethanol producers during that time. These rates also translate to about 1.55 million metric tons of carbon that can be avoided annually at the current ethanol output of the industry, and about 1.76 million metric tons at the 15 billion gallon production level mandated by 2015. A single 100 million gallon per year ethanol plant could reduce its carbon footprint by about 13,000 metric tons per year by using our extraction technologies. These savings correspond further to carbon offset credits that can range in value from $1.00 to $9.00 per metric ton.

 

 

 

 

Full Utilization (1.33 lbs/bushel)	Per Gallon of Ethanol Produced	Single  110MMGY Ethanol Plant	Industry-Wide
			Current	2011	2005 – 2010	1982 – 2004
Corn oil (MMGY)	0.065 gallons	7.09	772	809	2,835	1,659
Reduction in energy (MMBtu)	3,070 Btu	276,300	36,747,900	38,538,324	134,983,602	78,977,592
Reduction in carbon (metric tons)	130 gCO2	13,000	1,556,100	1,631,916	5,715,918	3,344,328
Value of corn oil (millions)	$0.26	$25.54	$2,262	$2,776	$5,072	$1,530
Value of energy savings (millions)	$0.01	$1.15	$104	$155	$747	$234

 

“Extraction of oil from the thin stillage or distillers’ grains with solubles (DGS) streams is a proven technology that can be retrofitted into existing plants relatively cheaply…approximately 70 percent of projected total ethanol production will implement some type of corn oil extraction system by 2022, generating approximately 680 million gallons per year of corn oil biofuel feedstock.”

These technologies are intended to address the following key goals for ethanol producers: increase co-product value; decrease energy consumption and lifecycle carbon emissions; reduce commodity and financial risk; diversify the feedstock mix accepted and refined into biofuel; and, standardize corn-friendly cellulosic technology by building on the existing corn ethanol complex. Our Backend Fractionation™ portfolio includes the following technologies, among others:

Technology	Function	Status
Method I Corn Oil Extraction	Extraction of corn oil from distillers grain – thin stillage	Commercially Available
Method II Corn Oil Extraction	Extraction of corn oil from distillers grain – whole stillage	Commercially Available
Integral Refining	Integrated refining upgrade for corn oil extraction systems	Commercially Available
Distillers Dried Solubles	Refines defatted syrup into new high value co-product	Commercially Available
Protein Recovery	Fractionates DDG into high and low protein products	Commercially Available
Cellulosic Oil™	Oleaginous microbes convert biomass into lipids and protein	Bench Stage
Energy & Water Recovery	Energy recovery and water removal during evaporation	Bench Stage

 

ITEM 1A

RISK FACTORS

 

 

 

 

 

-	requiring the dedication of a substantial portion of cash flow from operations to make payments on debt, thereby reducing the availability of cash flow for working capital, capital expenditures and other general business activities;
-	requiring a substantial portion of our corporate cash reserves to be held as a reserve for debt service, limiting our ability to invest in new growth opportunities;
-	limiting the ability to obtain additional financing in the future for working capital, capital expenditures, acquisitions and general corporate and other activities;
-	limiting the flexibility in planning for, or reacting to, changes in the business and industry in which we operate;
-	increasing our vulnerability to both general and industry-specific adverse economic conditions;
-	being at a competitive disadvantage against less leveraged competitors;
-	being vulnerable to increases in prevailing interest rates;
-	subjecting all or substantially all of our assets to liens, which means that there may be no assets left for shareholders in the event of a liquidation; and
-	limiting our ability to make business and operational decisions regarding our business and subsidiaries, including, among other things, limiting our ability to pay dividends to our respective shareholders, make capital improvements, sell or purchase assets or engage in transactions deemed appropriate and in our best interest.

Our success will depend on our ability to obtain and/or maintain and enforce patent and other intellectual property protection for our technologies. We have obtained or developed rights to patents and patent applications in the United States and internationally, and may, in the future, seek rights from third parties to other patent applications or patented technology. There can be no assurance, however, that patents will issue from the patent applications filed or to be filed or that the scope of any claims granted in any patent will provide us with proprietary protection. If the scope of the claim granted in a patent is not sufficient to afford us with protection against competitors with similar technology, our investment in the patented technology may provide us limited or no competitive advantage.

 

 

ITEM 2

DESCRIPTION OF PROPERTIES

ITEM 3

LEGAL PROCEEDINGS

 

 

 

 

 

 

ITEM 4

MINE SAFETY DISCLOSURE

 

ITEM 5

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

Period	High	Low
2011 First Quarter	0.30	0.20
2011 Second Quarter	0.20	0.20
2011 Third Quarter	0.10	0.10
2011 Fourth Quarter	0.10	0.06
2012 First Quarter	0.14	0.10
2012 Second Quarter	0.02	0.02
2012 Third Quarter	0.06	0.03
2012 Fourth Quarter	0.034	0.026
Title of Class	Approximate Number of Holders of Record as of March 30, 2013
Common Stock, $0.0001 par		930

ITEM 6

SELECTED FINANCIAL DATA

ITEM 7

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATION

 

 

 

 

 

ITEM 8

FINANCIAL STATEMENTS AND SUPPLEMENTARY SCHEDULES

	Page No
FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm	34
Consolidated Balance Sheets	35
Consolidated Statements of Operations	36
Consolidated Statements of Stockholders’ Equity	37
Consolidated Statements of Cash Flows	39
Notes to Consolidated Financial Statements	40

 

 

		12/31/2012				12/31/2011
ASSETS
Current Assets:
Cash	$	2,030,577			$	1,364,994
Accounts receivable, net of doubtful accounts		999,144				1,956,377
Inventories, net		1,837,646				1,153,357
Costs in excess of billings		844,939				--
Prepaid expenses and other assets		106,380				41,418
Total current assets		5,818,686				4,516,146
Other Assets:
Intangible assets, net		27,584				127,215
Minority investments		2,501,324				2,501,324
Deposits		70,634				51,910
Total other assets		2,599,542				2,680,449
TOTAL ASSETS		8,418,228				7,196,595
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current Liabilities:
Accounts payable		3,933,394				3,697,216
Accrued expenses		3,729,890				2,602,476
Accrued expenses – deferred employee compensation		518,742				1,333,380
Accrued interest		4,401,372				3,925,884
Accrued interest – related party		34,774				69,909
Deferred revenue		113,750				1,197,404
Current portion of long term debt		1,367,045				1,806,316
Current portion of convertible debentures, net		28,613,818				30,330,995
Convertible debentures – related party		3,647,281				--
Current liability for conversion feature		--				11,111
Amounts due to minority shareholders		545,842				750,472
Liabilities of discontinued operations, current		--				137,000
Total current liabilities		46,905,908				45,862,163
Long term Liabilities:
Liability for preferred stock – related party		807,107				944,471
Convertible debentures		192,500				--
Convertible debentures – related party		--				4,531,000
Total long term liabilities		999,607				5,475,471
Total Liabilities		47,905,515				51,337,634
Commitments and Contingencies
Stockholders’ Equity (Deficit):
Convertible preferred stock, $0.001 par value, 5,000,000 shares authorized:
Series B: 2,480,544 and 2,480,544 shares issued and outstanding, respectively		2,481				2,481
Series D: 862,262 and 862,262 shares issued and outstanding, respectively		862				862
Common stock: $0.0001 par value, 20,000,000,000 authorized 63,966,016 and
18,098,873 shares issued and outstanding, respectively		6,397				1,809
Additional paid in capital		119,206,897				117,027,377
Accumulated deficit		(158,703,924	)			(161,173,568	)
Total stockholders’ equity (deficit)		(39,487,287	)			(44,141,039	)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	8,418,228			$	7,196,595

 

The notes to the Consolidated Financial Statements are an integral part of these statements.

		Year Ended
		12/31/2012				12/31/2011 (Restated)
Revenue		$	14,512,538			$	15,057,409
Performance bonuses			--				4,986,568
Total revenue			14,512,538				20,043,977
Cost of goods sold			5,680,052				8,797,145
Loss on inventory valuation			319,900				121,815
Gross profit			8,512,586				11,125,017
Operating expenses:
Sales, general and administrative expenses			6,212,473				5,126,524
Research and development			488,384				--
Bad debt expense (recovery)			(759,950	)			1,033,071
Total operating expenses			5,940,907				6,159,595
Income from operations			2,571,679				4,965,422
Other Income (Expense):
Gain on extinguishment of debt			3,778,971				8,108,132
Loss on sale of asset			--				(222,199	)
Liquidated damages			(1,295,302	)			(850,000	)
Other expense			(304,712	)			(1,296,795	)
Amortization of debt discount & deferred financing			(374,953	)			(25,000	)
Miscellaneous income			46,693				472,697
Change in conversion liabilities			(76,647	)			140,092
Change in conversion liabilities- affiliate			137,365				37,580
Interest expense - affiliate			(251,086	)			(832,625	)
Interest expense			(1,828,569	)			(2,768,839	)
Total other income (expense), net			(168,240	)			2,763,043
Income before provision for income taxes			2,403,439				7,728,465
(Provision for)/benefit from income taxes			(70,795	)			--
Income from continuing operations			2,332,644				7,728,465
Discontinued Operations:
Income from discontinued operations			137,000				171,633
Total income from discontinued operations			137,000				171,633
Net income		$	2,469,644			$	7,900,098
Weighted average common shares outstanding, basic			36,262,700				15,205,062
Weighted average common shares outstanding, diluted			3,707,432,266				1,502,132,224
Earnings (Loss) per Share - Basic:
Income (loss) from continuing operations		$	0.07			$	0.51
Income (loss) from discontinued operations			0.00				0.01
Net income (loss) per share – basic		$	0.07			$	0.52
Earnings (Loss) per Share - Diluted:
Income (loss) from continuing operations		$	0.00			$	0.01
Income (loss) from discontinued operations			0.00				0.00
Net income (loss) per share – diluted		$	0.00			$	0.01

 

		Series B Preferred								Series D Preferred								Series E Preferred
		Shares				Amount				Shares				Amount				Shares				Amount
Balance at December 31, 2010			2,480,544			$	2,481				791,034			$	791				--				--
Conversion of Series D preferred stock to common			--				--				(346	)			--				--				--
Cancellation of  Series D preferred stock			--				--				71,574				71				--				--
Stock issued upon conversion of debentures			--				--				--				--				--				--
Stock issued for services			--				--				--				--				--				--
Conversion of obligation to minority shareholders			--				--				--				--				--				--
Change in conversion liabilities due to conversion of debt			--				--				--				--				--				--
Forgiveness of affiliate debt			--				--				--				--				--				--
Net income (loss)			--				--				--				--				--				--
Balance at December 31, 2011			2,480,544			$	2,481				862,262			$	862				--				--
Stock issued upon conversion of debentures			--				--				--				--				--				--
Change in conversion liabilities due to conversion of debt			--				--				--				--				--				--
Forgiveness of affiliate debt			--				--				--				--				--				--
Net income (loss)			--				--				--				--				--				--
Balance at December 31, 2012			2,480,544			$	2,481				862,262			$	862				--				--

 

The notes to the Consolidated Financial Statements are an integral part of these statements.

		Common Stock								Additional Paid				Accumulated
		Shares				Amount				in Capital				Deficit				Total Equity
Balance at December 31, 2010			13,980,671			$	1,398			$	113,922,916			$	(169,073,666	)		$	(55,146,078	)
Conversion of Series D preferred stock to common			848,765				85				(85	)			--				--
Cancellation of  Series D preferred stock			(9,000,000	)			(900	)			1,063,137				--				1,062,308
Stock issued upon conversion of debentures			10,985,010				1,098				1,146,604				--				1,147,702
Stock issued for services			839,427				84				92,253				--				92,337
Conversion of obligation to minority shareholders			445,000				45				44,456				--				44,501
Change in conversion liabilities due to conversion of debt			--				--				525,470				--				525,470
Forgiveness of affiliate debt			--				--				229,625				--				229,625
Net income (loss)			--				--				--				7,900,098				7,900,098
Balance at December 31, 2011			18,098,873			$	1,809			$	117,027,377			$	(161,173,568	)		$	(44,141,039	)
Stock issued upon conversion of debentures			45,867,143				4,588				1,276,868				--				1,281,456
Change in conversion liabilities due to conversion of debt			--				--				78,041				--				78,041
Forgiveness of affiliate debt			--				--				824,611				--				824,611
Net income (loss)			--				--				--				2,469,644				2,469,644
Balance at December 31, 2012			63,966,016			$	6,397			$	119,206,897			$	(158,703,924	)		$	(39,487,287	)

 

The notes to the Consolidated Financial Statements are an integral part of these statements.

		Year Ended
		12/31/2012				12/31/2011
CASH FLOW FROM OPERATING ACTIVITIES
Net income	$	2,469,644				7,900,098
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		--				115,311
Amortization of intangibles		99,631				24,630
Amortization of debt discount and deferred financing costs		374,953				25,000
Non-cash payment of performance bonus applied to convertible debentures		--				(4,986,568	)
Non-cash expense associated with convertible debentures		--				1,167,046
Gain on extinguishment of debt		(3,778,971	)			(8,108,132	)
Loss on sale of assets		--				222,199
Change in net assets of disposal group		(137,000	)			7,500
Change in conversion liabilities		(60,718	)			(177,672	)
Bad debt recoveries		(759,950	)			--
Liquidated damages		1,295,302				--
Interest accretion on notes receivable		--				(53,852	)
Expenses incurred by issuance of debentures		--				236,024
Bad debt expense		--				1,007,015
Change in inventory valuation		319,900				121,815
Settlement of contingency		192,500				--
Changes in operating assets and liabilities:
Accounts receivable		1,751,434				(2,768,821	)
Prepaid expenses		(49,962	)			82,905
Deposits		(18,723	)			(4,340	)
Inventory		(1,004,189	)
Deferred financing costs		(374,953	)			--
Costs in excess of earnings		(844,939	)			439,248
Deferred revenue		(1,083,654	)			897,007
Accrued interest		1,817,368				2675,321
Accrued interest – related party		244,862				687,155
Minority interest		--				(44,697	)
Accounts payable and accrued expenses		1,857,168				1,845,612
Net cash provided by operating activities		2,309,703				1,309,804
CASH FLOW FROM INVESTING ACTIVITIES
Proceeds from sale of inventory components		--				643
Proceeds from sale of property, plant and equipment		--				2,500,000
Additional to and acquisition of property, plant and equipment		--				(13,739	)
Loans to related party		--				(13,019	)
Net cash provided investing activities		--				2,473,885
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of notes payable – related party		--				(89,435	)
Proceeds from convertible debentures – related party		--				80,229
Repayments on convertible debentures		(1,150,000	)			(2,000,000	)
Repayment of convertible debentures – related party		(494,120	)			(427,909	)
Net cash used in financing activities		(1,644,120	)			(2,437,115	)
Net increase in cash		665,583				1,346,574
Cash at beginning of period		1,364,994				18,420
Cash at end of period	$	2,030,577			$	1,364,994