Excellent points, Ron and Charles. Four continuations:
1) Current "tests," as Ron said, are aimed at souping up the system--more efficient, higher percentage of diesel produced, etc. Bill tells me that M&K continues to provide added value to the current model 400-600 gallon per hour processors, as well as working with GRNO engineers on designs for the 800-1000 gallon per hour processors that GRNO wants to develop.
2) Any subsidies in the tax code are always under political scrutiny and attack, and are subject to change at any time. When I evaluate the profitability of the company or of the partnership, I do not include tax subsidies, since the continued existence of these from year to year is entirely outside the company's control. I note that this may be another major reason why my earnings projections are on the conservative (low) side on this thread. Bill tells me, however, that all the substitute proposals being considered still retain some sort of subsidy, the lowest of which would provide for 5 cents per gallon of diesel produced, so it might be realistic to include that number in forward calculations, taking anything received at a higher rate as if it were a one-time bonus.
3) Zeev, the sources of earnings for this quarter are the processor sold to the partnership (as noted, the entire $1,500,000 is profit, since all costs have been expensed as R&D) plus the sale of fuel oils manufactured since start up. Any deposits on orders will of course not be income until the processor is shipped, and none will be shipped by March 31 (though manufacture of the second processor is well under way). Because of the tax loss carryforward from previous years and the benefits of tax credits (tax law changes rarely abolish benefits retroactively), GRNO is unlikely to have any tax liability this year. But I strongly recommend that calculations be made on a "fully taxed basis," just as I recommend using a base of 8 million fully diluted shares, not just the 6.2 million presently outstanding, because these adjustments will allow much more effective comparisons with future years about the earnings performance of the company as a company, without distortion from vagaries in the tax codes (also by the end of 1997, outstanding shares will be more like 7 million, primarily from exercised warrants). Benefits from tax losses and tax credits will show up in the statement of cash flows, however, which I am looking forward to with great enthusiasm (rational, I hope)--I think that by the time the 1997 annual report is out, the investment world is going to be stunned by the amount of "free cash flow" generated by this company (I'm still working on my 1998 projections, so no estimates yet--but I think you'll like the estimated market value per share of stock based on capitalizing this cash flow. I saw a report the other day that noted that the average S&P 500 company is now producing 14% free cash flow, the highest in history [this is an argument for the current market being "fairly valued," though there were objections that this cash flow represented a lack of investment and development of future earnings, since growing companies traditionally do not have positive free cash]--GRNO is going to be able to fund all its own development internally and still be way over 14% [remember all the royalties, and possibly tax credits, that will have kicked in by the time the tax loss carryforward is used up]).
4) Charles, I did not ask how long this EPA "merchant liability" for waste oil disposal has been in effect. I would guess not for very long, since the clear indication I got was that this was a new thing he had to do when he changed collectors last year. If I interpreted the legalities correctly, what he said was that, according to the EPA, somebody must retain ownership title to a toxic waste hazard until it ceases to be classified as such, and that the collector and the asphalt processor insisted on acting as "agents" for the waste oil owner (the repair shop)--ie, the oil is not sold or given away when it is collected. I can't believe that "agents," whether collectors or contractors, could entirely escape liability for gross malfeasance, misfeasance, or nonfeasance, but you can bet the "owner" is going to have a liability, too. I assume that the EPA wants to insure that there are so many "responsible parties" involved that somebody will always be around who has to pay any eventual cleanup costs--recall that federal and state governments (ie, us the taxpayers) had to pay megabillions in clean up costs from leaky tanks and contaminated soil at abandoned gas stations and waste dumps throughout the country (not even counting oil-spilling disasters).
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