UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                            -------------------------

                                   FORM 10-QSB
                            -------------------------


                   QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                   FOR THE FISCAL QUARTER ENDED JUNE 30, 2005

                          COMMISSION FILE NO.: 0-28887



                             GREENSHIFT CORPORATION
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


Delaware                                                             22-3328734
--------------------------------------------------------------------------------
(State of other jurisdiction of                                   (IRS Employer
incorporation or organization                                Identification No.)


111 Howard Boulevard, Suite 108, Mt. Arlington New Jersey                 07856
--------------------------------------------------------------------------------
(Address of principal executive offices)                             (Zip Code)


                                 (973) 398-8183
--------------------------------------------------------------------------------
               (Registrant's telephone number including area code)


                             GreenWorks Corporation
--------------------------------------------------------------------------------
                   (Former Name, if Changed Since Last Report)



Check mark  whether  the issuer (1) filed all  reports  required  to be filed by
Section 13 or 15(d) of the  Securities  Exchange  Act of 1934 during the past 12
months (or for such shorter  period that the registrant as required to file such
reports),  and (2) has been subject to such filing  requirements for the past 90
days. Yes X No __.



The  number  of  outstanding  shares of  common  stock as of June 30,  2005 was:
75,267,506.

Transitional Small Business Disclosure Format:  Yes       No  X .
                                                ---      ---






<PAGE>



                         QUARTERLY REPORT ON FORM 10QSB
                   FOR THE FISCAL QUARTER ENDED JUNE 30, 2005

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>

                                                                                                           Page No
Part I    Financial Information
<S>       <C>                                                                                                <C>
Item 1.   Financial Statements ...............................................................................3

          After Filing Election to be Regulated as an Investment Company
          Consolidated Balance Sheet as of June 30, 2005 (Unaudited) .........................................4
          Consolidated Statement of Operations (Unaudited) - Three Months Ended June 30, 2005 ................5
          Consolidated Statement of Changes in Net Assets (Unaudited) - Three Months Ended June 30, 2005 .... 6
          Consolidated Statement of Cash Flows (Unaudited) - For the Three Months Ended June 30, 2005 ....... 7
          Consolidated Statement of Investments (Unaudited) - For the Three Months Ended June 30, 2005 ...... 8

          Prior to Filing Election to be Regulated as an Investment Company
          Consolidated Balance Sheet as of March 31, 2005 (Unaudited) ........................................9
          Consolidated Statement of Operations (Unaudited) - Three Months Ended March 31, 2005 ..............10
          Consolidated Statement of Cash Flows (Unaudited) -  For the Three Months Ended March 31, 2005 .....11

          Notes to Unaudited Consolidated Financial Statements ..............................................12
Item 2.   Management's Discussion and Analysis or Plan of Operation .........................................29
Item 3.   Controls and Procedures ...........................................................................44

Part II   Other Information
Item 1.   Legal Proceedings .................................................................................45
Item 2.   Changes in Securities and Small Business Issuer Purchases of Equity Securities ....................45
Item 3.   Defaults Upon Senior Securities ...................................................................45
Item 4.   Submission of Matters to a Vote of Security Holders ...............................................45
Item 5.   Other Information .................................................................................45
Item 6.   Exhibits and Reports on Form 8K ...................................................................45

Signatures                                                                                                   46
</TABLE>







<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)








<PAGE>


     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                 CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 2005
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                           6/30/05
                                                                       (unaudited)
                                                                      ------------
ASSETS
Portfolio at value:
<S>                                                                    <C>
   Companies more than 25% owned (cost: $7,420,904) ................   $ 7,715,542
   Companies 5% to 25% owned (cost: $1,197,437) ....................     1,305,931
   Companies less than 5% owned (cost: $48,000) ....................       192,250
                                                                       -----------

     Total portfolio at value (cost: $8,666,341) ...................     9,213,723

Notes receivable ...................................................        20,700
Accrued interest, dividends and fees receivable ....................       350,000
Other assets .......................................................         3,181
Deferred financing fees ............................................        58,334
Cash and cash equivalents ..........................................        31,146
                                                                       -----------

       Total assets ................................................   $ 9,677,084
                                                                       ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
   Notes payable and debentures (maturing within one year: $944,702)   $ 3,582,425
   Revolving line of credit ........................................          --
   Investment payable ..............................................     1,097,437
   Accounts payable and other liabilities ..........................       423,188
                                                                       -----------

     Total liabilities .............................................     5,103,050

Shareholders' equity:
   Series B preferred stock, $0.001 par value:
     1,000,000 shares authorized and outstanding ...................         1,000
   Common stock, $0.001 par value, 100,000,000 authorized;
     75,267,506 shares issued and outstanding ......................        75,267
   Additional paid in capital ......................................     4,812,633
   Net unrealized appreciation (depreciation) on portfolio .........       105,382
   Undistributed (distributions in excess of) earnings .............       180,696
   Cumulative effect of conversion to BDC ..........................       717,000
   Retained deficit from operations prior to conversion to BDC .....    (1,317,944)
                                                                       -----------

           Total shareholders' equity ..............................     4,574,034

       Total liabilities and stockholders' equity ..................   $ 9,677,084
                                                                       ===========

       Net asset value per common share ............................   $      0.21
                                                                       ===========

            The notes to the consolidated financial statements are an
                       integral part of these statements.
</TABLE>


<PAGE>

     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF OPERATIONS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2005
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                         For The Three Months
                                                           Ended June 30, 2005
                                                         ---------------------

Interest and related portfolio income:

   Interest and dividends:
<S>                                                        <C>
     Companies more than 25% owned .....................   $       --
     Companies 5% to 25% owned .........................           --
     Companies less than 5% owned ......................           --
                                                           ------------

       Total interest and dividends ....................           --

   Fees and other income:
     Companies more than 25% owned .....................        200,000
     Companies 5% to 25% owned .........................           --
     Companies less than 5% owned ......................        150,000
                                                           ------------

       Total fees and other income .....................        350,000

         Total interest and related portfolio income ...        350,000
                                                           ============

Operating Expenses:

   Interest ............................................         48,763
   Employee ............................................           --
   Administrative ......................................        120,541
                                                           ------------

     Total expenses ....................................        169,304
                                                           ------------

Net investment income before income taxes ..............        180,696
Income tax expense (benefit) ...........................           --

   Net investment income ...............................   $    180,696
                                                           ============

Net realized and unrealized gains (losses):

   Net unrealized gains (losses):
     Companies more than 25% owned .....................   $   (147,362)
     Companies 5% to 25% owned .........................        108,494
     Companies less than 5% owned ......................        144,250
                                                           ------------
       Total net unrealized gains (losses) .............        105,382

   Net change in unrealized appreciation or depreciation        105,382
                                                           ------------

   Cumulative effect of conversion to BDC ..............        717,000

         Total net gains (losses) ......................   $    822,382
                                                           ============
   Net increase in net assets resulting from operations    $  1,003,078
                                                           ============

   Basic and diluted earnings per common share
     before cumulative effect of conversion to BDC .....   $      0.013

   Cumulative effective of conversion to
     BDC per common share ..............................   $      0.033
                                                           ------------
   Basic and diluted earnings per common share .........   $      0.046
                                                           ============
   Weighted average common shares outstanding ..........     21,823,453


            The notes to the consolidated financial statements are an
                       integral part of these statements.

</TABLE>


<PAGE>


     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2005
                                   (UNAUDITED)
<TABLE>
<CAPTION>

                                                                       For The Three Months
                                                                        Ended June 30, 2005
                                                                        -------------------
Operations:

<S>                                                                         <C>
   Net investment income ................................................   $    180,696
   Net realized gains ...................................................           --
   Net change in unrealized appreciation or depreciation ................        105,382
   Cumulative effect of conversion to BDC ...............................        717,000
                                                                            ------------

     Net increase in net assets resulting from operations ...............      1,003,078

Shareholder distributions:

   Common stock dividends ...............................................           --
   Preferred stock dividends ............................................           --
                                                                            ------------

     Net decrease in net assets resulting from shareholder distributions            --

Capital share transactions:

   Issuance of common stock for portfolio investments ...................      3,471,500
   Issuance of preferred stock for portfolio investments ................          1,000
   Issuance of common stock upon conversion of debt repayments ..........        600,500
   Other ................................................................           --
                                                                            ------------

     Net increase in net assets resulting from capital share transactions      4,073,000

     Total increase (decrease) in net assets ............................      5,076,078

Net assets at beginning of period .......................................   $   (502,044)

Net assets at end of period .............................................   $  4,574,034

Net asset value per common share ........................................   $       0.21

Common shares outstanding at end of period ..............................     75,267,506


            The notes to the consolidated financial statements are an
                       integral part of these statements.

</TABLE>




<PAGE>


     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2005
                                   (UNAUDITED)
<TABLE>
<CAPTION>
                                                                    For The Three Months
                                                                     Ended June 30, 2005
                                                                    --------------------

Cash flows from operating activities:

<S>                                                                    <C>
   Net increase in net assets resulting from operations: ...........   $ 1,003,078
   Adjustments:
     Portfolio investments .........................................      (174,761)
     Principal collections related to investment repayments or sales          --
     Change in accrued or reinvested interest and dividends ........          --
     Amortization of discounts and fees ............................          --
     Changes in accrued interest, dividends and fees receivable ....      (350,000)
     Changes in accrued liabilities ................................       121,671
     Depreciation and amortization .................................         6,250
     Change in deferred financing fee ..............................       (34,022)
     Realized gains from receipt of notes and other securities as
       consideration from sale of investments, net of collections ..          --
     Realized (gains) losses .......................................          --
     Net change in unrealized (appreciation) or depreciation .......      (105,382)
     Cumulative effect of conversion to BDC ........................      (717,000)
                                                                       -----------

       Net cash provided by (used in) operating activities .........      (250,166)

Cash flows from financing activities:

   Sale of common stock ............................................       100,000
   Sale of common stock upon the exercise of stock options .........          --
   (Issuance of) repayments on notes receivable ....................       (20,700)
   Borrowings under notes payable and debentures ...................       322,312
   (Repayments) on notes payable and debentures ....................      (120,300)
   Net borrowings under (repayments on) revolving line of credit ...          --
   Other financing activities ......................................          --
   Common stock dividends and distributions paid ...................          --
                                                                       -----------

       Net cash provided by (used in) financing activities .........       281,312

Net increase (decrease) in cash and cash equivalents ...............        31,146

Cash and cash equivalents at beginning of period ...................          --
                                                                       -----------

Cash and cash equivalents at end of period .........................   $    31,146
                                                                       ===========

Supplemental schedule of non-cash financing activities:

   Issuance of common stock upon  investment in portfolio company ..   $ 3,471,500
   Issuance of preferred stock upon  investment in portfolio company         1,000
   Issuance of debentures in return for equity in portfolio company        400,000
   Issuance of common stock upon conversion of debentures ..........       597,500


            The notes to the consolidated financial statements are an
                       integral part of these statements.
</TABLE>



<PAGE>


     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                      CONSOLIDATED STATEMENT OF INVESTMENTS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2005
                                   (UNAUDITED)
<TABLE>
<CAPTION>

Portfolio Company                                  Investment                            June 30, 2005 (unaudited)
(Nature of Business)                                                               -----------------------------------------
                                                                                       Principal          Cost         Value
----------------------------------------------------------------------------------------------------------------------------
<S>                                     <C>                                         <C>            <C>           <C>
Veridium Corporation  (1) (2)           Common Stock (8,335,944 shares)             $         --   $  1,014,914  $   757,713
Paterson, New Jersey                    Series A Preferred Stock (627,122 shares)             --         85,792       64,050
(Environmental Services)                Series B Preferred Stock (966,968 shares)             --      2,329,231    1,738,954
----------------------------------------------------------------------------------------------------------------------------
                                        Series C Preferred Stock (750,000 shares)             --      1,500,000    1,119,869
                                        Warrants (562,500 preferred shares)                   --            --           --

INSEQ Corporation (1) (3)               Common Stock (2,587,513,297 shares)                   --      1,588,967    2,027,956
Mount Arlington, New Jersey             Series C Preferred Stock (400,000 shares)(4)      400,000       400,000      400,000
(Secondary Commodities)
----------------------------------------------------------------------------------------------------------------------------

GreenWorks Corporation  (5)             Common Stock (1,500,000 shares)                       --        500,000    1,605,000
Mount Arlington, New Jersey
(Engineering Services)
----------------------------------------------------------------------------------------------------------------------------

GreenShift Industrial Design (6)        Common Stock (1,000,000 shares)                       --          1,000        1,000
New York, New York
(Technology Design & Marketing)
----------------------------------------------------------------------------------------------------------------------------

Coriolis Energy Corporation (6)         Common Stock (1,000,000 shares)                       --          1,000        1,000
New York, New York
(Green Energy Research)
----------------------------------------------------------------------------------------------------------------------------

TDS (Telemedicine), Inc. (1) (7)        Common Stock (3,000,000 shares)                       --         48,000      192,500
Corpus Christi, Texas
(Real Estate and Infrastructure)
----------------------------------------------------------------------------------------------------------------------------

Ethanol Oil Recovery Systems, L.L.C(8)  Membership Units (15,893 units)                       --      1,197,437    1,305,931
Clayton, Georgia
(BioDiesel Fuel Production)
----------------------------------------------------------------------------------------------------------------------------
<FN>
(1)  Denotes public company.

(2)  The value reported here is based on an independent  third party  assessment
     of Veridium's current  enterprise value.  Certain of the Company's holdings
     in Veridium are  dilution  protected  at 25% of the fully  diluted  capital
     stock of Veridium until  December 31, 2006,  and include  holdings that are
     price-protected in the aggregate amount of $2.5 million. On a fully diluted
     basis,  Veridium's  market  capitalization  as of June 30,  2005,  was $9.4
     million.

(3)  The value reported here is based on an independent  third party  assessment
     of INSEQ's current enterprise value. The Company's common stock holdings in
     INSEQ are dilution  protected  until  December 31, 2006 at 70% of the fully
     diluted capital stock of INSEQ.

(4)  The Company's INSEQ Series C Preferred Stock has face value of $400,000,  a
     fixed conversion price of $0.01 and a 5% coupon,  with payments  commencing
     March 31, 2006.  The Company's  policy is to value such  instruments at the
     value of coupon  payments  due  within  one year once such  payment  become
     payable.

(5)  The value reported here is based on an independent  third party  assessment
     of GreenWorks' current enterprise value.

(6)  GreenShift  Industrial Design  Corporation and Coriolis Energy  Corporation
     are all  pre-revenue  wholly-owned  subsidiaries  of the  Company and their
     value is deemed to be equal to the Company's cost as of June 30, 2005.

(7)  The Company's  holdings in TDS are shown here at cost.  The Company is also
     due to  receive  additional  shares  of  common  stock  from  TDS  that are
     price-protected at $150,000.

(8)  The value reported here is based on an independent  third party  assessment
     of Ethanol Oil Recovery's current enterprise value.
</FN>
</TABLE>

<PAGE>


     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEET
                        AS OF MARCH 31, 2005 (UNAUDITED)
         PRIOR TO FILING ELECTION TO BE REGULATED AS INVESTMENT COMPANY
<TABLE>
<CAPTION>
                                                                       3/31/05
                                                                     (unaudited)
                                                                     -----------
ASSETS:
Current assets:
<S>                                                                 <C>
   Cash .........................................................   $      --
   Accounts receivable, net .....................................       434,103
   Unbilled revenues ............................................       243,501
    Costs and earnings in excess of billings
     on uncompleted projects ....................................        72,026
    Deferred financing fees .....................................       108,333
    Prepaid expenses and other current assets ...................       141,717
    Assets to be disposed of ....................................       205,289
                                                                    -----------
       Total current assets .....................................     1,204,969

    Property and equipment, net .................................       133,327

Other Assets:
   Security and other deposits ..................................        26,911
    Costs and earnings in excess of billings
     on uncompleted projects ....................................       239,675
   Deferred financing costs, net ................................       171,528
   Property held for sale .......................................        59,298
                                                                    -----------
       Total other assets .......................................       497,412
                                                                    -----------

TOTAL ASSETS ....................................................   $ 1,835,708
                                                                    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
            Accounts payable ....................................       841,832
            Accrued salary costs ................................        54,743
            Accrued other .......................................       774,275
            Payroll taxes payable ...............................       258,638
            Billings in excess of costs and earnings
            on uncompleted projects .............................        26,493
            Line of credit ......................................     1,196,972
   Notes payable to non-affiliated parties ......................        57,262
   Installment loans payable ....................................        63,571
            Capital lease obligations ...........................        13,038
            Deferred revenues ...................................       115,525
            Liabilities to be disposed of .......................       483,893
                                                                    -----------
       Total current liabilities ................................     3,886,242

Accrued employee benefits .......................................        47,838
Accrued other ...................................................        30,592
Billings in excess of costs and earnings
   on uncompleted projects ......................................        39,739
Convertible debenture ...........................................       500,000
Notes payable - deferred financing ..............................       250,000
Notes payable to non-affiliated parties .........................       214,494
Installment loans payable, net of current maturities ............         2,910
Capital lease obligations, net of current maturities ............        11,000
Deferred revenues ...............................................       489,788
                                                                    -----------
       Total liabilities: .......................................     5,472,603

Stockholders' equity:
   Common stock $ 0.001 par value, authorized 100,000,000 shares;
     8,615,275 shares issued and outstanding ....................         8,615
   Additional paid-in capital ...................................     3,256,986
   Accumulated deficit ..........................................    (6,902,496)
                                                                    -----------
       Total stockholders' equity (impairment) ..................    (3,636,895)
                                                                    -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................   $ 1,835,708
                                                                    ===========

            The notes to the Consolidated Financial Statements are an
                       integral part of these statements.
</TABLE>

<PAGE>

     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              FOR THE THREE MONTHS ENDED MARCH 31, 2005 (UNAUDITED)
         PRIOR TO FILING ELECTION TO BE REGULATED AS INVESTMENT COMPANY

<TABLE>
<CAPTION>
                                                                        3/31/05        3/31/04
                                                                     --------------------------
<S>                                                                  <C>            <C>
Revenues .........................................................   $   920,385    $   821,161
Cost of revenues .................................................       457,301        403,755
                                                                     -----------    -----------
   Gross profit ..................................................       463,084        417,407
                                                                     -----------    -----------

Operating expenses:
   Selling, general and administrative expenses ..................       304,799        521,573
   Stock-based compensation ......................................       925,837           --
                                                                     -----------    -----------

     Total operating expenses ....................................     1,230,636        521,573

Operating  loss ..................................................      (767,552)      (104,166)

Interest expense .................................................       (53,276)       (53,154)
Gain on sale of fixed assets .....................................          --            7,282
                                                                     -----------    -----------

Loss from continuing operations ..................................      (820,828)      (150,038)

Loss from discontinued operations ................................        (8,622)      (105,873)
                                                                     -----------    -----------

Net loss .........................................................   $  (829,450)   $  (255,911)
                                                                     ===========    ===========

Loss per common share from continuing operations .................   $     (0.17)   $     (0.30)

Loss per share form discontinued operations ......................   $     (0.01)   $     (0.22)

Total loss per common Net loss per common share, basic and diluted   $     (0.18)   $     (0.52)
                                                                     ===========    ===========

Weighted average shares of common stock outstanding ..............     4,778,727        492,432
                                                                     ===========    ===========


            The notes to the Consolidated Financial Statements are an
                       integral part of these statements.
</TABLE>





<PAGE>


     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
               FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
         PRIOR TO FILING ELECTION TO BE REGULATED AS INVESTMENT COMPANY

<TABLE>
<CAPTION>
                                                                                                3/31/05      3/31/04
                                                                                             -------------------------
CASH FLOWS FROM OPERATING ACTIVITIES

<S>                                                                                            <C>          <C>
Net loss from continuing operations ........................................................   $(820,828)   $(150,038)
   Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
     Depreciation and amortization .........................................................      23,074       13,038
     Amortization of deferred financing  costs .............................................      22,222         --
     Gain on sale or disposal of equipment .................................................        --
                                                                                                              (30,245)
       Equity issued in exchange for services rendered .....................................     918,015         --
     Change in provision for doubtful accounts .............................................      19,732         --
   (Increase) Decrease in assets:
     Accounts receivable ...................................................................     (74,086)     (75,063)
     Unbilled revenues .....................................................................     (72,045)    (167,736)
         Prepaid expenses and other current assets .........................................      43,261      (11,284)
         Cost and estimated earnings in excess of billings on uncompleted projects .........      (7,397)      (3,015)
     Security and other deposits ...........................................................         (50)      15,291
   Increase (decrease) in liabilities:
        Accounts payable, accrued and payroll taxes payable ................................     170,529      (62,308)
    Billings in excess of costs and estimated earnings on uncompleted projects .............     (17,074)      25,940
    Deferred revenues ......................................................................      (9,775)     (18,279)
                                                                                               ---------    ---------
       Cash provided by (used in) continuing operations ....................................     195,578     (463,699)
                                                                                               ---------    ---------

Loss from discontinued operations ..........................................................      (8,622)    (105,873)
   (Increase) decrease in net assets of discontinued operations ............................    (120,523)     483,214
                                                                                               ---------    ---------
       Cash (used in) provided by discontinued operations ..................................    (129,145)     377,341
                                                                                               ---------    ---------
       Net cash provided by (used in) operating activities .................................      66,433      (86,358)
                                                                                               ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES

   Proceeds from sale of property & equipment ..............................................        --         49,030
                                                                                               ---------    ---------
Net cash provided by (used in) investing activities
                                                                                                    --         49,030
                                                                                               ---------    ---------
CASH FLOWS FROM FINANCING ACTIVITIES

   Loans from stockholders .................................................................        --        160,000
   Repayment of stockholder loans ..........................................................        --         (1,697)
   Loans from non-affiliated parties .......................................................       7,948        4,799
   Repayment of loans from non-affiliated parties ..........................................      (4,580)        --
   Repayment of installment loans and capital lease obligations ............................     (69,801)    (125,774)
                                                                                               ---------    ---------

     Net cash (used in  provided by financing activities ...................................     (66,433)      37,328
                                                                                               ---------    ---------
Increase (decrease) in cash ................................................................        --           --

Cash at beginning of period ................................................................        --           --
                                                                                               ---------    ---------
Cash at end of period ......................................................................   $    --      $    --
                                                                                               =========    =========

            The notes to the Consolidated Financial Statements are an
                       integral part of these statements.
</TABLE>


<PAGE>



     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.       ORGANIZATION

GreenShift  Corporation (f/k/a GreenWorks  Corporation),  a Delaware corporation
("we", "our", "us",  "GreenShift" or the "Company"),  is a closed-end management
investment  company that has elected to be  regulated as a business  development
company ("BDC") under the Investment Company Act of 1940 ("1940 Act").

We were formerly known as GreenWorks  Corporation and our former operations were
conducted   through  our  wholly  owned   subsidiary,   GreenWorks   Engineering
Corporation.  On April 1, 2005, we acquired  majority  equity stakes in Veridium
Corporation  ("Veridium")  (OTC  Bulletin  Board:  VRDM) and  INSEQ  Corporation
("INSEQ") (OTC Bulletin  Board:  INSQ) from  affiliates of Kevin  Kreisler,  our
chairman and chief executive officer.  We subsequently filed an election on Form
N54A  pursuant to Section 54 of the 1940 Act to be  regulated  as a BDC,  and we
changed our name from "GreenWorks Corporation" to "GreenShift  Corporation".  We
also  changed  the name of our  former  operating  subsidiary  from  "GreenWorks
Engineering Corporation" to "GreenWorks Corporation."

GreenShift's business model is to develop and support companies and technologies
that   facilitate   the  efficient   use  of  natural   resources  and  catalyze
transformational  environmental  gains.  GreenShift plans to use equity and debt
capital to support and drive the value of its  existing  portfolio  of companies
and to make investments in a diversified mix of strategically  compatible growth
stage public and private businesses and technologies.  GreenShift's portfolio as
of June 30, 2005 included investments in the following environmentally proactive
companies:
<TABLE>
<CAPTION>
         Portfolio Company                                                               Type of Business
         ------------------------------------------------------------------------------------------------
         <S>      <C>                                                      <C>
         o        Veridium Corporation (OTCBB: VRDM) ............................. Environmental Services
         o        INSEQ Corporation (OTCBB: INSQ) ................................. Secondary Commodities
         o        GreenWorks Corporation ........................................... Engineering Services
         o        GreenShift Industrial Design Corporation ................ Technology Design & Marketing
         o        Coriolis Energy Corporation ..................................... Green Energy Research
         o        TDS (Telemedicine), Inc. (Pink Sheets: TDST) ........... Real Estate and Infrastructure
         o        Ethanol Oil Recovery Systems, Inc. .........................  BioDiesel Fuel Production
</TABLE>

In  accordance  with  specific  rules   prescribed  for  investment   companies,
subsidiaries  hold  investments on behalf of the Company or provide  substantial
services to the Company. Portfolio investments are held for purposes of deriving
investment  income  and  future  capital  gains.  The  financial  results of the
Company's portfolio  investments are not consolidated in the Company's financial
statements.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Conversion to Investment Company Accounting

The results of operations for 2005 are divided into two periods. The period from
January 1, 2005 through March 31, 2005  reflects the Company's  results prior to
commencing  operations  as a regulated  BDC under the 1940 Act.  The period from
April 1, 2005 through June 30, 2005 reflects the Company's results of operations
as a BDC.  Accounting  principles  used  in  the  preparation  of the  financial
statements  beginning  April 1, 2005 are  different  from  those  used for prior
periods and,  therefore,  the  financial  position and results of  operations of
these periods are not directly comparable,  and are presented separately herein.
The primary differences in accounting  principles are due to the requirements of
the 1940  Investment  Company  Act and  Regulation  S-X.  The  Company  filed an
election to become  regulated as a BDC under the 1940 Act on April 1, 2005.  The
controlling  sections of the 1940 Act and the  relevant  accounting  sections of
Regulation S-X require that (1) a BDC may not  consolidate the operations of its
portfolio companies with operations of the BDC and (2) a BDC must provide to its
investors the cost basis,  fair market value,  and the net realized gain or loss
and or the net unrealized gain or loss of each of its portfolio investments on a
quarterly basis. Accordingly,  to comply with the various BDC requirements,  the
Company,  and  its  wholly  owned  subsidiary,   GreenWorks  Corporation  (f/k/a
GreenWorks   Engineering   Corporation,   and  its  wholly   owned   subsidiary,
Enviro-Sciences (of Delaware),  Inc., which had previously reported consolidated
financial statements made the appropriate  adjustments to deconsolidate  assets,
liabilities  and operations  that had previously been reported on a consolidated
basis.

<PAGE>
     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The consolidated  condensed  interim financial  statements  included herein have
been prepared by the Company  statements  for the interim period ending June 30,
2005 and the three months ended March 31, 2005 and 2004, are unaudited, and have
been  prepared  pursuant  to the rules and  regulations  of the  Securities  and
Exchange  Commission  with regard to Regulation S-B and Article 10 of Regulation
S-X. In the opinion of management,  these  financial  statements  include in all
adjustments  which,  except  as  described  elsewhere  herein,  are of a  normal
recurring  nature and are  necessary  for a fair  presentation  of the Company's
financial  position,  results  of  operations,  and cash  flows for the  periods
presented.  The results for interim  periods are not  necessarily  indicative of
results for the entire year.

The preparation of financial statements in conformity with accounting principles
generally  accepted  in the United  States of  America  requires  the  Company's
management  to make certain  estimates  and  assumptions.  These  estimates  and
assumptions affect the reported amounts of assets and liabilities and disclosure
of  the  contingent  assets  and  liabilities  at  the  date  of  the  financial
statements.  These  estimates  and  assumptions  will also  affect the  reported
amounts of certain  revenues and expenses  during the reporting  period.  Actual
results  could  differ  materially  based on any  changes in the  estimates  and
assumptions that the Company uses in the preparation of its financial statements
that are reviewed no less than annually.  Actual results could differ materially
from  these  estimates  and   assumptions   due  to  changes  in   environmental
industry-related  regulations  or future  operational  plans,  and the  inherent
imprecision  associated with estimating such future matters.  See  "Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations"  in
this report.

Investments  are presented in three  categories:  companies more than 25% owned,
which represent  portfolio  companies  where the Company  directly or indirectly
owns  more  than 25% of the  outstanding  voting  securities  of such  portfolio
company and, therefore, are deemed controlled by the Company under the 1940 Act;
companies owned 5% to 25%, which represent portfolio companies where the Company
directly or indirectly  owns 5% to 25% of the outstanding  voting  securities of
such  portfolio  company  or where the  Company  holds one or more  seats on the
portfolio  company's  board of  directors  and,  therefore,  are deemed to be an
affiliated  person  under the 1940 Act; and  companies  less than 5% owned which
represent portfolio companies where the Company directly or indirectly owns less
than 5% of the outstanding voting securities of such portfolio company and where
the Company has no other affiliations with such portfolio company.  The interest
and related  portfolio income and net realized gains (losses) from the portfolio
and other sources are included in the companies  less than 5% owned  category on
the  consolidated  statement of operations.  In the ordinary course of business,
the Company enters into transactions  with portfolio  companies in the more than
25% owned  and the 5% to 25% owned  categories  that may be  considered  related
party transactions.

VALUATION OF PORTFOLIO INVESTMENTS

The Company has retained the services of an  independent  third party  valuation
company,  Business Valuation Center of Reston,  Virginia ("BVC"),  to provide an
assessment of the fair market value of the Company's investments.  The Company's
financial statements for the three months ended June 30, 2005 have been prepared
in connection with BVC's conclusions,  which conclusions were based on a variety
of conventionally accepted valuation methods.

The Company,  as a BDC, has invested in illiquid  securities  including debt and
equity securities of companies.  The Company's investments are generally subject
to restrictions  on resale and generally have a thinly-traded  or no established
trading market. The Company values  substantially all of its investments at fair
value as determined  in good faith by the Board of Directors in accordance  with
the Company's  valuation  policy.  The Company  determines  fair value to be the
amount for which an investment could be exchanged in an orderly disposition over
a reasonable  period of time between  willing  parties other than in a forced or
liquidation sale. The Company's  valuation policy considers the fact that little
or no ready market exists for  substantially  all of the  securities in which it
invests.  The  Company's  valuation  policy is intended to provide a  consistent
basis for determining  the fair value of the portfolio.  The Company will record
unrealized  depreciation on investments  when it believes that an investment has
become  impaired,  including  where  collection of a loan or  realization  of an
equity  security is  doubtful,  or when the  enterprise  value of the  portfolio
company  does not  currently  support the cost of the  Company's  debt or equity
investments.  Enterprise  value  means  the  entire  value of the  company  to a
potential buyer,  including the sum of the values of debt and equity  securities
used to capitalize  the  enterprise at a point in time.  The Company will record
unrealized appreciation if it believes that the underlying portfolio company has
appreciated in value and the Company's  equity security has also  appreciated in
value.  The value of  investments  in publicly  traded  securities is determined
using quoted market prices discounted for restrictions on resale, if any.



<PAGE>

     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

LOANS AND DEBT SECURITIES

For loans and debt securities, fair value generally approximates cost unless the
borrower's  enterprise value,  overall financial condition or other factors lead
to a determination of fair value at a different amount.

When the Company  receives  nominal  cost  warrants  or free  equity  securities
("nominal cost equity"),  the Company allocates its cost basis in its investment
between  its  debt  securities  and  its  nominal  cost  equity  at the  time of
origination. At that time, the original issue discount basis of the nominal cost
equity is recorded by increasing the cost basis in the equity and decreasing the
cost basis in the related debt securities.

Interest  income is recorded on an accrual basis to the extent that such amounts
are expected to be collected.  For loans and debt  securities  with  contractual
payment-in-kind  interest,  which  represents  contractual  interest accrued and
added to the loan balance that  generally  becomes due at maturity,  the Company
will not accrue  payment-in-kind  interest if the  portfolio  company  valuation
indicates  that the  payment-in-kind  interest is not  collectible.  Interest on
loans and debt securities is not accrued if the Company has doubt about interest
collection. In addition,  interest may not accrue on loans or debt securities to
portfolio  companies  that are more than 50% owned by the Company  depending  on
such company's  capital  requirements.  Loan  origination  fees,  original issue
discount,  and market  discount are capitalized and then amortized into interest
income using the effective  interest  method.  Upon the  prepayment of a loan or
debt security,  any unamortized  loan  origination fees are recorded as interest
income  and any  unamortized  original  issue  discount  or market  discount  is
recorded as a realized gain.  Prepayment premiums are recorded on loans and debt
securities when received.

The weighted  average yield on loans and debt  securities is computed as the (a)
annual stated  interest rate plus the annual  amortization  of loan  origination
fees,  original issue  discount,  and market discount on accruing loans and debt
securities less the annual  amortization of loan origination  costs,  divided by
(b) total loans and debt  securities  at value.  The weighted  average  yield is
computed as of the balance sheet date.

EQUITY SECURITIES

The  Company's  equity  interests in portfolio  companies  for which there is no
liquid public market are valued at fair value based on the  enterprise  value of
the portfolio company, which is determined using various factors, including cash
flow from operations of the portfolio company and other pertinent factors,  such
as recent offers to purchase a portfolio company,  recent transactions involving
the purchase or sale of the  portfolio  company's  equity  securities,  or other
liquidation  events.  The determined  equity values are generally  discounted to
account for restrictions on resale or minority ownership positions.

The value of the Company's equity interests in public companies for which market
quotations are readily  available is based on the average  closing public market
price for the ten days preceding the balance sheet date. The Company's policy is
to value its equity  interests in public companies at a discount of 25% from the
public market value of the security, subject to considerations including certain
restrictions  on  liquidation  and the  divergence of such value from the deemed
enterprise value of the portfolio company.

Dividend income is recorded on preferred  equity  securities on an accrual basis
to the extent that such  amounts are  expected  to be  collected,  and on common
equity securities on the record date for private companies or on the ex-dividend
date for publicly traded companies.

NET  RELAIZED  GAINS OR LOSSES  AND NET  CHANGE IN  UNREALIZED  APPRECIATION  OR
DEPRECIATION

Realized gains or losses are measured by the difference between the net proceeds
from the repayment or sale and the cost basis of the  investment  without regard
to unrealized  appreciation or depreciation  previously recognized,  and include
investments  charged  off  during  the year,  net of  recoveries.  Net change in
unrealized  appreciation  or  depreciation  reflects  the  change  in  portfolio
investment  values  during the  reporting  period,  including  the  reversal  of
previously recorded unrealized appreciation or depreciation when gains or losses
are realized.



<PAGE>


     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

FEE INCOME

Fee income includes fees for guarantees and services  rendered by the Company to
portfolio  companies  and other third  parties such as  diligence,  structuring,
transaction services, management services, and other advisory services. Guaranty
fees  are  recognized  as  income  over  the  related  period  of the  guaranty.
Diligence,  structuring,  and transaction services fees are generally recognized
as income  when  services  are  rendered or when the  related  transactions  are
completed.  Management and other advisory services fees are generally recognized
as income as the services are rendered.

GUARANTEES

The  Company  accounts  for  guarantees  under  FASB   Interpretation   No.  45,
Guarantor's  Accounting and Disclosure  Requirements  for Guarantees,  Including
Indirect  Guarantees  of  Indebtedness  of  Others  (the  "Interpretation").  In
accordance  with the  Interpretation,  guarantees  meeting  the  characteristics
described in the Interpretation, and issued or modified after December 31, 2002,
are  recognized  at fair value at inception.  However,  certain  guarantees  are
excluded from the initial recognition provisions of the Interpretation. See Note
5 for disclosures related to the Company's guarantees.

FINANCING COSTS

Debt  financing  costs are based on actual  costs  incurred  in  obtaining  debt
financing  and are deferred and  amortized as part of interest  expense over the
term of the related  debt  instrument.  Costs  associated  with the  issuance of
common stock,  such as  underwriting,  accounting  and legal fees,  and printing
costs are recorded as a reduction to the proceeds from the sale of common stock.

CASH AND CASH EQUIVALENTS

Cash  and  cash  equivalents  include  cash  in  banks  and  all  highly  liquid
investments with original maturities of three months or less.

DIVIDENDS TO SHAREHOLDERS

Dividends to shareholders are recorded on the record date.

STOCK COMPENSATION PLANS

The Company has a stock-based  employee  compensation  plan pursuant to which no
stock or options were issued  during the three  months ended June 30, 2005.  The
Company accounts for this plan under the recognition and measurement  principles
of APB Opinion No. 25,  Accounting  for Stock Issued to  Employees,  and related
interpretations.  No stock-based employee  compensation cost is reflected in net
increase in net assets resulting from  operations,  as all options granted under
this plan had an  exercise  price  equal to the market  value of the  underlying
common stock on the date of grant. The following table illustrates the effect on
net increase in net assets  resulting from  operations and earnings per share if
the Company had applied the fair value recognition  provisions of FASB Statement
No. 123,  Accounting  for  Stock-Based  Compensation,  to  stock-based  employee
compensation for the three months ended June 30, 2005:
<TABLE>
<CAPTION>

                                                                                6/30/05
------------------------------------------------------------------------------------------
<S>                                                                      <C>
Net increase in net assets resulting from operations as reported         $     1,003,078

Less: stock based employee compensation expense determined
under the fair value method for all awards, net of related tax effects                --
                                                                         ---------------

Pro forma net increase in net assets resulting from operations                 1,003,078
Less preferred stock dividends                                                        --
                                                                         ---------------

Pro forma net income available to common shareholders                    $     1,003,078
                                                                         ===============

Basic and diluted net loss per common share, as reported                 $         0.038
                                                                         ===============

Pro forma basic and diluted net loss per common share                    $          0.038
                                                                         ================
</TABLE>



<PAGE>

     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

STOCK COMPENSATION PLANS (continued)

Pro forma expenses are based on the underlying  value of the options  granted by
the  Company.  The fair value of each option  grant is  estimated on the date of
grant using the Black-Scholes option pricing model and expensed over the vesting
period.  The following  weighted average  assumptions were used to calculate the
fair value of options granted during the three months ended June 30, 2005:

                                                                      6/30/05
                                                                      --------
Dividend yield                                                              --
Expected volatility                                                        69%
Risk-free interest rate                                                     2%
Expected life                                                              4.5

FEDERAL AND STATE INCOME TAXES

The Company intends to comply with the requirements of the Internal Revenue Code
("Code") that are  applicable to regulated  investment  companies  ("RIC").  The
Company  and its  subsidiaries  that  qualify as a RIC intend to  distribute  or
retain  through a deemed  distribution  all of their  annual  taxable  income to
shareholders;  therefore, the Company has made no provision for income taxes for
these entities.

PER SHARE INFORMATION

Basic earnings per common share is calculated  using the weighted average number
of common shares  outstanding  for the period  presented.  Diluted  earnings per
common share  reflects  the  potential  dilution  that could occur if options to
issue  common  stock were  exercised  into common  stock.  Earnings per share is
computed after subtracting dividends on preferred shares.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The  preparation  of financial  statements  in  conformity  with U.S.  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period.  Actual  results  could differ from these  estimates.  The  consolidated
financial  statements include portfolio  investments at value of $9.2 million at
June 30, 2005. At June 30, 2005, 97.8% of the Company's total assets represented
portfolio  investments  whose fair values have been  determined  by the Board of
Directors  in good  faith in the  absence of readily  available  market  values.
Because  of the  inherent  uncertainty  of  valuation,  the Board of  Directors'
determined values may differ  significantly from the values that would have been
used had a ready market existed for the investments,  and the differences  could
be material.

STOCK COMPENSATION PLANS

In December 2004, the FASB issued Statement No. 123 (Revised 2004),  Share-Based
Payment (the "Statement"),  which requires companies to recognize the grant-date
fair  value of stock  options  and  other  equity-based  compensation  issued to
employees in the income statement.  The Statement  expresses no preference for a
type of valuation model and was originally  effective for most public companies'
interim or annual  periods  beginning  after June 15, 2005.  In April 2005,  the
Securities and Exchange Commission issued a rule deferring the effective date to
January 1, 2006, for most companies.  The scope of the Statement includes a wide
range  of  share-based   compensation   arrangements  including  share  options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase  plans.  The Statement  replaces FASB Statement No. 123,
Accounting  for  Stock-Based  Compensation,  and  supersedes APB Opinion No. 25,
Accounting  for Stock Issued to Employees.  The Company is currently  evaluating
the effects of the Statement on its financial position and results of operations
with respect to the selection of a valuation  model.  See the Company's  current
disclosure under APB Opinion No. 25 above.



<PAGE>



     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

NOTES  RELATING  TO THE  COMPANY'S  OPERATIONS  PRIOR TO FILING  ELECTION  TO BE
REGULATED AS AN INVESTMENT COMPANY

Going Concern

Prior to converting to investment company accounting, the Company's consolidated
financial  statements  for the three months ended March 31, 2005,  were prepared
assuming  that the  Company  would  continue  as a going  concern.  The  Company
incurred a loss of  $(829,450)  during the three months ended March 31, 2005, at
which time the Company  had no cash,  and current  liabilities  from  continuing
operations  exceeded  current  assets  by  $3,159,527.  Due  to  this  financial
condition,  the  Company's  auditors  had issued a going  concern  note as these
matters raised  substantial  doubt as to the Company's  then-current  ability to
fund operations.  The Company continues to seek alternative and multiple sources
of financing to address its moving forward cash needs.

Net Income or Loss Per common Share

Prior to converting to investment company accounting, for the three months ended
March 31,  2005,  the Company  computed  its net income or loss per common share
under the provisions of SFAS No. 128, "Earnings per Share" and SAB No. 98. Under
the  provisions  of SFAS 128 and SAB 98,  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.  The computation of diluted earnings (loss) per share
does assume exercise of securities that would have a dilutive effect on earnings
(loss) per share.

Supplemental Disclosure for Stock-Based Compensation

The  Company   applies  SFAS  Opinion  No.123  in  accounting  for   stock-based
compensation.. SFAS No. 123, "Accounting for Stock-Based Compensation",  defined
a fair value method  accounting for stock options and other equity  instruments.
Under the fair value  method,  compensation  cost is  measured at the grant date
based on the fair value of the award and is recognized  over the service period,
which is  usually  the  vesting  period.  Pro  forma  expenses  are based on the
underlying  value of the options granted by the Company.  The fair value of each
option grant is estimated  on the date of grant using the  Black-Scholes  option
pricing  model and expensed  over the vesting  period.  The  following  weighted
average  assumptions  were used to calculate  the fair value of options  granted
during the three months ended March 31, 2005:

                                                                    3/31/05
                                                                     ------
Dividend yield                                                            0
Expected volatility                                                     69%
Risk-free interest rate                                                4.1%
Expected life                                                      10 years

The following is a summary of the status of the options outstanding as of March
31, 2005:

                                            Number of          Weighted Average
                                             Shares              Exercise Price
                                            ---------            --------------
Outstanding at 1/1/2005                           --             $       --

Granted                                    13,250,000                  0.08
Exercised                                         --                     --
Forfeited                                         --                     --
                                           ----------            ----------
Outstanding at 3/31/05                     13,250,000            $     0.08
                                           ==========            ==========

Supplemental Disclosure of Cash Flow Information

The following supplements the Company's statements of cash flows for the three
months ended March 31, 2005, prior to converting to investment company
accounting:

         Cash paid during the period ended March 31, 2005 for:
          Interest                 $      27,203
          Income taxes             $         --



<PAGE>



     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.       INVESTMENT COMPANY

INVESTMENT POLICY

The Company uses equity and debt  capital to support its  existing  portfolio of
companies and to make  investments  in a diversified  mix of growth stage public
and private  businesses that make positive  contributions  to the use of natural
resources. The Company's investment objective is to generate both current income
and capital appreciation through debt and equity investments.

As a regulated  investment  company for tax purposes,  the Company's  plan is to
distribute  substantially  all  of  its  taxable  income  as  dividends  to  our
shareholders.

BUSINESS DEVELOPMENT COMPANY

The Company has elected to be treated as a business  development  company  under
the 1940 Act and has elected to be treated as a regulated investment company, or
RIC,  under  Subchapter M of the Code.  The 1940 Act contains  prohibitions  and
restrictions relating to transactions between business development companies and
their affiliates (including any investment advisers or sub-advisers),  principal
underwriters  and affiliates of those  affiliates or  underwriters  and requires
that a majority of the directors be persons other than "interested  persons," as
that term is defined in the 1940 Act. In addition, the 1940 Act provides that we
may not change the nature of the Company's  business so as to cease to be, or to
withdraw our election as, a business  development  company unless  approved by a
majority of our outstanding voting securities voting as a class.

The Company may invest up to 100% of its assets in securities  acquired directly
from  issuers  in  privately  negotiated  transactions.  With  respect  to  such
securities,  the Company  may,  for the purpose of public  resale,  be deemed an
"underwriter"  as that term is  defined in the  Securities  Act.  The  Company's
intention  is to not write  (sell) or buy put or call  options  to manage  risks
associated  with the  publicly  traded  securities  of the  Company's  portfolio
companies, except that the Company may enter into hedging transactions to manage
the risks associated with interest rate and currency rate fluctuations. However,
the Company may  purchase or otherwise  receive  warrants to purchase the common
stock of its portfolio  companies in connection  with  acquisition  financing or
other investment.  Similarly, in connection with an acquisition, the Company may
acquire rights to require the issuers of acquired securities or their affiliates
to repurchase them under certain circumstances.  The Company also doe not intend
to acquire  securities  issued by any investment  company that exceed the limits
imposed by the 1940 Act.  Under  these  limits,  the  Company  generally  cannot
acquire more than 3% of the voting stock of any registered  investment  company,
invest more than 5% of the value of the Company's total assets in the securities
of one investment  company or invest more than 10% of the value of the Company's
total assets in the securities of more than one investment company.

With regard to that portion of the Company's  portfolio which may be invested in
securities  issued  by  investment  companies,  it  should  be noted  that  such
investments might subject our stockholders to additional expenses. None of these
policies are fundamental and may be changed without stockholder approval.

QUALIFYING ASSETS

Under the 1940 Act, a business  development  company  may not  acquire any asset
other than assets of the type listed in Section 55(a) of the 1940 Act, which are
referred to as qualifying  assets,  unless, at the time the acquisition is made,
qualifying  assets  represent at least 70% of the company's  total  assets.  The
principal  categories of  qualifying  assets  relevant to the Company's  planned
business are the following:

(1)  Securities purchased in transactions not involving any public offering from
     the issuer of such  securities,  which issuer  (subject to certain  limited
     exceptions) is an eligible portfolio company, or from any person who is, or
     has been  during  the  preceding  13  months,  an  affiliated  person of an
     eligible portfolio company, or from any other person, subject to such rules
     as may be prescribed by the SEC. An eligible  portfolio  company is defined
     in the 1940 Act as any issuer which:

     is organized under the laws of, and has its principal place of business in,
     the United States;

     is not an  investment  company  (other  than a  small  business  investment
     company wholly owned by the business development company) or a company that
     would be an investment  company but for certain  exclusions  under the 1940
     Act; and

     satisfies any of the following:



<PAGE>


     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.       INVESTMENT COMPANY (continued)

QUALIFYING ASSETS (continued)

     does not have any class of  securities  with  respect  to which a broker or
     dealer may extend margin credit;

     is  controlled  by a business  development  company or a group of companies
     including  a business  development  company  and the  business  development
     company  has an  affiliated  person  who  is a  director  of  the  eligible
     portfolio company; or

     is a small and  solvent  company  having  total  assets of not more than $4
     million and capital and surplus of not less than $2 million.

(2)  Securities of any eligible portfolio company which the Company controls.

(3)  Securities  purchased in a private  transaction  from a U.S. issuer that is
     not an investment company or from an affiliated person of the issuer, or in
     transactions  incident thereto,  if the issuer is in bankruptcy and subject
     to  reorganization  or if the issuer,  immediately prior to the purchase of
     its securities was unable to meet its  obligations as they came due without
     material   assistance   other  than   conventional   lending  or  financing
     arrangements.

(4)  Securities of an eligible  portfolio company purchased from any person in a
     private transaction if there is no ready market for such securities and the
     Company  already  owns  60%  of the  outstanding  equity  of  the  eligible
     portfolio company.

(5)  Securities  received in exchange for or  distributed  on or with respect to
     securities  described in (1) through (4) above, or pursuant to the exercise
     of warrants or rights relating to such securities.

(6)  Cash, cash  equivalents,  U.S.  Government  securities or high-quality debt
     securities maturing in one year or less from the time of investment.

The SEC has proposed a regulation under the 1940 Act to expand the definition of
eligible portfolio company in a manner that would promote the flow of capital to
small,  developing and financially  troubled  companies.  This regulation  would
define  eligible  portfolio  company with reference to whether a company has any
class of securities listed on an exchange. The Company continues to monitor this
issue  closely  and intends to adjust its  investment  focus as needed to comply
with and/or take  advantage of this rule if it is adopted or of any other future
administrative position, judicial decision or legislative action.

MANAGERIAL ASSISTANCE TO PORTFOLIO COMPANIES

In addition,  a business  development  company must have been organized and have
its  principal  place of business in the United  States and must be operated for
the purpose of making  investments in the types of securities  described in (1),
(2) or (3) above.  However, in order to count portfolio securities as qualifying
assets for the purpose of the 70% test,  the business  development  company must
either  control the issuer of the  securities or must offer to make available to
the issuer of the securities (other than small and solvent  companies  described
above)  significant  managerial  assistance;  except  that,  where the  business
development  company  purchases such securities in conjunction  with one or more
other persons  acting  together,  one of the other persons in the group may make
available such managerial  assistance.  Making available  managerial  assistance
means,  among other things,  any  arrangement  whereby the business  development
company, through its directors,  officers or employees,  offers to provide, and,
if accepted,  does so provide,  significant  guidance and counsel concerning the
management,  operations  or  business  objectives  and  policies  of a portfolio
company.

INVESTMENT CONCENTRATION

The Company intends to concentrate on environmentally  proactive investments and
to  invest,  under  normal  circumstances,  at  least  80% of the  value  of the
Company's net assets  (including  the amount of any  borrowings  for  investment
purposes) in qualified  companies.  This 80% policy is not a fundamental  policy
and therefore may be changed without the approval of the Company's stockholders.
However,  the Company may not change or modify this policy unless we provide our
stockholders with at least 60 days' prior notice.




<PAGE>

     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.       PORTFOLIO

The Company's  investment  activity  principally  involves  providing  financing
through privately negotiated long-term debt and equity investments.

The Company's  investments in private  companies and are generally  illiquid and
subject to  restrictions on resale.  Private  finance  investments are generally
structured as loans and debt  securities that carry a relatively high fixed rate
of interest,  which may be combined  with equity  features,  such as  conversion
privileges,  or  warrants  or  options to  purchase  a portion of the  portfolio
company's equity at a pre-determined  strike price, which is generally a nominal
price for warrants or options in a private  company.  The annual stated interest
rate is only one factor in pricing  the  investment  relative  to the  Company's
rights and priority in the portfolio company's capital structure,  and will vary
depending on many  factors,  including if the Company has received  nominal cost
equity or other components of investment  return,  such as loan origination fees
or market  discount.  The stated  interest  rate may include  some  component of
contractual  payment-in-kind  interest,  which represents  contractual  interest
accrued and added to the loan balance that generally becomes due at maturity. At
June 30,  2005,  100% of the  Company's  loans  and debt  securities  had  fixed
interest rates.

Loans and debt  securities  generally have a maturity of one to ten years,  with
interest-only  payments in the early years and  payments of both  principal  and
interest in the later years, although debt maturities and principal amortization
schedules vary.

Equity interests  issued by private  companies may be subject to restrictions on
their resale and are  generally  illiquid.  The Company may incur  closing costs
associated  with  making  control  investments,  which will be added to the cost
basis of the Company's equity  investment.  Equity  securities  generally do not
produce  a  current  return,  but are held  with the  potential  for  investment
appreciation and ultimate gain on sale.

The Company's largest investments at June 30, 2005, were in Veridium Corporation
("Veridium")  (OTC Bulletin  Board:  VRDM),  INSEQ  Corporation  ("INSEQ")  (OTC
Bulletin Board:  INSQ),  GreenWorks  Corporation  ("GreenWorks") and Ethanol Oil
Recovery Systems,  Inc. ("EORS"),  accounting for 39.9%, 26.3%, 17.4% and 14.2%,
respectively, of our total portfolio value.

VERIDIUM CORPORATION

Veridium  (OTC  Bulletin  Board:   VRDM)  is  a  publicly-traded   environmental
management  company  providing a variety of  services to a broad  client base in
both the private and public sectors with a  specialization  in the recycling and
reuse of industrial hazardous wastes. Veridium's services include collection and
transportation  of  industrial  wastes,  site  remediation,   and  recycling  of
metal-bearing  and chemical  wastes.  Veridium's focus is to provide its clients
with value-added,  environmentally  conscious and cost-effective hazardous waste
management  services based on its efficient  managing of wastes and use of green
technologies.  Veridium is currently  generating  about $18 million in sales per
year.  Veridium's  ambition is to complete a number of  acquisitions in the near
term and to develop  market share on the basis of  Veridium's  strong  recycling
service advantages.

During the three months ended June 30, 2005, the Company  acquired an additional
1,224,256  shares of Veridium common stock for a total of $74,761,  and received
no interest or related portfolio income from Veridium.

Our chairman and chief executive officer,  Kevin Kreisler,  is also the chairman
of Veridium Corporation.  As the controlling  shareholder of the Company, who is
in  turn  the   controlling   shareholder   of   Veridium,   Mr.   Kreisler  has
unconditionally guaranteed certain of Veridium's debts with its creditors.

INSEQ CORPORATION

INSEQ (OTC Bulletin Board:  INSQ) is a publicly traded corporation whose mission
is to facilitate the efficient  utilization of primary and secondary commodities
including  metals,  chemicals,  fuels  and  plastics.  INSEQ  recently  acquired
Warnecke Design  Services,  Inc., a specialty metal  manufacturer  with about $6
million in sales and EBITDA of about  $600,000.  INSEQ also recently  executed a
letter of intent to acquire a metals processing and distribution company,  which
will bring INSEQ to  approximately  $21  million in revenue and $2.1  million in
EBITDA to what was previously a development stage company.

During the three months ended June 30, 2005, the Company acquired 400,000 shares
of a new class of  preferred  stock in INSEQ  with a face value of  $400,000,  a
fixed conversion price of $0.01 per share and a coupon of 5% payable  commencing
March 31, 2006, in return for the provision of certain  financing by the Company
relative to INSEQ's acquisition of Warnecke Design Services, Inc. As of June 30,
2005, the Company accrued  $100,000 in management  services fees receivable from
INSEQ.
<PAGE>

     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.       PORTFOLIO (continued)

INSEQ CORPORATION (continued)

Our chairman and chief executive officer,  Kevin Kreisler,  is also the chairman
of INSEQ, and our president and chief financial officer,  James Grainer, is also
the  president  and  chief  financial  officer  of  INSEQ.  As  the  controlling
shareholder of the Company, who is in turn the controlling shareholder of INSEQ,
Mr. Kreisler and the Company have unconditionally  guaranteed certain of INSEQ's
debts with its creditors.

GREENWORKS CORPORATION

GreenWorks  is an  environmental  engineering  services  company that intends to
acquire and  consolidate a series of qualified  engineering  services  companies
during 2005. GreenWorks provides consulting,  technical and engineering services
to alleviate  the  environmental  problems of its clients.  GreenWorks'  clients
include  Fortune  100  and  other  industrial   companies,   commercial   firms,
engineering and  construction  contractors,  law firms,  utilities,  real estate
developers and government entities. GreenWorks is currently producing about $3.8
million  in  revenue  per year and has a backlog of another $2 million in sales.
GreenWorks  intends  to go public  during  2005 in line with its  completion  of
qualified acquisitions.

During the three months ended June 30, 2005,  the Company issued a commitment to
acquire certain  preferred stock in GreenWorks for $1.0 million  commencing July
2005.  This new preferred  stock is to have a face value of $1,000,000,  a fixed
conversion  into 10% of the fully  diluted  capital stock of  GreenWorks,  and a
special  quarterly  dividend  equal to 20% of  GreenWorks'  pre-tax  net  income
commencing  April 1, 2006. As of June 30, 2005, the Company  accrued  $50,000 in
management services fees receivable from GreenWorks.

Our chairman and chief executive officer,  Kevin Kreisler,  is also the chairman
of GreenWorks,  and our president and chief financial officer, James Grainer, is
also the chief financial officer of GreenWorks.

GREENSHIFT INDUSTRIAL DESIGN CORPORATION ("GIDC")

GreenShift  Industrial Design Corporation ("GIDC") is a pre-revenue company that
will focus on the engineering  and marketing of green  innovations and processes
that  enhance  manufacturing  efficiencies,  improve  resource  utilization  and
minimize waste.  GIDC plans to deliver consumer  oriented Natural  Solutions(TM)
based on an array of green technologies and applied  engineering  expertise that
reduce  waste at the source and make it easier  for  people  and  businesses  to
recycle and reuse  resources.  GIDC plans to initially focus on the acquisition,
development  and  marketing of benchmark  green  technologies  and products that
accomplish the following key goals:

     o    Reduce the volume of waste  generated by  residential  and  commercial
          consumers;

     o    Increase  the  convenience  and  decrease  the  cost of  recycling  by
          residential   and   commercial   consumers;   and,

     o    Increase the cost-efficiency of processing certain types of industrial
          wastes.

GIDC recently  completed its conceptual  designs for a new commercial  appliance
called  OneLid(TM)  for the  reduction  of plastic  waste  produced  by the food
services industry.  Studies indicate that about 1.5 pounds of trash are produced
for each fast food  restaurant  meal served,  of which 50.5% is paper,  13.6% is
plastics and 1.1% is glass. The new GIDC appliance  specifically  aims to reduce
the  contribution to this made by unused plastic  beverage lids.  According to a
study  published  by the  Freedonia  Group,  Inc.,  the food  services  industry
purchased about 100 billion  plastic  beverage lids during 2003 for about $0.005
each  or for a total  of  about  $500  million.  GIDC  expects  to  file  patent
applications and to start marketing OneLid(TM) during the third quarter 2005.

As of June 30, 2005,  the Company  accrued  $50,000 in management  services fees
receivable from GIDC. Our chairman and chief executive officer,  Kevin Kreisler,
is also the chairman of GIDC,  and our  president and chief  financial  officer,
James Grainer,  is also the president and chief  financial  officer of GIDC. Mr.
Kreisler is also a co-inventor of GIDC's OneLid(TM) appliance.

CORIOLIS ENERGY CORPORATION ("CEC")

CEC  is a  pre-revenue,  research  and  development  company  with  a  focus  on
alternative  energy  resources.  CEC is currently not  operating.  CEC's initial
focus will be on the commercial development of a new types of cost-effective and
scalable green power generation.



<PAGE>

     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.       PORTFOLIO (continued)

TDS TELEMEDICINE, INC. ("TDS")

TDS (Pink  Sheets:  TDST) is a development  stage public  company whose plan for
2005  is to  complete  one or  more  acquisitions  of  strategically  compatible
companies.  It has  recently  executed  a  letter  of  intent  to  acquire  Alfa
Industries,  Inc., an infrastructure and real estate development  company,  with
estimated annual revenues in excess of $15 million. This acquisition is expected
to be completed in the third  quarter  2005.  Alfa  provides an array of utility
installation, management and maintenance services, including: heavy, highway and
bridge  construction;  trench-less  technology for  installation  of underground
utilities;  development-driven environmental and remedial services; and, general
maintenance  of  roadways  and  public  property  for local,  state and  federal
governments throughout the mid-Atlantic and seaboard states.

As of June 30, 2005, the Company  accrued  $150,000 in management  services fees
receivable from TDS. Our chairman and chief executive  officer,  Kevin Kreisler,
is also the chairman of TDS.

ETHANOL OIL RECOVERY SYSTEMS, L.L.C.  ("EORS")

EORS,  a  green  technology  development  company,  is  the  inventor  of a  new
patent-pending  technology  for the  cost-effective  conversion of corn oil into
biodiesel  fuels.  EORS plans to license  its  technology  to a new  development
partnership called SunSource BioEnergy, LLC, that is comprised of and managed by
some of the ethanol industry's leading producers.  EORS owns an 18% stake in the
SunSource  BioEnergy  partnership.  The  new  SunSource  biodiesel  facility  is
expected to be completed in 2007.  Under the terms of its  agreement  with EORS,
GreenShift  is  acquiring  a 15%  stake  in EORS for  about  $1.2  million.  The
investment  in EORS is expected to produce an annual  return to GreenShift of in
excess  of $1.5  million  once the new  facility  is  operational.  As a limited
liability  company,  EORS'  taxable  income  will flow  directly  through to its
members.

On June 29, 2005,  the Company made its first payment of $100,000 under the EORS
investment  agreements.  Another $150,000 was paid to EORS on July 15, 2005, and
the balance of $947,437 is expected to be due later in 2005 upon the  perfection
of conventional  credit financing for the SunSource  BioEnergy  facility.  As of
June 30, 2005, the Company accrued $1,097,437 in investments payable to EORS.



<PAGE>

     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2005

4.       PORTFOLIO (continued)

The Company expects to generate income from, among other things, management fees
and royalty payments.  The following chart provides additional information about
how the Company expects to generate income from its current portfolio:
<TABLE>
<CAPTION>

Portfolio Company                                    Expected Source of Income              Estimated Annual Amount
-------------------------------------------------------------------------------------------------------------------

<S>                                                  <C>                                         <C>
Veridium Corporation                                 Management Fees                             $          150,000
                                                     Sale of Equity                                              --
                                                     Interest or Coupon                                          --
                                                     Dividend Payments                                           --

INSEQ Corporation                                    Management Fees                             $          150,000
                                                     Sale of Equity                                              --
                                                     Interest or Coupon                                      25,000
                                                     Dividend Payments                                           --

GreenWorks Corporation                               Management Fees                             $          150,000
                                                     Sale of Equity                                              --
                                                     Interest or Coupon                                      50,000
                                                     Dividend Payments                                           --

GreenShift Industrial                                Management Fees                             $          150,000
   Design Corporation                                Sale of Equity                                              --
                                                     Interest or Coupon                                          --
                                                     Dividend Payments                                           --

Coriolis Energy Corporation                          Management Fees                             $               --
                                                     Sale of Equity                                              --
                                                     Interest or Coupon                                          --
                                                     Dividend Payments                                           --

TDS (Telemedicine), Inc.                             Management Fees                             $          150,000
                                                     Sale of Equity                                              --
                                                     Interest or Coupon                                          --
                                                     Dividend Payments                                           --

Ethanol Oil Recovery                                 Management Fees                             $               --
   Systems, LLC                                      Sale of Equity                                              --
                                                     Interest or Coupon                                          --
                                                     Dividend Payments                                 1,500,000(*)
                                                     * Expected to commence in 2007
</TABLE>

5.       FINANCING ARRANGEMENTS

At  June  30,  2005,  the  Company  was  subject  to  the  following   financing
arrangements
<TABLE>
<CAPTION>

                                                                              6/30/05
                                                                          -------------
<S>                                                                       <C>
Short-term borrowings                                                     $     202,112

Current portion of convertible debentures:
   CCS Debentures, 12% convertible debentures, due December 2005                467,702
   WDS Debenture, 6% convertible debentures, due August 2005                    222,500
   Candent Debenture, 5% convertible debentures, due December 2005              254,500
                                                                          -------------
     Total current portion of convertible debentures                      $     944,702

Convertible debt, net of current portion:
   Cornell Capital Partners, 5% convertible debenture                         2,435,611
                                                                          -------------
     Total convertible debentures, net of current maturities              $   2,435,611
</TABLE>



<PAGE>



     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2005

5.       FINANCING ARRANGEMENTS (continued)

On April 1, 2005,  Kevin  Kreisler,  the Company's  chairman and chief executive
officer,  transferred majority ownership in Veridium and INSEQ to the Company in
return for 46.3 million shares of the Company's common stock, 1.0 million shares
of the Company's  Series B Preferred Stock, and the assumption by the Company of
certain  liabilities due to Cornell Capital  Partners,  LP,  ("Cornell"),  Cedar
Crescent  Holdings,  Ltd.,  Castlerigg  Master  Investments,  Ltd.,  and Stranco
Investments,  Ltd.  (Cedar  Crescent,  Castlerigg  and Stranco are  collectively
referred to herein as "CCS"),  Lakeland Bank ("Lakeland"),  Candent  Corporation
("Candent"), Serenity Capital, L.L.C. ("Serenity"), and Mr. Kreisler.

SHORT TERM BORROWINGS:

The Company has a variable interest rate line of credit with Lakeland Bank (6.5%
at December 31, 2004),  which had an  outstanding  balance of $66,608 as of June
30, 2005, representing the entire line.

During 2005,  GreenShift  received  $135,504 in non-interest  bearing short term
loans from Kevin Kreisler, the Company's chairman and chief executive officer.

CCS DEBENTURES

The CCS Debentures  are due to the three  institutional  investors  noted above,
bear  interest at 12% per year,  and are due on December 22,  2005.  At June 30,
2005,  the balance due on the CCS  Debentures  was  $467,702.  Mr.  Kreisler has
personally guaranteed repayment of these debentures.

WDS DEBENTURE

The Company assumed certain  debentures in the principal  amount of $400,000 due
to  Anthony  Warnecke  pursuant  to  INSEQ  Corporation's   various  acquisition
agreements with Mr. Warnecke relative to INSEQ's  acquisition of Warnecke Design
Services,  Inc.  During the three months  ended June 30, 2005,  the Company paid
$177,500 on this debenture. This debenture carries an interest rate of 6% and is
convertible  into the Company's  common stock on the basis of the average of the
five lowest closing  market prices for the Company's  common stock for the month
preceding any such  conversion,  provided that Mr.  Warnecke may not convert any
portion of his  debentures  where such  conversion  would bring Mr.  Warnecke to
greater than 4.99% of the Company's fully diluted capital stock.

CANDENT DEBENTURE

During 2005,  Candent  purchased a total of $379,500 in  convertible  debentures
from the Company, of which $192,000 was provided to the Company during the three
months ended June 30, 2005, and $125,000 was converted into 5,769,231  shares of
the  Company's  common stock  during the three  months ended June 30, 2005.  The
balance outstanding at June 30, 2005, of $254,500 bears interest at 5% per annum
and is convertible  into the Company's  common stock on the basis of the average
of the five lowest closing market prices for the Company's  common stock for the
month preceding any such  conversion,  provided that Candent may not convert any
portion of its debentures  where such conversion  would bring Candent to greater
than 4.99% of the  Company's  fully  diluted  capital  stock.  The  president of
Candent is the wife of the Company's chairman. All of the issued and outstanding
capital stock of Candent is held in trust for the benefit of its president.

SERENITY DEBENTURE

During 2005,  Serenity  purchased a total of $185,000 in convertible  debentures
from the Company,  of which $85,000 was provided to the Company during the three
months ended June 30, 2005, and $185,000 was converted into 5,922,650  shares of
the Company's common stock during the three months ended June 30, 2005. Serenity
is owned by a relative of the Company's chairman.

CORNELL DEBENTURE

The Cornell  Debentures bear annual interest at 5%, mature on April 1, 2008, and
are convertible into the Company's common stock, at the investor's option at the
lower of the Company's net asset value or the average of the five lowest closing
market  prices for the Company's  common stock for the month  preceding any such
conversion.  During the three  months  ended  June 30,  2005,  Cornell  effected
conversions  totaling  $100,000,  leaving a balance on the Cornell Debentures at
June 30, 2005, of $2,435,611.





<PAGE>

     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2005

6.       SHAREHOLDERS' EQUITY

CORNELL DEBENTURE (continued)

THE CORNELL DEBENTURE COULD INCREASE OUR OUTSTANDING SHARES BY OVER 30.1%

While Cornell is subject to restrictions on conversion of the Cornell  Debenture
limiting  Cornell's  ownership  to  9.9%  of  our  common  stock,  without  this
restriction  the  debenture  could be converted  into  32,474,813  shares at the
market  price on June 30,  2005.  The  issuance of these shares would dilute the
interest of our current  shareholders  by over 30.1%.  To satisfy its conversion
obligations under the Debentures,  the Company placed 5,000,000 shares of common
stock into escrow for  potential  issuance  to Cornell  upon  conversion  of the
Debentures.

TRANSACTIONS WITH VIRIDIS CAPITAL, L.L.C.

On March 31, 2005, the Company  acquired about 55% of the issued and outstanding
capital stock of Veridium from Viridis Capital, L.L.C. ("Viridis"), an affiliate
of Kevin Kreisler,  the Company's chairman and chief executive officer,  and 70%
of the issued and  outstanding  capital stock of INSEQ from  Incandent  Capital,
L.L.C.  ("Incandent"),  another affiliate of Kevin Kreisler,  in return for 46.3
million  shares  of the  Company's  common  stock,  1.0  million  shares  of the
Company's Series B Preferred Stock, and the assumption by the Company of certain
liabilities due to Cornell, CCS, Lakeland,  Candent,  Serenity, and Mr. Kreisler
(collectively,  the "Assumed  Liabilities").  The Company  common and  preferred
stock issued at closing  were worth an aggregate of about $3.47  million and the
Assumed  Liabilities  totaled  about $2.98  million,  for a total of about $6.54
million.  The Veridium and INSEQ securities  acquired from Viridis and Incandent
were  collectively  worth about $7.37  million as of April 1, 2005.  For reasons
mostly involving administrative  efficiency,  the consideration the Company paid
for both the Veridium and INSEQ  securities were paid to just Viridis as opposed
to both  Viridis and  Incandent  on a pro rated basis.  The  Company's  Series B
Preferred Stock issued to Viridis in this transaction is convertible on December
31, 2006 into the lesser of 50 million  shares of common stock or that number of
shares of commons  stock  which,  when added to Viridis'  other  holdings in the
Company, will equal 80% of the outstanding common stock on that date.

TRANSACTIONS WITH ACUTUS CAPITAL, L.L.C.

On April 1,  2005,  the  Company  and its  wholly-owned  subsidiary,  GreenWorks
Corporation, entered into an Option Agreement with Acutus Capital, L.L.C. Acutus
Capital is the owner of 1,140,769  shares of the Company's  common stock,  which
correlated to 25% of the outstanding common stock as of March 31, 2005 (and 1.8%
as of June 30, 2005). The Option Agreement  affords Acutus the right to exchange
its common stock in the Company for 1,000,000 shares of GreenWorks, which shares
represent,  subject to further investments by the Company,  40% of the equity in
GreenWorks.  The Option  Agreement  further  provides  that, in the event of the
death or  incapacity of Kevin  Kreisler,  Acutus will have the right to exchange
its  common  shares  in  the  Company  for  1,575,000   shares  of   GreenWorks,
representing  51% of the outstanding  shares.  The Option  Agreement  expires on
March 31, 2015.  The Option  Agreement  had  previously  included an  adjustment
provision  that  operated to keep  Acutus'  holdings in the Company  constant at
4.99% of the issued and  outstanding  common  stock of the  Company.  The Option
Agreement had been entered into prior to the Company's filing of its election to
be regulated  as a BDC under the 1940 Act.  Prior to filing this  election,  the
Company's board of directors  required and Acutus  consented to the cancellation
of this provision.

DEBENTURE CONVERSIONS

During  the three  months  ended June 30,  2005,  Cornell  converted  a total of
$100,000 in debt into 4,614,674  shares of the Company's  common stock,  Anthony
Warnecke  converted  a total of  $62,500  in debt into  1,250,000  shares of the
Company's  common  stock,  Candent  converted  a total of  $125,000 in debt into
5,769,231 shares of the Company's  common stock, and Serenity  converted a total
of $185,000 in debt into  5,922,650  shares of the Company's  common  stock,  of
which 2,000,000 shares had not been issued as of June 30, 2005.

DIVIDEND REINVESTMENT PLAN

The Company has a dividend  reinvestment  plan (the "DRP"),  whereby the Company
may buy  shares of its  common  stock in the open  market or issue new shares in
order to satisfy  dividend  reinvestment  requests.  If the  Company  issues new
shares,  the issue  price is equal to the  average of the  closing  sale  prices
reported for the  Company's  common stock for the ten  consecutive  trading days
immediately  prior to the dividend payment date. For the three months ended June
30, 2005, there was no activity under the DRP and the Company  therefore did not
issue any new shares under the DRP.



<PAGE>


     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2005

6.       SHAREHOLDERS' EQUITY (continued)

STOCK OPTION PLAN

The purpose of the  Company's  stock option plan  ("Option  Plan") is to provide
officers and  non-officer  directors of the Company with  additional  incentives
that are aligned with the Company's  growth.  Options are exercisable at a price
equal to the fair  market  value of the shares on the day the option is granted.
Each option  states the period or periods of time within which the option may be
exercised  by the  optionee,  which may not  exceed  ten years from the date the
option is granted.  The options  granted vest ratably over periods  ranging from
one to five years.  All rights to exercise  options  terminate  60 days after an
optionee  ceases to be (i) a  non-officer  director,  (ii) both an officer and a
director,  if such optionee serves in both  capacities,  or (iii) an officer (if
such  officer is not also a  director)  of the  Company for any cause other than
death or total and permanent disability.  In the event of a change of control of
the Company, all outstanding options will become fully vested and exercisable as
of the change of control.

INFORMATION STATEMENT

On April 11,  2005,  the Company  filed an  information  statement to notify our
shareholders  that the holders of shares  representing  a majority of the voting
stock of the Company gave their written  consent to (1) a resolution  adopted by
the board of directors to amend the certificate of  incorporation of the Company
so as to change the name of the Company to  "GreenShift  Corporation"  and (2) a
resolution  adopted by the board of  directors to approve the issuance of common
stock on  conversion  of an  outstanding  convertible  debenture at a conversion
price  that is less  than  our net  asset  value  per  share.  This  information
statement was mailed on April 25, 2005 to shareholders  of record.  An amendment
to the Company's certificate of incorporation to the above effect was filed with
the Delaware Secretary of State and became effective on May 16, 2005.

FORM 1-E AND OFFERING CIRCULAR UNDER REGULATION E

The Company filed a Form 1-E and Offering Circular with the U.S.  Securities and
Exchange  Commission  on April 22, 2005,  pursuant to which the Company plans to
offer for sale up to $5 million of its common stock. This offering  commenced on
May 6, 2005,  pursuant to an exemption from  registration in Regulation E of the
1940  Act as set  forth  in Rule  604(a)  thereunder.  Copies  of this  offering
circular are available upon request.

On July 22, 2005, the Company received a letter from the Staff of Securities and
Exchange Commission (the "Letter"),  which raised various issues including among
other things issues as to whether all material information about the Company was
included in the Offering Circular. The Company responded to the Staff's comments
on August  12,  2005,  addressing  the  Staff's  concerns.  It is the  Company's
position  that all material  information  about the  Company,  both prior to and
after the Company  filed its election to be regulated as an  investment  company
under the 1940 Act,  had been  included in the  Offering  Circular.  The Company
intends to resolve the issues raised by the Staff as promptly as practicable.

7.       RELATED PARTY TRANSACTIONS

TRANSACTIONS WITH VIRIDIS CAPITAL, L.L.C.

On March 31, 2005, the Company  acquired about 55% of the issued and outstanding
capital stock of Veridium from Viridis Capital, L.L.C. ("Viridis"), an affiliate
of Kevin Kreisler,  the Company's chairman and chief executive officer,  and 70%
of the issued and  outstanding  capital stock of INSEQ from  Incandent  Capital,
L.L.C.  ("Incandent"),  another affiliate of Kevin Kreisler,  in return for 46.3
million  shares  of the  Company's  common  stock,  1.0  million  shares  of the
Company's Series B Preferred Stock, and the assumption by the Company of certain
liabilities due to Cornell, CCS, Lakeland,  Candent,  Serenity, and Mr. Kreisler
(collectively,  the "Assumed  Liabilities").  The Company  common and  preferred
stock issued at closing  were worth an aggregate of about $3.47  million and the
Assumed  Liabilities  totaled  about $2.98  million,  for a total of about $6.54
million.  The Veridium and INSEQ securities  acquired from Viridis and Incandent
were  collectively  worth about $7.37  million as of April 1, 2005.  For reasons
mostly involving administrative  efficiency,  the consideration the Company paid
for both the Veridium and INSEQ  securities were paid to just Viridis as opposed
to both  Viridis and  Incandent  on a pro rated basis.  The  Company's  Series B
Preferred Stock issued to Viridis in this transaction is convertible on December
31, 2006 into the lesser of 50 million  shares of common stock or that number of
shares of commons  stock  which,  when added to Viridis'  other  holdings in the
Company, will equal 80% of the outstanding common stock on that date.



<PAGE>


     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2005

7.       RELATED PARTY TRANSACTIONS (continued)

TRANSACTIONS WITH ACUTUS CAPITAL, L.L.C.

On April 1,  2005,  the  Company  and its  wholly-owned  subsidiary,  GreenWorks
Corporation, entered into an Option Agreement with Acutus Capital, L.L.C. Acutus
Capital is the owner of 1,140,769  shares of the Company's  common stock,  which
correlated to 25% of the outstanding common stock as of March 31, 2005 (and 1.8%
as of June 30, 2005). The Option Agreement  affords Acutus the right to exchange
its common stock in the Company for 1,000,000 shares of GreenWorks, which shares
represent,  subject to further investments by the Company,  40% of the equity in
GreenWorks.  The Option  Agreement  further  provides  that, in the event of the
death or  incapacity of Kevin  Kreisler,  Acutus will have the right to exchange
its  common  shares  in  the  Company  for  1,575,000   shares  of   GreenWorks,
representing  51% of the outstanding  shares.  The Option  Agreement  expires on
March 31, 2015.  The Option  Agreement  had  previously  included an  adjustment
provision that acted to keep Acutus'  holdings in the Company  constant at 4.99%
of the issued and outstanding common stock of the Company.  The Option Agreement
had been  entered  into  prior to the  Company's  filing of its  election  to be
regulated  as a BDC under  the 1940 Act.  Prior to  filing  this  election,  the
Company and Acutus consented to the cancellation of this provision.

DEBENTURE CONVERSIONS

During  the three  months  ended June 30,  2005,  Candent  converted  a total of
$125,000 in debt into 5,769,231 shares of the Company's common stock. During the
three months ended June 30, 2005, Serenity converted a total of $185,000 in debt
into 5,922,650  shares of the Company's  common stock, of which 2,000,000 shares
had not been issued as of June 30, 2005. The president of Candent is the wife of
the  Company's  chairman.  All of the issued and  outstanding  capital  stock of
Candent is held in trust for the benefit of its president.  Serenity is owned by
a relative of the Company's chairman.

TRANSACTIONS WITH OUR CHAIRMAN AND CHIEF EXECUTIVE OFFICER

During 2005,  GreenShift  received  $135,504 in non-interest  bearing short term
loans from Kevin Kreisler, the Company's chairman and chief executive officer.

TRANSACTIONS WITH OUR PRESIDENT AND CHIEF FINANCIAL OFFICER

The  Company  is party to a  consulting  agreement  in the  original  amount  of
$150,000 with its president and chief financial officer,  James Grainer, for Mr.
Grainer's  services  from  prior to  April 1,  2005  relative  to the  Company's
formation. As of July 2005, the amount due to Mr. Grainer was paid in full.

8.       SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

For the three months  ended June 30,  2005,  the  Company's  non-cash  financing
activities included the issuances of a convertible debenture to Anthony Warnecke
in the  principal  amount of $400,000 in return for Series C Preferred  Stock in
INSEQ  Corporation,  the  issuance of common  stock in the  aggregate  amount of
$597,500 upon the  conversion of certain  debentures,  and $3,472,500 in capital
stock to Viridis  Capital,  L.L.C.,  relating to the  Company's  acquisition  of
Viridis'  holdings  in  Veridium  and INSEQ (see Note 5,  Shareholders'  Equity,
above).

9.       SUBSEQUENT EVENTS

NEW CORNELL DEBENTURES

Effective July 15, 2005, the Company entered into Securities Purchase Agreement,
with  Cornell  Capital  Partners,  LP, for the sale of $565,000  in  convertible
debentures (the "July 2005 Cornell  Debenture").  The debentures issued pursuant
to the July 2005 Cornell  Agreement bear annual  interest at 5%, mature on April
1, 2008, and are convertible  into the Company's common stock, at the investor's
option at the lower of the  Company's net asset value or the average of the five
lowest  closing  market  prices  for the  Company's  common  stock for the month
preceding any such conversion.



<PAGE>


     GREENSHIFT CORPORATION (F/K/A GREENWORKS CORPORATION) AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                    FOR THE THREE MONTHS ENDED JUNE 30, 2005

9.       SUBSEQUENT EVENTS (continued)

INVESTMENTS

Between  July 1, 2005 and the date of this  filing,  the Company  completed  the
following investments and transactions:

     o    The payment of $150,000  towards the Company's  investment  payable to
          Ethanol Oil Recovery Systems, L.L.C.;

     o    The payment of $208,961 to Veridium  Corporation as a deposit  towards
          GreenWorks  Corporation's  planned purchase of Veridium's  engineering
          services business;

     o    The execution of investment  agreements  with Sterling  Planet,  Inc.,
          pursuant to which the  Company  has agreed to purchase  $500,000 in 8%
          convertible  notes in Sterling and another  $500,000 in warrants  that
          will each  convert  into  Sterling  common  stock  upon the  sooner of
          Sterling's  completion of a larger  venture  capital raise or December
          31, 2005;

     o    The  execution  of  investment   agreements   with  Ovation   Products
          Corporation,  pursuant to which the Company agreed to purchase 200,000
          shares, or about 9.39%, of Ovation's outstanding stock for $1 million,
          and an option to  acquire  an  additional  400,000  shares of  Ovation
          common stock at $6.00 per share; and,

     o    The execution by GreenShift Industrial Design Corporation of a license
          agreement  with  Ovation for certain  applications  of  Ovation's  new
          patented  and  patent-pending  vapor  compression  water  purification
          technology and its new Clean Water Appliance.



<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

In addition to historical information,  this prospectus contains forward-looking
statements,  which are generally  identifiable  by use of the words  "believes,"
"expects,"  "intends,"  "anticipates,"  "plans to," "estimates,"  "projects," or
similar  expressions.  These  forward-looking  statements are subject to certain
risks and  uncertainties  that could cause actual  results to differ  materially
from those  reflected in these  forward-looking  statements.  Factors that might
cause such a difference include,  but are not limited to, those discussed in the
sections  entitled "Risk Factors" and  "Management's  Discussion and Analysis of
Financial  Condition  and Results of  Operations."  Readers are cautioned not to
place  undue  reliance  on  these  forward-looking  statements,   which  reflect
management's  opinions only as of the date hereof. We undertake no obligation to
revise or publicly release the results of any revision to these  forward-looking
statements.  Readers should carefully review the risk factors described in other
documents the Company files from time to time with the  Securities  and Exchange
Commission  (the "SEC"),  including  the  Quarterly  Reports on Form 10QSB to be
filed by us in the fiscal year 2005.

OVERVIEW

We are a business  development  company that provides  long-term debt and equity
investment  capital to companies and technologies  that facilitate the efficient
use of natural resources and catalyze transformational  environmental gains. Our
financing   is   generally   used  to  fund   growth,   acquisitions,   buyouts,
recapitalizations,  note  purchases,  bridge  financings,  and  other  types  of
financings.  We generally  invest in private  companies and  companies  that are
public but that lack access to additional public capital or whose securities may
not be marginable.

Our earnings depend primarily on the level of interest and dividend income,  fee
and other  income,  and net gains or losses earned on our  investment  portfolio
after deducting  interest  expense on borrowed  capital and operating  expenses.
Interest  income results from the stated  interest rate earned on a loan or debt
security and the amortization of loan origination fees and discounts.  The level
of interest  income is directly  related to the balance of the  interest-bearing
investment  portfolio  outstanding  during the period multiplied by the weighted
average yield. Our ability to generate interest income is dependent on economic,
regulatory,  and competitive factors that influence new investment activity, the
amount of loans and debt  securities  for which interest is not accruing and our
ability to secure debt and equity capital for our investment activities.

Because we are a regulated  investment  company for tax  purposes,  we intend to
distribute  substantially  all of our annual  taxable income as dividends to our
shareholders.

PORTFOLIO AND INVESTMENT ACTIVITY

The  total  portfolio  at  value,   investment   activity,   and  the  yield  on
interest-bearing  investments  at and for the three  months ended June 30, 2005,
were as follows

                                                                       6/30/05
                                                                    -----------
Portfolio at value                                                  $ 9,213,723
Investments funded                                                      174,761
Change in accrued or reinvested interest and dividends                  350,000
Principal collections related to investment repayments or sales              --
Yield on interest-bearing investments                                        --

The level of investment activity for investments funded and principal repayments
for our investments can vary  substantially  from period to period  depending on
many  factors,  including  the amount of debt and equity  capital  available  to
middle market companies,  the level of merger and acquisition  activity for such
companies, the general economic environment, and the competitive environment for
the types of  investments  we make.  We  believe  that  merger  and  acquisition
activity  in the middle  market was strong in the first  quarter of 2005,  which
when combined with a lower interest rate environment  resulted in an increase in
private finance investments funded, as well as increased  repayments.  The first
quarter of the year tends to be a seasonally  slower period for deal closings as
the industry  recovers from what is typically an active fourth  quarter  closing
schedule.

Investments funded for the three months ended June 30, 2005 consisted of the
following:

                                                                        6/30/05
                                                                      ---------
Companies more than 25% owned (Veridium Corporation)                  $  74,761
Companies 5% to 25% owned (Ethanol Oil Recovery Systems, L.L.C.         100,000
                                                                      ---------
   Total                                                              $ 174,761

<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

PORTFOLIO AND INVESTMENT ACTIVITY (continued)

We intend to continue a balanced  approach  to private  finance  investing  that
emphasizes  a   complementary   mix  of  non-control   investments   and  buyout
investments,  subject to regulatory diversity  requirements.  The combination of
these two types of investments  provides current interest and related  portfolio
income and the potential for future  capital gains.  Our current  strategy is to
focus  on  buyout  and  recapitalization  transactions  where we can  control  a
portfolio  company  to manage  risk and where we can  potentially  realize  more
attractive  total  returns from both current  interest and fee income and future
capital gains. In addition to our mezzanine  investing,  we are also focusing on
smaller  strategically   compatible  middle  market  companies  for  non-control
transactions where we can provide either or both equity and/or debt financing.

We  generally  fund new  investments  using cash.  In  addition,  we may acquire
securities  in  exchange  for  our  common  equity.  Also,  we may  acquire  new
securities through the reinvestment of previously accrued interest and dividends
in debt or equity  securities,  or the  current  reinvestment  of  interest  and
dividend   income   through   the   receipt   of  a  debt  or  equity   security
(payment-in-kind  income).  From  time to time  we may opt to  reinvest  accrued
interest  receivable in a new debt or equity  security in lieu of receiving such
interest in cash.

At June 30, 2005, we had an  outstanding  investment  commitments to Ethanol Oil
Recovery Systems, L.L.C., totaling $1.1 million.

The Company's largest investments at June 30, 2005, were in Veridium Corporation
("Veridium")  (OTC Bulletin  Board:  VRDM),  INSEQ  Corporation  ("INSEQ")  (OTC
Bulletin Board:  INSQ),  GreenWorks  Corporation  ("GreenWorks") and Ethanol Oil
Recovery Systems, Inc. ("EORS").

Veridium Corporation

At June 30, 2005,  our  investment  in Veridium  totaled  $4,929,937 at cost and
$3,680,586  at  value,  or 38.0% of our  total  assets,  which  include  a total
unrealized appreciation for the three months ended June 30, 2005 of $105,382.

Total  interest  and related  portfolio  income  earned from our  investment  in
Veridium  for the three  months  ended  June 30,  2005,  was $0.  Net  change in
unrealized  appreciation  or  depreciation  for the three  months ended June 30,
2005, includes $(1,249,351) in unrealized depreciation related to Veridium.

Veridium  is a  publicly-traded  environmental  management  company  providing a
variety  of  services  to a broad  client  base in both the  private  and public
sectors with a specialization in the recycling and reuse of industrial hazardous
wastes.  Veridium's services include collection and transportation of industrial
wastes,  site  remediation,  and recycling of metal-bearing and chemical wastes.
Veridium's  focus is to provide its clients  with  value-added,  environmentally
conscious and  cost-effective  hazardous waste management  services based on its
efficient managing of wastes and use of green technologies.

Our chairman and chief executive officer,  Kevin Kreisler,  is also the chairman
of Veridium Corporation.  As the controlling  shareholder of the Company, who is
in  turn  the   controlling   shareholder   of   Veridium,   Mr.   Kreisler  has
unconditionally guaranteed certain of Veridium's debts with its creditors.

INSEQ Corporation

At June 30,  2005,  our  investment  in  INSEQ  totaled  $1,988,967  at cost and
$2,427,956  at  value,  or 25.1% of our  total  assets,  which  include  a total
unrealized appreciation for the three months ended June 30, 2005 of $105,382.

Total interest and related  portfolio income earned from our investment in INSEQ
for the three months ended June 30, 2005,  was  $100,000,  which  includes $0 of
interest income and fees and other income of $100,000.  Net change in unrealized
appreciation or depreciation for the three months ended June 30, 2005,  includes
$438,689 in unrealized appreciation related to INSEQ.

INSEQ is a publicly traded  corporation whose mission is to directly  facilitate
the efficient utilization of primary and secondary commodities including metals,
chemicals, fuels and plastics.

Our chairman and chief executive officer,  Kevin Kreisler,  is also the chairman
of INSEQ, and our president and chief financial officer,  James Grainer, is also
the  president  and  chief  financial  officer  of  INSEQ.  As  the  controlling
shareholder of the Company, who is in turn the controlling shareholder of INSEQ,
Mr. Kreisler and the Company have unconditionally  guaranteed certain of INSEQ's
debts with its creditors.



<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

PORTFOLIO AND INVESTMENT ACTIVITY (continued)

GreenWorks Corporation

At June 30, 2005,  our  investment  in GreenWorks  totaled  $500,000 at cost and
$1,605,000  at  value,  or 16.6% of our  total  assets,  which  include  a total
unrealized appreciation for the three months ended June 30, 2005 of $105,382.

Total  interest  and related  portfolio  income  earned from our  investment  in
GreenWorks for the three months ended June 30, 2005, was $50,000, which includes
$0 of  interest  income  and fees and other  income of  $50,000.  Net  change in
unrealized  appreciation  or  depreciation  for the three  months ended June 30,
2005, includes $663,000 in unrealized appreciation related to GreenWorks.

GreenWorks  is an  environmental  engineering  services  company  that  provides
consulting,  technical and engineering  services to alleviate the  environmental
problems  of its  clients.  GreenWorks'  clients  include  Fortune 100 and other
industrial   companies,   commercial   firms,   engineering   and   construction
contractors,  law  firms,  utilities,  real  estate  developers  and  government
entities.

Our chairman and chief executive officer,  Kevin Kreisler,  is also the chairman
of GreenWorks,  and our president and chief financial officer, James Grainer, is
also the president and chief financial officer of GreenWorks.

Ethanol Oil Recovery Systems, L.L.C.

At June  30,  2005,  our  investment  in EORS  totaled  $1,197,437  at cost  and
$1,305,931  at  value,  or 13.5% of our  total  assets,  which  include  a total
unrealized appreciation for the three months ended June 30, 2005 of $105,382.

Total interest and related  portfolio  income earned from our investment in EORS
for the three  months  ended June 30,  2005,  was $0.  Net change in  unrealized
appreciation or depreciation for the three months ended June 30, 2005,  includes
$108,494 in unrealized appreciation related to EORS.

EORS,  a  green  technology  development  company,  is  the  inventor  of a  new
patent-pending  technology  for the  cost-effective  conversion of corn oil into
biodiesel  fuels.  EORS plans to license  its  technology  to a new  development
partnership called SunSource  BioEnergy,  LLC, that plans to initiate operations
at a new biodiesel facility based on the EORS technology in 2007.

RESULTS OF OPERATIONS

Total Interest and Related Portfolio Equity Income

Total  interest  and related  portfolio  income  includes  interest and dividend
income,  loan payments,  and fees and other income. We generated no interest and
dividend income during the three months ended June 30, 2005.

Fees and other income for the three months ended June 30, 2005, was composed of
the following:

                                                                         6/30/05
                                                                      ----------
Management services provided to portfolio companies                   $  200,000
Transactional and other services provided to portfolio companies              --
Structuring and diligence services provided for portfolio companies      150,000
Other income                                                                  --
                                                                      ----------
   Total                                                              $  350,000

Fees and other income are generally related to specific transactions or services
and  therefore  may vary  substantially  from period to period  depending on the
level and types of services provided.

Operating Expenses

Operating expenses include interest,  employee, and administrative expenses. Our
interest expense is mostly associated with our various  convertible  debentures,
and  totaled  $48,763  during the three  months  ended June 30,  2005.  Employee
expenses include salaries and employee  benefits and the individual  performance
award and  bonuses,  and totaled $0 during the three months ended June 30, 2005.
Administrative  expenses include legal and accounting fees, valuation assistance
fees,  insurance  premiums,  the cost of leases for our  offices,  stock  record
expenses,  directors'  fees, and various other  expenses,  and totaled  $120,541
during the three months ended June 30, 2005.



<PAGE>


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

RESULTS OF OPERATIONS (continued)

Realized Gains and Losses

Net  realized  gains  primarily  result  from  the  sale  of  equity  securities
associated with certain  investments,  and the sale of debt, bonds and preferred
shares.  Net realized  gains for the three months ended June 30, 2005,  were $0.
When we exit an  investment  and realize a gain or loss,  we make an  accounting
entry to reverse any unrealized appreciation or depreciation,  respectively,  we
had previously  recorded to reflect the appreciated or depreciated  value of the
investment. For the three months ended June 30, 2005, we made no such reversals.

Change in Unrealized Appreciation or Depreciation

We determine the value of each investment in our portfolio on a quarterly basis,
and changes in value result in unrealized  appreciation  or  depreciation  being
recognized in our statement of operations. Value, as defined in Section 2(a)(41)
of the  Investment  Company  Act of 1940,  is (i) the  market  price  for  those
securities  for which a market  quotation is readily  available and (ii) for all
other  securities  and assets,  fair value is as determined in good faith by the
Board of Directors.  Since there is typically no readily  available market value
for  the  investments  in  our  portfolio,  we  value  substantially  all of our
portfolio  investments at fair value as determined in good faith by the Board of
Directors  pursuant to a valuation policy and a consistently  applied  valuation
process.

The Company  relies on the  services  of an  independent  third party  valuation
company,  Business Valuation Center of Reston,  Virginia ("BVC"),  to provide an
independent  assessment of the fair market value of the  Company's  investments.
The Company's financial statements for the three months ended June 30, 2005 have
been prepared in connection with BVC's conclusions, which conclusions were based
on a variety of conventionally accepted valuation methods.

At June 30,  2005,  portfolio  investments  recorded  at fair value  constituted
greater than 98% of our total  assets.  Because of the inherent  uncertainty  of
determining the fair value of investments  that do not have a readily  available
market value, the fair value of our investments  determined in good faith by the
Board of Directors may differ significantly from the values that would have been
used had a ready market existed for the investments,  and the differences  could
be material.

There is no single  standard  for  determining  fair value in good  faith.  As a
result, determining fair value requires that judgment be applied to the specific
facts  and  circumstances  of  each  portfolio   investment  while  employing  a
consistently  applied  valuation  process for the types of  investments we make.
Unlike banks,  we are not permitted to provide a general reserve for anticipated
loan losses.  Instead,  we are required to  specifically  value each  individual
investment  on a quarterly  basis.  We will record  unrealized  depreciation  on
investments  when we believe that an investment has become  impaired,  including
where collection of a loan or realization of an equity security is doubtful,  or
when the enterprise  value of the portfolio  company does not currently  support
the cost of our debt or equity  investment.  Enterprise  value  means the entire
value of the company to a potential  buyer,  including  the sum of the values of
debt and equity securities used to capitalize the enterprise at a point in time.
We will  record  unrealized  appreciation  if we  believe  that  the  underlying
portfolio  company has  appreciated  in value and our equity  security  has also
appreciated  in value.  Changes in fair value are  recorded in the  statement of
operations as net change in unrealized appreciation or depreciation.

As a business  development  company,  we have  invested in  illiquid  securities
including debt and equity  securities of companies,  and preferred  shares.  The
structure  of each  private  finance  debt and equity  security is  specifically
negotiated to enable us to protect our investment  and maximize our returns.  We
include  many  terms  governing  interest  rate,  repayment  terms,   prepayment
penalties,  financial  covenants,  operating  covenants,  ownership  parameters,
dilution  parameters,  liquidation  preferences,  voting rights, and put or call
rights.  Our  investments  are generally  subject to  restrictions on resale and
generally have no established trading market. Because of the type of investments
that we make and the nature of our business,  our valuation  process requires an
analysis of various factors. Our fair value methodology includes the examination
of,  among  other  things,  the  underlying  investment  performance,  financial
condition, and market changing events that impact valuation.

Valuation Methodology

Our  process  for  determining  the fair value of a private  finance  investment
begins with determining the enterprise value of the portfolio company.  The fair
value of our investment is based on the enterprise  value at which the portfolio
company could be sold in an orderly disposition over a reasonable period of time
between  willing  parties  other  than in a  forced  or  liquidation  sale.  The
liquidity  event whereby we exit a private  finance  investment is generally the
sale, the recapitalization or, in some cases, the initial public offering of the
portfolio company.
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

RESULTS OF OPERATIONS (continued)

Change in Unrealized Appreciation or Depreciation (continued)

Valuation Methodology (continued)

There is no one methodology to determine  enterprise value and, in fact, for any
one portfolio  company,  enterprise  value is best  expressed as a range of fair
values, from which we derive a single estimate of enterprise value. To determine
the  enterprise  value of a portfolio  company,  we analyze its  historical  and
projected financial results. We generally require portfolio companies to provide
annual audited and quarterly unaudited financial  statements,  as well as annual
projections  for the  upcoming  fiscal  year.  Typically  in the private  equity
business, companies are bought and sold based on multiples of EBITDA, cash flow,
net income, revenues or, in limited instances, book value.

The private equity  industry uses  financial  measures such as EBITDA or EBITDAM
(Earnings  Before  Interest,  Taxes,  Depreciation,  Amortization  and,  in some
instances,  Management fees) in order to assess a portfolio  company's financial
performance  and to  value a  portfolio  company.  EBITDA  and  EBITDAM  are not
intended to represent  cash flow from  operations  as defined by U.S.  generally
accepted accounting  principles and such information should not be considered as
an alternative to net income, cash flow from operations, or any other measure of
performance  prescribed by U.S. generally accepted accounting  principles.  When
using  EBITDA  to  determine   enterprise   value,  we  may  adjust  EBITDA  for
non-recurring  items.  Such  adjustments  are  intended to  normalize  EBITDA to
reflect  the  portfolio  company's  earnings  power.  Adjustments  to EBITDA may
include  compensation  to previous  owners,  acquisition,  recapitalization,  or
restructuring related items or one-time non-recurring income or expense items.

In  determining a multiple to use for valuation  purposes,  we generally look to
private merger and acquisition  statistics,  discounted public trading multiples
or industry practices. In estimating a reasonable multiple, we consider not only
the fact that our portfolio  company may be a private company relative to a peer
group of  public  comparables,  but we also  consider  the size and scope of our
portfolio company and its specific strengths and weaknesses.  In some cases, the
best  valuation  methodology  may be a discounted  cash flow  analysis  based on
future projections. If a portfolio company is distressed, a liquidation analysis
may provide the best indication of enterprise value.

If there is adequate  enterprise value to support the repayment of our debt, the
fair value of our loan or debt security normally  corresponds to cost unless the
borrower's condition or other factors lead to a determination of fair value at a
different amount.  The fair value of equity interests in portfolio  companies is
determined  based on various  factors,  including the enterprise value remaining
for equity holders after the repayment of the portfolio company's debt and other
preference  capital,  and  other  pertinent  factors  such as  recent  offers to
purchase a portfolio company, recent transactions involving the purchase or sale
of the portfolio  company's equity securities,  or other liquidation events. The
determined  equity  values  are  generally  discounted  when we have a  minority
position, restrictions on resale, specific concerns about the receptivity of the
capital markets to a specific company at a certain time, or other factors.

As a participant in the private equity business,  we invest primarily in private
middle  market  companies  for which there is  generally  no publicly  available
information.  Because of the private nature of these businesses, there is a need
to maintain the  confidentiality  of the financial and other information that we
have for the private  companies in our  portfolio.  We believe that  maintaining
this  confidence  is  important,   as  disclosure  of  such  information   could
disadvantage  our  portfolio  companies  and could put us at a  disadvantage  in
attracting new investments. Therefore, we do not intend to disclose financial or
other information  about our portfolio  companies,  unless required,  because we
believe  doing  so may put  them at an  economic  or  competitive  disadvantage,
regardless of our level of ownership or control.

To  balance  the  lack of  publicly  available  information  about  our  private
portfolio  companies,  we will  continue  to work with  independent  third-party
consultants to obtain  assistance in determining fair value for a portion of the
private finance portfolio each quarter. We work with these consultants to obtain
assistance as additional  support in the  preparation of our internal  valuation
analysis for a portion of the portfolio each quarter (for all investments with a
cost or value greater than $250,000).  In addition,  we may receive  independent
assessments of a particular  private  finance  portfolio  company's value in the
ordinary  course of business,  most often in the context of a  prospective  sale
transaction or in the context of a bankruptcy  process.  The valuation  analysis
prepared by management using these independent  valuation resources is submitted
to our Board of Directors for its  determination  of fair value of the portfolio
in good faith.
<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

RESULTS OF OPERATIONS (continued)

Change in Unrealized Appreciation or Depreciation (continued)

Valuation Methodology (continued)

At June 30,  2005,  Business  Valuation  Center,  Inc.  ("BVC")  assisted  us by
reviewing our valuations of our portfolio companies.  For the remaining quarters
in 2005,  we intend to  continue  to obtain  valuation  assistance  from BVC and
possibly other third  parties.  We currently  anticipate  that we will generally
obtain  assistance  for all  companies in the  portfolio  that are more than 50%
owned  for each of the  remaining  quarters  in 2005 and that we will  generally
obtain  assistance  for  companies  that are  equal to or less than 50% owned at
least  once  during  the  course of the year.  Valuation  assistance  may not be
obtained  for new  companies  that  enter  the  portfolio  after  June 30 of any
calendar year during that year. We estimate that professional fees for valuation
assistance for all of 2005 will be approximately $30,000.

OTHER MATTERS

Per Share Amounts

All per share amounts  included in the  Management's  Discussion and Analysis of
Financial  Condition and Results of Operations  section have been computed using
the weighted  average  common shares  outstanding  to compute basic earnings per
share,  which were 21.8  million per share for the three  months  ended June 30,
2005.

Regulated Investment Company Status

We have elected to be taxed as a regulated investment company under Subchapter M
of the  Internal  Revenue  Code of 1986.  As long as we qualify  as a  regulated
investment company, we are not taxed on our investment company taxable income or
realized net capital gains,  to the extent that such taxable income or gains are
distributed, or deemed to be distributed, to shareholders on a timely basis.

Taxable  income  generally  differs  from net  income  for  financial  reporting
purposes due to temporary and permanent differences in the recognition of income
and  expenses,   and  generally   excludes  net   unrealized   appreciation   or
depreciation,  as gains or losses are not included in taxable  income until they
are realized.  In addition,  gains realized for financial reporting purposes may
differ  from gains  included  in taxable  income as a result of our  election to
recognize gains using installment sale treatment, which results in the deferment
of gains for tax purposes until notes received as consideration from the sale of
investments are collected in cash.

Dividends  declared  and paid by the  Company in a year  generally  differ  from
taxable income for that year as such dividends may include the  distribution  of
current year  taxable  income,  the  distribution  of prior year taxable  income
carried forward into and distributed in the current year, or returns of capital.
We are  generally  required to distribute  98% of our taxable  income during the
year the income is earned to avoid paying an excise tax. If this  requirement is
not met, the Code imposes a  nondeductible  excise tax equal to 4% of the amount
by which 98% of the current year's taxable income exceeds the  distribution  for
the year. The taxable income on which an excise tax is paid is generally carried
forward and distributed to  shareholders in the next tax year.  Depending on the
level of taxable  income  earned in a tax year,  we may choose to carry  forward
taxable  income in excess of current year  distributions  into the next tax year
and pay a 4% excise tax on such income, as required.

In order to maintain our status as a regulated  investment  company, we must, in
general,  (1) continue to qualify as a business  development company; (2) derive
at least 90% of our gross income from dividends,  interest,  gains from the sale
of   securities   and  other   specified   types  of  income;   (3)  meet  asset
diversification  requirements  as defined in the Internal  Revenue Code; and (4)
timely distribute to shareholders at least 90% of our annual investment  company
taxable  income as defined in the Internal  Revenue  Code. We intend to take all
steps  necessary  to  continue  to qualify as a  regulated  investment  company.
However,  there can be no  assurance  that we will  continue to qualify for such
treatment in future years



<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

FINANCIAL CONDITIONS, LIQUIDITY AND CAPITAL RESOURCES

Our  portfolio  is  expected  to  generate  cash flow from  which we plan to pay
dividends to shareholders and fund new investment activity.  Cash generated from
the  portfolio  includes cash flow from net  investment  income and net realized
gains and principal  collections related to investment repayments or sales. Cash
provided by our  operating  activities  before new  investment  activity for the
three months ended June 30, 2005, was $0.

From the cash provided by operating  activities before new investments,  we make
new portfolio investments,  fund our operating activities,  and pay dividends to
shareholders.  We also  raise new debt and equity  capital  from time to time in
order to fund our investments and operations.

While we paid no  dividends  during the three  months  ended June 30,  2005,  we
expect to do so in the future. Dividends will generally be determined based upon
an estimate of annual  taxable  income,  which  includes  our taxable  interest,
dividend  and fee income,  as well as taxable net capital  gains.  As  discussed
above,  taxable income generally differs from net income for financial reporting
purposes due to temporary and permanent differences in the recognition of income
and  expenses,   and  generally   excludes  net   unrealized   appreciation   or
depreciation,  as gains or losses are not included in taxable  income until they
are  realized.  Taxable  income  includes  non-cash  income,  such as changes in
accrued and reinvested  interest and dividends and the amortization of discounts
and fees. Cash collections of income resulting from contractual  payment-in-kind
interest or the  amortization  of discounts  and fees  generally  occur upon the
repayment of the loans or debt  securities  that  include  such items.  Non-cash
taxable  income is reduced by non-cash  expenses,  such as  realized  losses and
depreciation and amortization expense.

Our Board of Directors  reviews the dividend rate quarterly,  and may adjust the
quarterly  dividend  throughout the year.  Dividends are declared based upon our
estimate of annual taxable income  available for  distribution to  shareholders.
Our goal is to  declare  what we  believe  to be  sustainable  increases  in our
regular quarterly dividends. To the extent that we earn annual taxable income in
excess of  dividends  paid for the year,  we may spill over the  excess  taxable
income  into  the next  year  and  such  excess  income  will be  available  for
distribution  in the next year.  Excess taxable income spilled over and paid out
in the next  year may be  subject  to a 4% excise  tax (see  "Other  Matters  --
Regulated  Investment  Company  Status"  above).  We believe that  spilling over
excess taxable income into future periods may provide increased  visibility with
respect to taxable earnings available to pay the regular quarterly dividend.

Because we are a regulated  investment company, we distribute our taxable income
and,  therefore,  from time to time we will raise new debt or equity  capital in
order to fund our investments and operations.

At June 30, 2005, our total assets, total debt outstanding,  total shareholders'
equity,  debt to equity ratio and asset coverage for senior indebtedness were as
follows:

                                                                       6/30/05
                                                                     ----------
Total assets                                                        $ 9,677,084
Total debt outstanding                                                4,679,892
Total shareholders' equity                                            4,574,034
Debt to equity ratio                                                       1.02
Asset coverage ratio(1)                                                    207%

(1)  As a business  development company, we are generally required to maintain a
     minimum ratio of 200% of total assets to total borrowings.

We  currently  target  a debt to  equity  ratio  ranging  between  0.75:1.00  to
1.25:1.00. We believe that it is prudent to operate with a larger equity capital
base and less  leverage,  but we may from time to time  increase our leverage to
exploit compelling investment opportunities.  During the three months ended June
30,  2005,  we  completed  $100,000  in equity  financing  and  $322,312 in debt
financing to provide cash for our operations.





<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

CRITICAL ACCOUNTING POLICIES

The consolidated financial statements are based on the selection and application
of critical  accounting  policies,  which require management to make significant
estimates and assumptions.  Critical accounting policies are those that are both
important  to the  presentation  of  our  financial  condition  and  results  of
operations  and require  management's  most  difficult,  complex,  or subjective
judgments.  Our  critical  accounting  policies  are  those  applicable  to  the
valuation of investments  and certain revenue  recognition  matters as discussed
below.

Valuation of Portfolio Investments

As a business  development  company, we invest in illiquid securities  including
debt and equity  securities of companies.  Our investments are generally subject
to  restrictions  on resale and generally have little to no established  trading
market.  We  value  substantially  all of  our  investments  at  fair  value  as
determined  in good  faith by the  Board of  Directors  in  accordance  with our
valuation  policy.  We  determine  fair  value  to be the  amount  for  which an
investment could be exchanged in an orderly disposition over a reasonable period
of time between willing parties other than in a forced or liquidation  sale. Our
valuation   policy   considers   the  fact  that  no  ready  market  exists  for
substantially all of the securities in which we invest.  Our valuation policy is
intended to provide a  consistent  basis for  determining  the fair value of the
portfolio. We will record unrealized depreciation on investments when we believe
that an investment has become impaired,  including where collection of a loan or
realization of an equity security is doubtful,  or when the enterprise  value of
the portfolio  company does not currently support the cost of our debt or equity
investments.  Enterprise  value  means  the  entire  value of the  company  to a
potential buyer,  including the sum of the values of debt and equity  securities
used to capitalize the enterprise at a point in time. We will record  unrealized
appreciation if we believe that the underlying portfolio company has appreciated
in value and our equity  security has also  appreciated  in value.  The value of
investments  in publicly  traded  securities is  determined  using quoted market
prices discounted for restrictions on resale, if any.

Loans and Debt Securities

For loans and debt securities, fair value generally approximates cost unless the
borrower's  enterprise value,  overall financial condition or other factors lead
to a determination of fair value at a different amount.

When we receive nominal cost warrants or free equity  securities  ("nominal cost
equity"),  we allocate our cost basis in our investment  between debt securities
and nominal cost equity at the time of  origination.  At that time, the original
issue  discount  basis of the nominal cost equity is recorded by increasing  the
cost basis in the  equity and  decreasing  the cost  basis in the  related  debt
securities.

Interest  income is recorded on an accrual basis to the extent that such amounts
are expected to be collected.  For loans and debt  securities  with  contractual
payment-in-kind  interest,  which  represents  contractual  interest accrued and
added to the loan balance that  generally  becomes due at maturity,  we will not
accrue  payment-in-kind  interest if the portfolio company  valuation  indicates
that the payment-in-kind interest is not collectible. Interest on loans and debt
securities is not accrued if we have doubt about interest  collection.  Loans in
workout  status that are  classified  as Grade 4 or 5 assets  under our internal
grading system do not accrue interest.  In addition,  interest may not accrue on
loans or debt securities to portfolio  companies that are more than 50% owned by
us depending on such company's  capital  requirements.  Loan  origination  fees,
original issue discount,  and market discount are capitalized and then amortized
into interest income using the effective interest method. Upon the prepayment of
a loan or debt security,  any unamortized  loan origination fees are recorded as
interest income and any  unamortized  original issue discount or market discount
is recorded as a realized  gain.  Prepayment  premiums are recorded on loans and
debt securities when received.

Equity Securities

Our equity interests in portfolio  companies for which there is no liquid public
market are valued at fair value based on the  enterprise  value of the portfolio
company,  which is determined  using various  factors,  including cash flow from
operations of the portfolio company and other pertinent factors,  such as recent
offers to  purchase a  portfolio  company,  recent  transactions  involving  the
purchase  or  sale  of the  portfolio  company's  equity  securities,  or  other
liquidation  events.  The determined  equity values are generally  discounted to
account for restrictions on resale or minority ownership positions.

The  value  of our  equity  interests  in  public  companies  for  which  market
quotations are readily  available is based on the closing public market price on
the balance sheet date.  Securities that carry certain  restrictions on sale are
typically valued at a discount from the public market value of the security.



<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

CRITICAL ACCOUNTING POLICIES (continued)

Equity Securities (continued)

Dividend income is recorded on preferred  equity  securities on an accrual basis
to the extent that such  amounts are  expected  to be  collected,  and on common
equity securities on the record date for private companies or on the ex-dividend
date for publicly traded companies.

Net  Realized  Gains or Losses  and Net  Change in  Unrealized  Appreciation  or
Depreciation

Realized gains or losses are measured by the difference between the net proceeds
from the repayment or sale and the cost basis of the  investment  without regard
to unrealized  appreciation or depreciation  previously recognized,  and include
investments  charged  off  during  the year,  net of  recoveries.  Net change in
unrealized  appreciation  or  depreciation  reflects  the  change  in  portfolio
investment  values  during the  reporting  period,  including  the  reversal  of
previously recorded unrealized appreciation or depreciation when gains or losses
are realized.

Fee Income

Fee income includes fees for guarantees and services rendered by us to portfolio
companies and other third parties such as  diligence,  structuring,  transaction
services,  management services,  and other advisory services.  Guaranty fees are
recognized  as  income  over the  related  period  of the  guaranty.  Diligence,
structuring,  and transaction  services fees are generally  recognized as income
when  services  are  rendered or when the related  transactions  are  completed.
Management and other advisory  services fees are generally  recognized as income
as the services are rendered.

RISKS FACTORS

We have  negligible  operations to date, so our ability to remain  profitable is
speculative.

We only recently initiated  operations as an investment  company.  No assurances
can be given that we will remain profitable.

We may change our investment policies without further shareholder approval.

We may change our investment policies without shareholder approval. We currently
do not intend to change our  investment  policies  and do not expect to do so in
the  future,  although we may do so. We will  notify our  shareholders  if we do
change our investment policies.

Our investments may not generate sufficient income to cover our operations.

We intend to make  investments  into  qualified  companies that will provide the
greatest overall return on our investment. However, certain of those investments
may fail,  in which case we will not  receive any return on our  investment.  In
addition,  our  investments  may not generate  income,  either in the  immediate
future,  or at all. As a result, we may have to sell additional stock, or borrow
money, to cover our operating expenses.

We need to raise capital in order to fulfill our business plan.

We have  generated no revenues and have  extremely  limited cash  liquidity  and
capital  resources.  Any  equity  financings  could  result in  dilution  to our
stockholders. Debt financing may result in high interest expense. Any financing,
if available,  may be on unfavorable  terms. If we cannot obtain adequate funds,
we may be required to reduce or curtail operations.

Investing in our stock is highly  speculative  and you could lose some or all of
your investment.

The value of our common stock may decline and may be affected by numerous market
conditions, which could result in the loss of some or the entire amount invested
in our stock. The securities  markets  frequently  experience  extreme price and
volume  fluctuations  that affect  market  prices for  securities  of  companies
generally and very small capitalization companies such as us in particular.

We are subject to regulatory risks as a business development company.

We are subject to regulation as a BDC. The loans and other  investments  that we
expect to make in small  business  concerns are extremely  speculative.  Many of
these  concerns  will be  privately  held.  Even if a public  market  for  their
securities  later  develops,  the  securities  we  purchase  are  likely  to  be
restricted  from sale or other transfer for significant  periods of time.  These
securities will be very illiquid.


<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

RISK FACTORS (continued)

We have received a letter from the Staff of Securities  and Exchange  Commission
that raised  concerns as to whether all material  information  about the Company
was  included in our recent Form 1-E and  Offering  Circular  filed  pursuant to
Regulation E of the 1940 Act.

We filed a Form 1-E and Offering Circular with the U.S.  Securities and Exchange
Commission on April 22, 2005,  pursuant to which we plan to offer for sale up to
$5 million of its common stock. This offering commenced on May 6, 2005, pursuant
to an exemption from  registration  in Regulation E of the 1940 Act as set forth
in Rule 604(a)  thereunder.  Copies of this offering circular are available upon
request. On July 22, 2005, we received a letter from the Staff of Securities and
Exchange Commission (the "Letter"),  which raised various issues including among
other things issues as to whether all material information about the Company was
included in the Offering Circular. The Company responded to the Staff's comments
on August 12, 2005, addressing the Staff's concerns. It is our position that all
material  information  about the Company,  from both prior to and after we filed
our election to be regulated as an  investment  company  under the 1940 Act, had
been included in the Offering  Circular.  We intend to resolve the issues raised
by the Staff as promptly as practicable.

Our business development could be hindered if we lost the services of our Chief
Executive Officer or our Chief Financial Officer.

Kevin Kreisler and James Grainer are our only executive officers. Together, they
are responsible for  strategizing  not only our business plan but also the means
of  financing  it. If either  Mr.  Grainer or Mr.  Kreisler  were to leave us or
become unable to fulfill his responsibilities,  our business would be imperiled.
At the very least,  there would be a delay in the development of our plans until
a suitable replacement for the officer could be retained.

Viridis Capital LLC controls over 80% of the Company's  voting power and has the
ability to exercise significant influence over matters submitted for stockholder
approval and its interests may differ from other stockholders.

Viridis  Capital,  LLC, an affiliate of Kevin  Kreisler,  our chairman and chief
executive officer, owns the majority of our common stock.  Accordingly,  Viridis
will have  significant  influence in  determining  the outcome of any  corporate
transaction  or  other  matter  submitted  to  our  stockholders  for  approval,
including  mergers,  acquisitions,   consolidations  and  the  sale  of  all  or
substantially  all of our  assets,  and also has the power to prevent or cause a
change in  control.  The  interests  of these  stockholders  may differ from the
interests of the other stockholders.

Substantially  all of our  portfolio  investments  are recorded at fair value as
determined  in good faith by our Board of Directors  and, as a result,  there is
uncertainty regarding the value of our portfolio investments.

At  June  30,  2005,   portfolio   investments   recorded  at  fair  value  were
approximately 98% of our total assets.  Pursuant to the requirements of the 1940
Act, we value  substantially  all of our investments at fair value as determined
in good faith by our Board of  Directors  on a quarterly  basis.  Since there is
typically  no  readily  available  market  value  for  the  investments  in  our
portfolio,  our Board of  Directors  determines  in good faith the fair value of
these  investments  pursuant to a valuation  policy and a  consistently  applied
valuation process.

The Company  relies on the  services  of an  independent  third party  valuation
company,  Business Valuation Center of Reston,  Virginia ("BVC"),  to provide an
independent  assessment of the fair market value of the  Company's  investments.
The Company's financial statements for the three months ended June 30, 2005 have
been prepared in connection with BVC's conclusions, which conclusions were based
on a variety of conventionally  accepted valuation  methods.  There is no single
standard for determining fair value in good faith. As a result, determining fair
value requires that judgment be applied to the specific facts and  circumstances
of each portfolio  investment while employing a consistently  applied  valuation
process for the types of investments we make. Unlike banks, we are not permitted
to  provide a general  reserve  for  anticipated  loan  losses;  we are  instead
required by the 1940 Act to specifically  value each individual  investment on a
quarterly  basis and record  unrealized  depreciation  for an investment that we
believe has become impaired, including where collection of a loan or realization
of an equity security is doubtful, or when the enterprise value of the portfolio
company does not  currently  support the cost of our debt or equity  investment.
Enterprise  value means the entire  value of the  company to a potential  buyer,
including the sum of the values of debt and equity securities used to capitalize
the enterprise at a point in time. We will record unrealized  appreciation if we
believe that the underlying  portfolio  company has appreciated in value and our
equity  security  has also  appreciated  in value.  Without a readily  available
market  value and because of the inherent  uncertainty  of  valuation,  the fair
value of our investments  determined in good faith by the Board of Directors may
differ  significantly  from the  values  that  would  have been used had a ready
market existed for the investments, and the differences could be material.


<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

RISK FACTORS (continued)

There is likely to be no liquid market for our portfolio investments.

Our current investments are, and we expect that most of our intended investments
will be,  either equity  securities  acquired  directly from small  companies or
below investment  grade  subordinated  debt securities.  Our portfolio of equity
securities  will usually be subject to  restrictions on resale or otherwise have
no  established  trading  market.  The  illiquidity of most of our portfolio may
adversely  affect our ability to dispose of such securities at times when it may
be  advantageous  for us even if our  portfolio  companies  are able to  develop
commercially viable products; the market for new products and services is highly
competitive and rapidly changing. Commercial success is difficult to predict and
the marketing efforts of our expected portfolio companies may not be successful.

We plan to invest primarily in small, private companies.

There are significant risks inherent in our planned venture capital business. We
intend to invest a substantial  portion of our assets in early stage or start-up
companies.  These private  businesses  tend to be thinly  capitalized,  unproven
small companies with risky  technologies that lack management depth and have not
attained  profitability  or  have  no  history  of  operations.  Because  of the
speculative nature and the lack of a public market for these investments,  there
is  significantly  greater  risk  of  loss  than is the  case  with  traditional
investment securities. We expect that some of our investments will be a complete
loss or will be  unprofitable  and that some will  appear to be likely to become
successful  but never  realize  their  potential.  We intend to be risk  seeking
rather  than  risk  averse  in  our  approach  to  venture   capital  and  other
investments.  Neither our investments nor an investment in our stock is intended
to  constitute  a balanced  investment  program.  We may need to rely to a large
extent upon proceeds from sales of investments  rather than investment income to
defray  a  significant  portion  of  our  operating  expenses.  Such  sales  are
unpredictable and may not occur.

Our quarterly results will fluctuate.

Our  quarterly  operating  results  could  fluctuate  as a result of a number of
factors. These factors include, among other things, variations in and the timing
of the  recognition  of realized and unrealized  gains or losses,  the degree to
which  portfolio  companies  encounter  competition in their markets and general
economic conditions.  As a result of these factors,  results for any one quarter
should not be relied upon as being indicative of performance in future quarters.

The issuance of shares under our agreements with Cornell Capital Partners could
increase our outstanding shares by over 30.1%.

While Cornell is subject to restrictions on conversion of the Cornell  Debenture
limiting  Cornell's  ownership  to  9.9%  of  our  common  stock,  without  this
restriction the Cornell  Debenture could be converted into 32,474,813  shares at
the market  price on June 30,  2005,  which  would  dilute the  interest  of our
current shareholders by over 30.1%.

Economic  recessions or downturns could impair our portfolio  companies and harm
our operating results.

Many of the  companies  in which we have  made or will make  investments  may be
susceptible to economic slowdowns or recessions. An economic slowdown may affect
the  ability  of a  company  to  engage  in a  liquidity  event  such as a sale,
recapitalization,  or initial  public  offering.  Our  nonperforming  assets are
likely to increase and the value of our  portfolio is likely to decrease  during
these periods.  These conditions could lead to financial losses in our portfolio
and a decrease in our revenues,  net income,  and assets. Our business of making
private equity investments and positioning them for liquidity events also may be
affected  by current  and future  market  conditions.  The  absence of an active
senior  lending  environment  or  a  slow  down  in  middle  market  merger  and
acquisition  activity may slow the amount of private equity investment  activity
generally.  As a  result,  the pace of our  investment  activity  may  slow.  In
addition, significant changes in the capital markets could have an effect on the
valuations  of private  companies  and on the  potential  for  liquidity  events
involving  such  companies.  This could  affect the timing of exit events in our
portfolio and could negatively affect the amount of gains or losses upon exit.

Our borrowers may default on their payments, which may have a negative effect on
our financial performance.

We make long-term unsecured, subordinated loans and invest in equity securities,
which may involve a higher  degree of repayment  risk.  We  primarily  invest in
companies  that may have limited  financial  resources and that may be unable to
obtain  financing  from  traditional  sources.  Numerous  factors  may  affect a
borrower's ability to repay its loan, including the failure to meet its business
plan, a downturn in its industry, or negative economic conditions. Deterioration
in a  borrower's  financial  condition  and  prospects  may  be  accompanied  by
deterioration  in any related  collateral and may have a negative  effect on our
financial results.


<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

RISK FACTORS (continued)

Our  private  finance  investments  may not produce  current  returns or capital
gains.

Our private  finance  investments  are typically  structured  as unsecured  debt
securities  with a  relatively  high  fixed  rate of  interest  and with  equity
features such as  conversion  rights,  warrants,  or options.  As a result,  our
private finance investments are generally structured to generate interest income
from the  time  they are made and may  also  produce  a  realized  gain  from an
accompanying  equity feature. We cannot be sure that our portfolio will generate
a current return or capital gains.

Our financial  results could be negatively  affected if a significant  portfolio
investment fails to perform as expected.

We purchase  controlling  equity  positions in companies  and our total debt and
equity investment in controlled companies may be significant  individually or in
the  aggregate.  Investments  in  controlled  portfolio  companies are generally
larger and in fewer  companies than our  investments in companies that we do not
control.  As a result,  if a significant  investment  in one or more  controlled
companies  fails to perform as expected,  our  financial  results  could be more
negatively affected and the magnitude of the loss could be more significant than
if we had made smaller investments in more companies. Our largest investments at
June 30, 2005,  were in Veridium,  INSEQ,  GreenWorks  and EORS,  accounting for
38.0%,  25.1%, 16.6% and 13.5%,  respectively,  of our total portfolio value, of
which  Veridium,  INSEQ and  GreenWorks  continue to struggle with liquidity and
operational  issues  relating  to  each  of  their  businesses,   including,  as
applicable, cash flow restrictions, working deficiencies, and ongoing settlement
negotiations  of  outstanding  payroll  taxation  and  environmental  regulatory
matters.  Specifically,  GreenWorks' wholly-owned subsidiary,  ESI, is currently
resolving outstanding payroll tax liabilities arising from its former operations
prior to ESI's acquisition of the assets of ESI-NJ.

We borrow  money,  which  magnifies  the  potential  for gain or loss on amounts
invested and may increase the risk of investing in us.

Borrowings,  also known as leverage,  magnify the  potential for gain or loss on
amounts invested and, therefore, increase the risks associated with investing in
our  securities.  We borrow  from and issue  senior  debt  securities  to banks,
insurance companies,  and other lenders. Lenders of these senior securities have
fixed dollar claims on our  consolidated  assets that are superior to the claims
of our common  shareholders.  If the value of our consolidated assets increases,
then leveraging would cause the net asset value attributable to our common stock
to increase more sharply than it would have had we not leveraged. Conversely, if
the value of our consolidated assets decreases, leveraging would cause net asset
value to decline more sharply than it otherwise would have had we not leveraged.
Similarly,  any increase in our  consolidated  income in excess of  consolidated
interest  payable on the  borrowed  funds would cause our net income to increase
more than it would without the leverage,  while any decrease in our consolidated
income  would cause net income to decline more sharply than it would have had we
not borrowed.  Such a decline could negatively affect our ability to make common
stock  dividend  payments.   Leverage  is  generally  considered  a  speculative
investment  technique.  At June 30,  2005,  we had $3.6  million of  outstanding
indebtedness  bearing a weighted  average  annual  interest cost of about 6%. In
order for us to cover these annual interest  payments on  indebtedness,  we must
achieve annual returns on our assets of at least 2%.

We may not borrow money unless we maintain asset coverage for indebtedness of at
least 200%, which may affect returns to shareholders.

We must  maintain  asset  coverage for total  borrowings  of at least 200%.  Our
ability to achieve our investment  objective may depend in part on our continued
ability to maintain a  leveraged  capital  structure  by  borrowing  from banks,
insurance  companies  or other  lenders  on  favorable  terms.  There  can be no
assurance  that we will be able to maintain  such  leverage.  If asset  coverage
declines  to  less  than  200%,  we may be  required  to sell a  portion  of our
investments when it is  disadvantageous to do so. As of June 30, 2005, our asset
coverage for senior indebtedness was 207%.

Our business depends on our key personnel.

We depend on the  continued  services of our  executive  officers  and other key
management  personnel.  If we  were to  lose  any of  these  officers  or  other
management  personnel,  such  a  loss  could  result  in  inefficiencies  in our
operations and lost business  opportunities,  which could have a negative effect
on our business.



<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

RISK FACTORS (continued)

Changes in  interest  rates may affect  our cost of capital  and net  investment
income.

Because  we  borrow  money to make  investments,  our net  investment  income is
dependent upon the difference  between the rate at which we borrow funds and the
rate at which we invest these funds. As a result, there can be no assurance that
a significant  change in market interest rates will not have a material  adverse
effect on our net investment  income.  In periods of rising interest rates,  our
cost of funds would increase,  which would reduce our net investment  income. We
use a combination of long-term and  short-term  borrowings and equity capital to
finance our investing  activities.  We utilize our revolving line of credit as a
means to bridge to long-term financing. Our long-term fixed-rate investments are
financed  primarily  with  long-term  fixed-rate  debt  and  equity.  We may use
interest rate risk  management  techniques in an effort to limit our exposure to
interest rate  fluctuations.  Such techniques may include various  interest rate
hedging activities to the extent permitted by the 1940 Act. We have analyzed the
potential impact of changes in interest rates on interest income net of interest
expense.  Assuming that the balance sheet were to remain constant and no actions
were taken to alter the  existing  interest  rate  sensitivity,  a  hypothetical
immediate 1% change in interest rates would have affected the net income by less
than 1% over a one year horizon.  Although management believes that this measure
is indicative of our  sensitivity  to interest rate changes,  it does not adjust
for potential  changes in credit quality,  size and composition of the assets on
the balance sheet and other business developments that could affect net increase
in net  assets  resulting  from  operations,  or  net  income.  Accordingly,  no
assurances can be given that actual results would not differ materially from the
potential outcome simulated by this estimate.

We will continue to need  additional  capital to grow because we must distribute
our income.

We  will   continue  to  need  capital  to  fund  growth  in  our   investments.
Historically,  we have  borrowed  from  financial  institutions  and have issued
equity securities to grow our portfolio.  A reduction in the availability of new
debt or equity  capital could limit our ability to grow.  We must  distribute at
least 90% of our taxable ordinary income,  which excludes realized net long-term
capital gains, to our shareholders to maintain our regulated  investment company
status.  As a result,  such  earnings  will not be available to fund  investment
originations.  In addition,  as a business development company, we are generally
required  to  maintain  a ratio  of at  least  200% of  total  assets  to  total
borrowings,  which may restrict our ability to borrow in certain  circumstances.
We expect to continue to borrow from financial institutions and issue additional
debt and equity securities. If we fail to obtain funds from such sources or from
other sources to fund our investments, it could limit our ability to grow, which
could have a material adverse effect on the value of our common stock.

Loss of regulated  investment company tax treatment would  substantially  reduce
net assets and income available for dividends.

We have  operated  so as to  qualify as a  regulated  investment  company  under
Subchapter M of the Code.  If we meet source of income,  asset  diversification,
and distribution requirements,  we will not be subject to corporate level income
taxation on income we timely  distribute to our  stockholders  as dividends.  We
would cease to qualify for such tax  treatment  if we were unable to comply with
these requirements.  In addition, we may have difficulty meeting the requirement
to make  distributions  to our  shareholders  because  in  certain  cases we may
recognize income before or without  receiving cash  representing such income. If
we fail to  qualify  as a  regulated  investment  company,  we will  have to pay
corporate-level  taxes on all of our  income  whether or not we  distribute  it,
which would substantially reduce the amount of income available for distribution
to our stockholders.  Even if we qualify as a regulated  investment  company, we
generally  will be subject to a  corporate-level  income tax on the income we do
not  distribute.  Moreover,  if we do not  distribute at least 98% of our annual
taxable  income in the year earned,  we generally will be subject to a 4% excise
tax on such income carried forward and distributed in the next tax year.

Results may fluctuate and may not be indicative of future performance.

Our  operating  results may  fluctuate  and,  therefore,  you should not rely on
current or historical  period  results to be indicative  of our  performance  in
future  reporting  periods.  Factors  that  could  cause  operating  results  to
fluctuate  include,  but  are  not  limited  to,  variations  in the  investment
origination  volume and fee income earned,  variation in timing of  prepayments,
variations in and the timing of the  recognition of net realized gains or losses
and changes in unrealized  appreciation or depreciation,  the degree to which we
encounter competition in our markets, and general economic conditions.


<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

RISK FACTORS (continued)

There is a risk that you may not receive dividends or distributions.

We intend to make distributions on a quarterly basis to our stockholders. We may
not  be  able  to  achieve   operating  results  that  will  allow  us  to  make
distributions   at  a  specific  level  or  to  increase  the  amount  of  these
distributions  from time to time.  In addition,  due to the asset  coverage test
applicable  to us as a business  development  company,  we may be limited in our
ability to make distributions.  Also, our credit facilities limit our ability to
declare  dividends  if we  default  under  certain  provisions.  If  we  do  not
distribute a certain  percentage of our income annually,  we will suffer adverse
tax  consequences,  including  possible  loss  of  our  status  as  a  regulated
investment  company.  In addition,  in accordance with U.S.  generally  accepted
accounting principles and tax regulations,  we include in income certain amounts
that we have not yet  received  in  cash,  such as  contractual  payment-in-kind
interest which  represents  contractual  interest added to the loan balance that
becomes due at the end of the loan term.  The  increases  in loan  balances as a
result of  contractual  payment-in-kind  arrangements  are included in income in
advance of receiving cash payment and are  separately  included in the change in
accrued or reinvested  interest and dividends in our  consolidated  statement of
cash flows.  Since we may  recognize  income  before or without  receiving  cash
representing  such income,  we may have  difficulty  meeting the  requirement to
distribute at least 90% of our investment company taxable income to maintain our
status as a regulated investment company.

Our  ability  to  invest  in  private   companies  may  be  limited  in  certain
circumstances.

If we are to maintain our status as a business  development company, we must not
acquire any assets other than  "qualifying  assets"  unless,  at the time of and
after giving  effect to such  acquisition,  at least 70% of our total assets are
qualifying  assets.  If we acquire debt or equity securities from an issuer that
has outstanding  marginable securities at the time we make an investment,  these
acquired assets cannot be treated as qualifying assets.  This result is dictated
by the definition of "eligible  portfolio  company" under the 1940 Act, which in
part looks to whether a company has outstanding marginable securities.

Amendments promulgated in 1998 by the Federal Reserve expanded the definition of
a marginable  security under the Federal  Reserve's  margin rules to include any
non-equity  security.  Thus,  any  debt  securities  issued  by any  entity  are
marginable  securities  under the Federal  Reserve's  current margin rules. As a
result,  the staff of the SEC has  raised the  question  as to whether a private
company  that has  outstanding  debt  securities  would  qualify as an "eligible
portfolio company" under the 1940 Act.

Until the  question  raised by the staff of the SEC  pertaining  to the  Federal
Reserve's  1998 change to its margin rules has been  addressed  by  legislative,
administrative  or judicial action, we intend to treat as qualifying assets only
those debt and equity  securities  that are issued by a private company that has
no marginable securities  outstanding at the time we purchase such securities or
those that otherwise qualify as an "eligible  portfolio  company" under the 1940
Act.

The SEC has recently issued proposed rules to correct the unintended consequence
of the Federal Reserve's 1998 margin rule amendments of apparently  limiting the
investment  opportunities of business  development  companies.  In general,  the
SEC's proposed rules would define an eligible  portfolio  company as any company
that  does not have  securities  listed on a  national  securities  exchange  or
association.  We are  currently in the process of reviewing  the SEC's  proposed
rules  and  assessing  its  impact,  to  the  extent  such  proposed  rules  are
subsequently  approved  by the  SEC,  on our  investment  activities.  We do not
believe that these  proposed  rules will have a material  adverse  effect on our
operations.

We will face a lot of competition, most of which is better capitalized and more
experienced than us.

We will face  competition  in our  investing  activities  from  private  venture
capital funds,  investment affiliates of large industrial,  technology,  service
and  financial   companies,   small  business  investment   companies,   wealthy
individuals  and  foreign  investors.  As a BDC,  we are  required  to  disclose
quarterly the name and business  description of portfolio companies and value of
any  portfolio  securities.  Many of our  competitors  are not  subject  to this
disclosure requirement. Our obligation to disclose this information could hinder
our  ability  to invest in  certain  portfolio  companies.  Additionally,  other
regulations,  current and future,  to which some of our  competitors  may not be
subject,  may  make  us  less  attractive  as a  potential  investor  to a given
portfolio company than a private venture capital fund.



<PAGE>

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION

RISK FACTORS (continued)

Changes in the law or regulations that govern us could have a material impact on
us or our operations.

We are regulated by the SEC and the Small Business Administration.  In addition,
changes in the laws or regulations that govern business  development  companies,
regulated  investment  companies,  real  estate  investment  trusts,  and  small
business investment companies may significantly affect our business.  Any change
in the law or regulations  that govern our business could have a material impact
on us or our operations.  Laws and regulations may be changed from time to time,
and the interpretations of the relevant laws and regulations also are subject to
change, which may have a material effect on our operations.

Due to the  concentration  of our  investments,  our portfolio may be subject to
increased risk of depreciation  arising from the possibility that one or more of
our portfolio companies may fail to realize their respective business plans.

Our investments include a number of operating companies that have yet to realize
their business plans, and each face a number of issues relating to their ability
to do so.  If one or more of our  portfolio  companies  fails  to  affect  their
business  plan,  the  value  of our  portfolio  may be  subject  to  significant
depreciation.

We may change our investment policies without further shareholder approval.

We  many  change  our  investment  policies  without  shareholder  approval.  We
currently do not intend to change our  investment  policies and do not expect to
do so in the future,  although we may do so. We will notify our  shareholders if
we do change our investment policies.

Investing in our stock may be inappropriate for your risk tolerance.

Our planned investments into other companies,  in accordance with our investment
objective and principal strategies, result in a far above average amount of risk
and volatility and may well result in loss of principal.

We will be quoted on the OTC Bulletin Board for the immediate future.

We currently do not meet the eligibility  requirements for listing on the NASDAQ
Stock  Market.  Until we meet those  standards  and are accepted into the NASDAQ
Stock Market,  or unless we are successful in securing a listing on the American
Stock Exchange or some other  exchange,  our common stock will be quoted only on
the OTC Bulletin  Board.  Such a listing is considered less  prestigious  than a
NASDAQ Stock Market or an exchange  listing,  and many brokerage  firms will not
recommend  Bulletin Board stocks to their clients.  This situation may limit the
liquidity of your shares.

Our common stock price may be volatile.

The trading price of our common stock may fluctuate substantially.  The price of
the common  stock may be higher or lower than the price you pay for your shares,
depending on many  factors,  some of which are beyond our control and may not be
directly related to our operating  performance.  These factors include,  but are
not limited to, the following:

     o    price and volume fluctuations in the overall stock market from time to
          time;

     o    significant  volatility  in the  market  price and  trading  volume of
          securities  of  business  development  companies  or  other  financial
          services companies;

     o    volatility resulting from trading in derivative  securities related to
          our common stock including puts, calls,  long-term equity anticipation
          securities, or LEAPs, or short trading positions;

     o    changes in  regulatory  policies  or tax  guidelines  with  respect to
          business development companies or regulated investment companies;

     o    actual or anticipated  changes in our earnings or  fluctuations in our
          operating  results  or  changes  in  the  expectations  of  securities
          analysts;

     o    general economic conditions and trends;

     o    loss of a major funding source; or

     o    departures of key personnel.





<PAGE>

ITEM 3.  Controls and Procedures

     (a)  As of the end of the period covered by this  quarterly  report on Form
          10QSB,  the  Company's  chief  executive  officer and chief  financial
          officer conducted an evaluation of the Company's  disclosure  controls
          and  procedures  (as  defined  in  Rules  13a-15  and  15d-15  of  the
          Securities  Exchange  Act of 1934).  Based upon this  evaluation,  the
          Company's  chief  executive   officer  and  chief  financial   officer
          concluded  that the Company's  disclosure  controls and procedures are
          effective in timely alerting them of any material information relating
          to the Company  that is required to be disclosed by the Company in the
          reports it files or submits under the Securities Exchange Act of 1934.

     (b)  There have been no  changes in the  Company's  internal  control  over
          financial  reporting  that occurred  during the quarter ended June 30,
          2005,  that have  materially  affected,  or are  reasonably  likely to
          materially  affect,  the  Company's  internal  control over  financial
          reporting.





<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

None.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

ITEM 5.  OTHER INFORMATION

None.

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

The following are exhibits filed as part of the Company's Form 10-QSB for the
period ended June 30, 2005:

Exhibit Number             Description

31.1      Certification   of  Chief   Executive   Officer   pursuant   to  Rules
          13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted
          pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2      Certification   of  Chief   Financial   Officer   pursuant   to  Rules
          13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted
          pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1      Certification of Chief Executive  Officer and Chief Financial  Officer
          pursuant  to 18  U.S.C.  Section  1350,  as  adopted  pursuant  to the
          Sarbanes-Oxley Act of 2002.

REPORTS ON FORM 8K

The following is a list of reports filed on Form 8-K during the period:

     1)   On May 18, 2005, the Company filed a Report dated May 16, 2005 on Form
          8K (Item 5.03), which related to the Company's name change.



<PAGE>


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the  undersigned,  thereunto  duly  authorized on the date  indicated.
GREENSHIFT CORPORATION

By:             /S/      KEVIN KREISLER
                -----------------------
                         KEVIN KREISLER
                         Chairman and Chief Executive Officer
Date:                    August 18, 2005

                /S/      JAMES GRAINER
                ----------------------
By:                      JAMES GRAINER
                         President and Chief Financial Officer
Date:                    August 18, 2005