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, 2006

                          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.)


One Penn Plaza, Suite 1612,  New York, NY                                10119
--------------------------------------------------------------------------------
(Address of principal executive offices)                            (Zip Code)


                                 (212) 994-5374
--------------------------------------------------------------------------------
               (Registrant's telephone number including area code)


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 __.

Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes ___ No X


The  number of  outstanding  shares of common  stock as of August  21,  2006 was
113,652,636



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











<PAGE>



                         QUARTERLY REPORT ON FORM 10QSB
                   FOR THE FISCAL QUARTER ENDED JUNE 30, 2006

                                TABLE OF CONTENTS
<TABLE>
<CAPTION>

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

          After Filing Election to be Regulated as an Investment Company
          Balance Sheet (Unaudited) as of June 30, 2006 and June 30, 2005 ..................................4
          Statement of Operations (Unaudited):
          Three Months and Six Months Ended  June 30, 2006 and June 30, 2005................................5
          Statement of Changes in Net Assets (Unaudited):
              Six Months Ended June 30, 2006 and June 30, 2005 ............................................ 6
          Statement of Cash Flows (Unaudited):
              Six Months Ended June 30, 2006 and June 30, 2005 ............................................ 7
          Statement of Investments (Unaudited):
              As of  June 30, 2006......................................................................... 8

Item 2.   Management's Discussion and Analysis or Plan of Operation .......................................23

Item 3.   Controls and Procedures .........................................................................35

Part II   Other Information
Item 1.   Legal Proceedings ...............................................................................36
Item 2.   Changes in Securities and Small Business Issuer Purchases of Equity Securities...................36
Item 3.   Defaults Upon Senior Securities..................................................................36
Item 4.   Submission of Matters to a Vote of Security Holders..............................................36
Item 5.   Other Information................................................................................36
Item 6.   Exhibits and Reports on Form 8K..................................................................36

Signatures                                                                                                 37

</TABLE>






<PAGE>


                         PART I - FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS (UNAUDITED)






<PAGE>


<TABLE>

                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                                  BALANCE SHEET
                               AS OF JUNE 30, 2006
                                   (UNAUDITED)

<CAPTION>
                                                                    6/30/06          6/30/05
                                                                    -------          -------
                                                                 (unaudited)        (unaudited)
ASSETS
Portfolio at value:
<S>                                                              <C>             <C>
   Companies more than 25% owned (cost: $9,900,228) ..........   $ 11,771,132    $  7,715,542
   Companies 5% to 25% owned (cost: $2,935,763) ..............      2,935,763       1,305,931
   Companies less than 5% owned (cost: $603,000) .............        747,250         192,250
   Notes Receivable (cost: $2,939,242) .......................      2,939,242          20,700
                                                                 ------------    ------------
     Total portfolio at value (cost: $16,378,233) ............     18,393,387       9,234,423

Accrued interest, dividends and fees receivable ..............        259,289         350,000
Other assets .................................................        156,848           3,181
Deferred financing fees ......................................        326,284          58,334
Cash and cash equivalents ....................................      1,461,347          31,146
                                                                 ------------    ------------
       Total assets ..........................................   $ 20,597,155    $  9,677,084
                                                                 ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable and convertible debentures (net of discount) ...   $  3,196,774    $  3,582,425
Derivative Liability .........................................      4,683,139            --
Investment Payable ...........................................           --         1,097,437
Accounts payable and other liabilities .......................        321,107         423,188
                                                                 ------------    ------------
     Total liabilities .......................................      8,201,020       5,103,050
Shareholders' equity:
   Series C preferred stock, $0.001 par value:
     1,000,000 shares authorized and outstanding .............          1,000           1,000
   Common stock, $0.001 par value, 200,000,000 authorized;
     107,703,395 shares issued and outstanding ...............        107,703          75,267
   Additional paid in capital ................................     12,384,507       4,812,633
   Net unrealized appreciation on portfolio ..................      1,998,454         105,382
   Cumulative deficit ........................................     (1,494,585)        180,696
   Cumulative effect of conversion to BDC ....................        717,000         717,000
   Retained deficit from operations prior to conversion to BDC     (1,317,944)     (1,317,944)
                                                                 ------------    ------------
           Total shareholders' equity ........................     12,396,135       4,574,034
       Total liabilities and stockholders' equity ............   $ 20,597,155    $  9,677,084
                                                                 ============    ============
Net asset value per common share .............................   $        .12    $        .06
                                                                 ============    ============




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


</TABLE>



<PAGE>


<TABLE>


                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                             STATEMENT OF OPERATIONS
                FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)
<CAPTION>

                                                                THREE MONTHS ENDED                 SIX MONTHS  ENDED
                                                              6/30/06          6/30/05           6/30/06        6/30/05
                                                              -------          -------           -------        -------
                                                                    (unaudited)                       (unaudited)
Interest and related portfolio income:
   Interest and dividends:
<S>                      <C>                                <C>              <C>             <C>              <C>
     Companies more than 25% owned ......................   $      57,024    $        --     $      99,048    $        --
Companies 5% to 25% owned ...............................            --               --            20,155             --
     Companies less than 5% owned .......................          35,919             --            39,808             --
                                                            -------------    -------------   -------------    -------------
       Total interest and dividends .....................          92,943             --           159,011             --
   Fees and other income:
     Companies more than 25% owned ......................          87,500          200,000          87,500          200,000
     Companies 5% to 25% owned ..........................            --               --              --               --
     Companies less than 5% owned .......................            --            150,000            --            150,000
                                                            -------------    -------------   -------------    -------------
       Total fees and other income ......................          87,500          350,000          87,500          350,000
                                                            -------------    -------------   -------------    -------------
         Total interest and related portfolio income ....   $     180,443    $     350,000   $     246,511    $     350,000
                                                            =============    =============   =============    =============
Operating Expenses:
   Interest .............................................         107,669           48,763         332,351           48,763
   Employee .............................................         172,177             --           374,919             --
   Administrative .......................................         508,149          120,541         872,057          120,541
   Change in fair market value of derivatives ...........            --               --          (441,414)            --
                                                            -------------    -------------   -------------    -------------
     Total expenses .....................................         787,995          169,304       1,137,913          169,304
                                                            -------------    -------------   -------------    -------------

Net investment income (loss) before income taxes ........        (607,552)         180,696
                                                                                                  (891,402)         180,696
Income tax expense (benefit) ............................            --               --              --               --
                                                            -------------    -------------   -------------    -------------
   Net investment income (loss) .........................   $    (607,552)   $     180,696   $    (891,402)   $     180,696
                                                            =============    =============   =============    =============
Net realized and unrealized gains (losses):
 Net unrealized gains (losses):
     Companies more than 25% owned ......................   $        --     $    (147,362)   $     165,631    $    (147,362)
     Companies 5% to 25% owned ..........................            --            108,494            --            108,494
     Companies less than 5% owned .......................            --            144,250            --            144,250
                                                            -------------    -------------   -------------    -------------
       Total net unrealized gains (losses) ..............            --            105,382         165,631          105,382

Net change in unrealized appreciation or depreciation ...            --            105,382         165,631          105,382
                                                            -------------    -------------   -------------    -------------
   Cumulative effect of conversion to BDC ...............            --            717,000            --            717,000
       Total net gains (losses) .........................   $        --      $     822,382   $     165,631    $     822,382
                                                            =============    =============   =============    =============
   Net increase in net assets resulting from operations $        (607,552)   $   1,003,078   $    (725,771)   $   1,003,078
                                                            =============    =============   =============    =============

   Basic and diluted earnings per common share ..........   $       (0.01)   $        0.05   $       (0.01)   $        0.05
                                                            =============    =============   =============    =============
   Weighted average common shares outstanding ...........     107,703,395       21,823,453     108,238,652       21,823,453


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


<PAGE>

<TABLE>



                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                       STATEMENT OF CHANGES IN NET ASSETS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)
<CAPTION>

                                                                   For The Six Months   For The Six Months
                                                                 Ended June 30, 2006    Ended June 30, 2005
                                                                 ------------------------------------------
                                                                     (unaudited)           (unaudited)
Operations:
<S>                                                                    <C>              <C>
   Net investment income (loss) ....................................   $    (891,402)   $     180,696
   Net realized gains ..............................................            --               --
   Net change in unrealized appreciation or depreciation ...........         165,631          105,382
   Cumulative effect of conversion to BDC ..........................            --            717,000
                                                                       -------------    -------------
     Net decrease in net assets resulting from operations ..........        (725,771)       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 ..............         528,000        3,471,500
   Issuance of preferred stock for portfolio investments ...........            --              1,000
   Issuance of common stock upon conversion of debt ................       2,192,016          600,500
    Increase in APIC due to debt assumption by subsidiary ..........       1,949,631             --
   Sale of common stock ............................................         269,069             --
                                                                       -------------    -------------
Net increase in net assets resulting from capital share transactions       4,938,716        4,073,000
     Total increase in net assets ..................................       4,212,945        5,076,078
Net assets at beginning of period ..................................   $   8,183,190    $    (502,044)
Net assets at end of period ........................................   $  12,396,135    $   4,574,034
Net asset value per common share ...................................   $        0.12    $         .06
Common shares outstanding at end of period .........................     107,703,395       75,267,506









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

</TABLE>



<PAGE>

<TABLE>


                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                             STATEMENT OF CASH FLOWS
                     FOR THE SIX MONTHS ENDED JUNE 30, 2006
                                   (UNAUDITED)
<CAPTION>

                                                                             For The Six Months     For The Six Months
                                                                             Ended June 30, 2006    Ended June 30, 2005
                                                                             -------------------    -------------------
                                                                               (unaudited)          (unaudited)
Cash flows from operating activities:
<S>                                                                                <C>            <C>
   Net increase (decrease) in net assets resulting from operations: ............   $  (725,771)   $ 1,003,078


   Adjustments:
     Net unrealized gain on portfolio investments ..............................      (165,631)      (174,761)

     (Gain)/loss on fair market value of derivative liabilities ................      (441,414)          --
     Net change in unrealized depreciation .....................................          --         (105,382)
     Accretion of note discount ................................................        96,740           --
     Amortization of Deferred Financing Fee ....................................       264,204           --
     Change in accrued interest and fees receivable ............................      (136,333)      (350,000)
       Change in prepaid expenses and other assets .............................       (60,597)          --
        Change in accounts payable and accrued liabilities .....................       (13,567)       121,671
     Change in investment payable ..............................................      (260,000)          --
     Change in Deferred Financing Fee ..........................................          --          (34,022)
     Depreciation and amortization .............................................         8,409          6,250
     Management fees receivable paid in stock ..................................       (16,700)
     Cumulative effect of conversion to BDC ....................................          --         (717,000)
                                                                                    ----------    -----------
       Net cash (used in) operating activities .................................    (1,450,660)      (250,166)

Cash flows from financing activities:
   Sale of common stock ........................................................       269,090        100,000
   (Issuance of) repayments on notes receivable ................................          --          (20,700)
   Borrowings under notes payable and debentures ...............................     4,557,918        322,312
(Repayments) on notes payable and debentures ...................................          --         (120,300)
                                                                                    ----------    -----------
       Net cash provided by financing activities ...............................     4,827,008        281,312

Cash flows from investing activities:
     Purchases of office equipment .............................................        (8,409)          --
     Website Costs .............................................................       (17,937)          --
     Investments funded ........................................................    (2,016,821)          --
                                                                                    ----------    -----------
          Net cash (used in) investment activities .............................    (2,043,167)          --


Net increase in cash and cash equivalents ......................................     1,333,181           --
Cash and cash equivalents at beginning of period ...............................       128,166         31,146
                                                                                    ----------    -----------
Cash and cash equivalents at end of period .....................................   $ 1,461,347    $    31,146
                                                                                   ===========    ===========


Supplemental schedule of non-cash financing and investing activities:
   Issuance of common stock upon investment in portfolio company ...............   $   411,333
   Issuance of debentures in return for equity in portfolio company ............       520,349
   Assumption of debentures upon investment in portfolio company ...............     1,150,369
     Issuance of common stock in satisfaction of investment payable ............       116,667
     Issuance of common stock upon conversion of debentures and accrued interest     2,191,995
     Assumption of debenture by subsidiary pursuant to share purchase agreement      1,900,000


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


<PAGE>

<TABLE>

                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                            STATEMENT OF INVESTMENTS
                               AS OF JUNE 30, 2006
                                   (UNAUDITED)
<CAPTION>

Portfolio Company                                  Investment                            June 30, 2006 (unaudited)
(Nature of Business)                                                            -------------------------------------------
                                                                                   Principal           Cost        Value
--------------------------------------------------------------------------------------------------------------------------
GS CleanTech Corporation
<S>                                     <C>                                         <C>          <C>           <C>
(F/K/A Veridium Corporation)(1)(2)      Series D Preferred Stock (1,000,000 shares) $     --     $  4,893,890  $  4,503,369
New York, NY                            8% Convertible Debenture                     1,466,810      1,466,810     1,466,810
(Technology Transfer)
---------------------------------------------------------------------------------------------------------------------------
GS Energy Corporation
(F/K/A INSEQ Corporation) (1) (3)       Series D Preferred Stock (1,000,000 shares)       --        1,588,967     1,599,302
New York, NY                            Series C Preferred Stock (400,000 shares)         --        1,550,369     1,550,369
(Manufacturing & Distribution)          8% Convertible Debenture                       202,343        202,343       202,343
---------------------------------------------------------------------------------------------------------------------------
GreenWorks Corporation  (4)             Common Stock (1,500,000 shares)                   --          942,000     3,176,390
Mount Arlington, New Jersey             8% Convertible Debenture                       232,591        232,591       232,591
(Engineering Services)
---------------------------------------------------------------------------------------------------------------------------
Ovation Products Corporation (5)        Common Stock (1,500,000 shares)                   --        1,000,000     1,000,000
Nashua, New Hampshire
(Clean Water Technologies)
---------------------------------------------------------------------------------------------------------------------------
BioEnergy Holdings, Inc.
(F/K/A Mean Green BioFuels Corp.) (5)    Common Stock (500,000 shares)                    --          176,335       176,335
New York, New York                      8% Convertible Debenture                       106,516        106,516       106,516
(BioFuels Production and Distribution)
---------------------------------------------------------------------------------------------------------------------------
Aerogel Composite, Inc. (6)             Common Stock (365 shares)                         --          436,667       436,667
Hartford, Connecticut
(Clean Energy & Emissions Technologies)
---------------------------------------------------------------------------------------------------------------------------
Sterling Planet, Inc. (7)               Common Stock (1,459,854 shares)              1,685,333      1,685,333     1,685,333
Norcross, Georgia
(Renewable Energy Sales)
---------------------------------------------------------------------------------------------------------------------------
TerraPass, Inc.  (7)                    Common Stock (68,717 membership units)            --          250,430       250,430
Menlo Park, California
 (Renewable Energy Sales)
---------------------------------------------------------------------------------------------------------------------------
General Ultrasonics Corporation (8)     Common Stock (1,000,000 shares)                   --              500           500
New York, New Jersey                    Series A Preferred Stock (1,000,000 shares)       --              500           500
(Clean Energy Technologies)             8% Convertible Debenture                       392,104        392,104       392,104
---------------------------------------------------------------------------------------------------------------------------
GS AgriFuels Corporation (1) (9)        Common Stock (901,800 shares)                     --              --         16,700
(F/K/A Hugo International Telecom, Inc) Series C Preferred Stock (1,000,000 shares)       --          311,000       311,000
Mount Arlington, New Jersey             8% Convertible Debenture                       260,863        260,863       260,863
(BioFuels Production and Distribution))
---------------------------------------------------------------------------------------------------------------------------
TDS (Telemedicine), Inc. (1) (10)       Common Stock (3,000,000 shares)                   --          103,000       247,250
Mount Arlington, New Jersey             8% Convertible Debenture                       278,015        278,015       278,015
(Development Stage)
---------------------------------------------------------------------------------------------------------------------------
General Hydrogen Corporation (11)       Common Stock (500,000 shares)                     --          500,000       500,000
Richmond, British Columbia, Canada
(Fuel Cell Technologies)
---------------------------------------------------------------------------------------------------------------------------
<FN>

(1)  Denotes public company.


(2)  This company was formerly called Veridium  Corporation.  The value reported
     here is based on an  independent  third party  assessment of GS CleanTech's
     current  enterprise  value.  The  Company's  holdings in GS  CleanTech  are
     dilution  protected  at  70% of  the  fully  diluted  capital  stock  of GS
     CleanTech until December 31, 2008. After taking account for the application
     of these dilution protections, the Company held 70% of GS CleanTech's fully
     diluted capital stock as of June 30, 2006.

(3)  This company was formerly called INSEQ Corporation. The value reported here
     is based on an independent  third party  assessment of GS Energy's  current
     enterprise  value.  The Company's  stock holdings in GS Energy are dilution
     protected until December 31, 2006 at 80% of the fully diluted capital stock
     of GS Energy.

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

(5)  BioEnergy   Holdings,   Inc.  was  formerly   called  Mean  Green  BioFuels
     Corporation.  The Company holds about 12% of Ovation  Products  Corporation
     and 100% of BioEnergy Holdings,  Inc. The value for each of these companies
     is deemed to be equal to the Company's cost as of June 30, 2006.

(6)  The Company owns 30% of Aerogel. The Company's investment is shown at cost.

(7)  The Company's  investments in Sterling Planet,  Inc., and TerraPass,  Inc.,
     are shown at cost.

(8)  General  Ultrasonics  Corporation is a pre-revenue  subsidiary owned 70% by
     the Company, the value of which is deemed to be equal to the Company's cost
     as of June 30, 2006.

(9)  This  company was  formerly  called Hugo  International  Telecom,  Inc. The
     Company's holdings in GS AgriFuels Corporation, are shown here at cost. The
     Company  holds  1,000,000  shares  of this  portfolio  company's  Series  C
     Preferred Stock, which shares include a coupon of 8% and voting rights that
     are fixed at 80% until conversion.


(10) The  Company's  holdings  in TDS  are  shown  here at  cost  and are  price
     protected  in this  amount.  (11) The  company  holds  about 3% of  General
     Hydrogen Corporation.  The Company's investment is shown at cost. The notes
     to the financial statements are an integral part of these statements.
</FN>
</TABLE>

<PAGE>


                           GREENSHIFT CORPORATION AND
                                  SUBSIDIARIES
                          NOTES TO 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 GS
CleanTech  Corporation ("GS CleanTech") (OTC Bulletin Board: GSCT) and GS Energy
Corporation  ("GS Energy") (OTC Bulletin  Board:  GSEG) 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."

NAME CHANGES OF SUBSIDIARIES

Effective  July 26,  2006,  Hugo  International  Telecom,  Inc.  filed  with the
Delaware  Secretary of State a certificate  of amendment of its  certificate  of
incorporation, changing its name to GS AgriFuels Corpoation (OTCBB: GSGF).

Effective July 18, 2006, Veridium  Corporation filed with the Delaware Secretary
of State a certificate of amendment of its certificate of incorporation changing
its name to GS CleanTech Corporation (OTCBB: GSCT).

Effective July 18, 2006, Inseq Corporation filed with the Delaware  Secretary of
State a certificate of amendment of its  certificate of  incorporation  changing
its name to GS Energy Corporation (OTCBB: GSEG).

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, 2006 included investments in the following proactive companies:
<TABLE>
<CAPTION>

         Portfolio Company                                                               Type of Business
         ------------------------------------------------------------------------------------------------
<S>     <C>                                                    <C>
o        GS CleanTech Corporation (OTCBB: GSCT)    ............ Clean Technology & Environmental Services
o        GS Energy Corporation (OTCBB: GSEG).................... Manufacturing & Commodities Distribution
o        GreenWorks Corporation .................................................... Engineering Services
o        Ovation Products Corporation .......................................... Clean Water Technologies
o        BioEnergy Holdings, Inc.................................... BioFuels Production and Distribution
o        Sterling Planet, Inc..................................................... Renewable Energy Sales
o        TerraPass, Inc. ......................................................... Renewable Energy Sales
o        General Ultrasonics Corporation .......................................Clean Energy Technologies
o        General Hydrogen Corporation...................................Fuel Cell Technologies & Products
o        GS AgriFuels Corporation (Pink Sheets: GSGF)...................................Development Stage
o        TDS (Telemedicine), Inc. (Pink Sheets: TDST).................................. Development Stage
</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.



<PAGE>


                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

The condensed  interim  financial  statements  included herein,  prepared by the
Company for the three months and six months  ended June 30, 2006 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
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 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 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 six months ended June 30, 2006 have been prepared
in  connection  with BVC's  conclusions  as of December 31, 2005,  and have been
adjusted by the Company for any significant  changes  subsequent to December 31,
2005.  BVC's  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 AND SUBSIDIARIES
                          NOTES TO 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  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.


<PAGE>

                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                          NOTES TO 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.

GOING CONCERN

The Company's financial  statements for the six months ended June 30, 2006, were
prepared  assuming that the Company would continue as a going  concern.  At June
30,  2006,  the  Company  had  $1,461,347  in  cash  and  total  liabilities  of
$8,201,020. 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.

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.

While the Company's  various  debenture  holders are subject to  restrictions on
conversion  limiting  ownership to certain  minority  percentages  of our common
stock,  without this restriction our various debentures  outstanding at June 30,
2006,  could be converted into  78,297,843  shares at the respective  conversion
prices  on June 30,  2006,  which  would  dilute  the  interest  of our  current
shareholders by over 60%.

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  financial
statements  include portfolio  investments at value of $18.4 million at June 30,
2006. At June 30, 2006, 89% 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.

<PAGE>

                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

DERIVATIVE FINANCIAL INSTRUMENTS

Certain  of  the  Company's  debt  and  equity   instruments   include  embedded
derivatives that require bifurcation from the host contract under the provisions
of SFAS No. 133. Under the provisions of this statement, the Company records the
related derivative  liabilities at fair value and records the accounting gain or
loss  resulting  from the  change in fair  values  at the end of each  reporting
period.

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.

BUSINESS DEVELOPMENT COMPANY

The Company has elected to be treated as a business  development  company  under
the 1940 Act. 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 1voting 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 does 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

<PAGE>
                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS

3.       INVESTMENT COMPANY (continued)

QUALIFYING ASSETS (continued)

     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:

          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 AND SUBSIDIARIES
                          NOTES TO 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  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,  2006,  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,  2006,  were in GS  CleanTech
Corporation ("GS CleanTech") (OTC Bulletin Board:  GSCT), GS Energy  Corporation
("GS Energy") (OTC Bulletin Board: GSEG), GreenWorks Corporation ("GreenWorks"),
Sterling Planet,  Inc.  ("Sterling  Planet"),  and Ovation Products  Corporation
("Ovation"),  accounting for 30.7%, 16.1%, 5.6%, 8.1% and 4.8% respectively,  of
our total assets.

GS CLEANTECH CORPORATION

GS CleanTech  (OTC  Bulletin  Board:  GSCT)  provides  applied  engineering  and
technology transfer services based on clean technologies and process innovations
that make it cost-effective and easy to recycle and reuse resources.

During the three months ended June 30, 2006, the Company  purchased  convertible
debentures in GS CleanTech totaling $253,408, earned $33,414 in interest income,
and received no other related portfolio income from GS CleanTech.

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

GS ENERGY CORPORATION

GS  Energy   Corporation  (OTC  Bulletin  Board:  GSEG)  is  a  publicly  traded
corporation whose mission is to directly facilitate the efficient utilization of
natural  resources.  GS Energy's  Warnecke  Design  Services,  Inc., a specialty
equipment  manufacturer,  comprised the majority of GS Energy's operations as of
June 30, 2006.

During the three  months  ended June 30,  2006,  the  Company  earned  $4,688 in
interest income from GS Energy.

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

<PAGE>

                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS

4.       PORTFOLIO (CONTINUED)

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.

During the three  months  ended June 30,  2006,  the  Company  earned  $4,754 in
interest income 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.

OVATION PRODUCTS CORPORATION

Ovation  is  a  development   stage   company  with  patented  and   proprietary
technologies  involving new  implementations of vapor compression  distillation.
Ovation has invested over $9 million developing  technology that offers dramatic
price and  performance  advantages  over  competing  clean  water  technologies.
Ovation is finalizing the  development of its initial  product,  the Clean Water
Appliance - a fire-hydrant  sized appliance that can generate 25 gallons of pure
water  per  hour  from a  variety  of dirty  water  input  sources  at a cost of
approximately  $0.004 per gallon,  or about 1.2% of the cost of traditional home
distillation  methods.  Ovation  expects that its Clean Water  Appliance will be
available  in 2006  and will  sell for a  fraction  of the  price of  commercial
distillation systems.

To achieve this small size,  low cost and high  efficiency,  Ovation's  products
incorporate patented new implementations of a proven distillation process called
vapor  compression.  Ovation has been granted 11 patents for its  technology and
system, and has filed for an additional 5 patents to date.  Ovation's technology
has been refined to the point where  Ovation has been able to reduce energy loss
by over 98% and  distill  water for about 1.2% of the cost of  traditional  home
methods.  Ovation  believes that its Clean Water Appliance is the most efficient
commercial distiller in the world, of any size.

GreenShift  acquired  1,500,000 shares,  or about 12%, of Ovation's  outstanding
stock for $1 million at an effective rate of $0.67 per share.

BIOENERGY HOLDINGS, INC.

BioEnergy  Holdings,   Inc.  (f/k/a  Mean  Green  BioFuels   Corporation)  is  a
development-stage  company that the Company formed to finance, build and operate
biofuels production and distribution infrastructure in the United States.

During three months ended June 30, 2006,  the Company  earned $2,052 in interest
income from BioEnergy. Our chairman and chief executive officer, Kevin Kreisler,
is the chairman of BioEnergy.

STERLING PLANET, INC.

Sterling Planet is the nation's leading retail renewable energy provider through
the sourcing and sale of renewable energy certificates ("RECs").  RECs, or green
tags, enable retail residential and non-residential consumers to purchase green,
or  environmentally  friendly,  energy through their existing utility and offset
reliance on power generated from fossil fuel sources.  RECs represent all of the
positive  environmental  attributes of renewable  power  generation from sources
such as solar, wind and organic bioenergy power and can be purchased and used by
consumers  regardless  of whether or not their local utility has access to green
power generation.

Under the terms of its agreement with Sterling,  GreenShift purchased $1,685,333
in  8%  convertible  notes  in  Sterling,  and  warrants  to  purchase  up to an
additional  $500,000 of Sterling  common stock upon  Sterling's  completion of a
larger  venture  capital  raise.  During the second  quarter of 2006  GreenShift
converted the $1,685,333 of convertible  notes into 1,459,854 shares of Sterling
Planet common stock.

During the three  months  ended June 30,  2006,  the Company  earned  $30,645 in
interest income and received no other related portfolio income from Sterling.

<PAGE>

                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS

4.       PORTFOLIO (CONTINUED)

TERRAPASS, INC.

TerraPass is a development  stage company founded by professor Karl Ulrich and a
group of his students at the Wharton School at the  University of  Pennsylvania.
TerraPass  allows  consumers  to pay to offset  their  car's  emissions  through
investment in  clean-energy  alternatives  such as wind and  bioenergy  power by
purchasing a "TerraPass"  - a decal sold through the  TerraPass  website that is
certified  to  eliminate  the  equivalent  of  a  single  car's  carbon  dioxide
emissions. TerraPass allows a broad audience of consumers to participate in this
emerging  trend,  by purchasing  carbon  dioxide  credits and  renewable  energy
certificates ("RECs") on behalf of its customers that subsidize and increase the
production of green, or environmentally  friendly energy, and offset consumption
of fossil fuel sources.

Under the terms of its  agreement  with  TerraPass,  GreenShift  purchased a 10%
stake in TerraPass  for $250,000  and warrants to acquire an  additional  15% of
TerraPass for another $250,000.

AEROGEL COMPOSITE, INC.

ACI has patented  nanotechnology for the preparation of aerogel composites for a
wide variety of applications.  Applications of ACI's Hyrogel(TM)  carbon aerogel
supported  catalysts  are planned to include  hydrogen  powered  stationary  and
mobile PEM fuel cells, direct methanol fuel cells (DMFC) for portable electronic
devices such as laptop computers and cell phones,  and other metal oxide aerogel
supported  catalyst for  catalytic  converters  for gasoline and diesel  powered
vehicles and other internal combustion engines.

Aerogels are solid-state  substances  similar to gels but where the liquid phase
is replaced with gas. Aerogels have a highly dendritic  tree-like  structure and
rank among the  world's  lowest  density  solids.  They have a  remarkably  high
surface area and are very porous and light.  Their  microstructure  and physical
properties  can be  manipulated  at the  nanometer  scale  by  selection  of raw
material and modification of manufacturing  conditions.  Aerogel products can be
engineered to exhibit  desired  thermal,  acoustic,  mechanical  and/or chemical
properties. Aerogel materials can be produced as monoliths, thin-films, powders,
or micro-spheres to respond to given application requirements.

Under the terms of its  agreement  with ACI,  GreenShift  purchased 25% of ACI's
outstanding  stock  and  received  certain   commercial  rights  in  return  for
GreenShift's  investment and its provision of strategic business development and
other  services.  Under its  agreement,  GreenShift has the option to acquire an
additional 5% of ACI.

Our chairman and chief executive officer, Kevin Kreisler, is a board member of
ACI.

GS AGRIFUELS CORPORATION ("GS AGRIFUELS")

GS AgriFuels is a development  stage company whose plan for 2006 is to construct
its initial  agrifuels  production  facility.  On August 20,  2005,  the Company
acquired 300,000 shares of GS AgriFuels Series B Preferred Stock for $300,000.

On June 7, 2006 GreenShift  completed the transfer of Mean Green BioFuels,  Inc.
to GS AgriFuels. At the closing,  GreenShift surrendered to GS AgriFuels 300,000
shares of GS AgriFuels  Series B Preferred Stock (which was convertible into 67%
of GS AgriFuels'  fully-diluted  capital stock).  In exchange for the Mean Green
BioFuels  shares and the GS AgriFuels  Series B Preferred  Stock,  GS AgriFuels:
assumed  GreenShift's  obligations under a Secured Convertible  Debenture due to
Cornell  Capital  Partners in the  principal  amount of  $1,900,000  and accrued
interest of $49,631; issued to GreenShift Corporation 1,000,000 shares of Series
C Preferred  Stock. The Series C Preferred Stock is convertible into the greater
of (a)  15,000,000  common shares or (b) a number of shares of common stock that
will equal 80% of GS  AgriFuels'  fully-diluted  common stock after  conversion.
GreenShift  controls  80% of the voting  power in GS  AgriFuels by reason of its
ownership of the Series C Preferred  Stock. The holder of the Series C Preferred
Stock has a  liquidation  preference  of $.001  per  share  and does not  accrue
Dividends.

As of June 30, 2006,  the Company  purchased  8%  convertible  debentures  in GS
AgriFuels  totaling  $260,863.  During the three months ended June 30, 2006, the
Company  earned $5,035 in interest  income from GS  AgriFuels.  Our chairman and
chief executive officer, Kevin Kreisler, is also the chairman of GS AgriFuels.

<PAGE>
                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS

4.       PORTFOLIO (CONTINUED)

                         TDS TELEMEDICINE, INC. ("TDS")

TDS (Pink Sheets:  TDST) is a development  stage public company whose plan is to
complete one or more  acquisitions of strategically  compatible  companies.  Our
chairman and chief executive  officer,  Kevin Kreisler,  is also the chairman of
TDS. As of March 31, 2006, the Company  purchased 8%  convertible  debentures in
TDS totaling  $260,863 and  beneficially  owns about 5% of TDS. During the three
months ended June 30, 2006,  the Company  earned $4,732 in interest  income from
TDS.

GENERAL ULTRASONICS CORPORATION

General Ultrasonics Corporation ("GUC") is a development stage company that owns
the exclusive  rights to a proprietary new ultrasonic  reformation  process uses
water,  hydrocarbons and high intensity  ultrasonic energies to synthesize clean
burning  fuels  including  hydrogen.  The  process  was  designed  for low  cost
reformation of standard petroleum hydrocarbon  products,  but has the capability
to produce  hydrogen-rich  gases,  other  synthetic  gases and fuels,  and other
products from  qualified  carbon-based,  hydrocarbon-based,  and other  liquids,
solids and gases.

GUC's business model is to leverage its  technological  capabilities  to develop
and commercialize innovative technologies, processes and products.

During  three  months ended June 30,  2006,  the Company  purchased  convertible
debentures  in GUC  totaling  $392,104  and earned  $7,155 in  related  interest
income.

Our chairman and chief executive officer, Kevin Kreisler, is also the chairman,
chief executive officer and president of GUC.

GENERAL HYDROGEN CORPORATION

General Hydrogen  Corporation is a leading developer of hydrogen fuel cell-based
power systems for electric  forklifts,  industrial  vehicles and other  off-road
equipment. General Hydrogen has right-sized fuel cell technology to a scale that
enables  their  commercially  viable  today.  Their  business  model is based on
replacing  lead-acid  batteries  in  centralized  industrial  applications  with
high-performance  power packs that contain a Ballard fuel cell.  They capitalize
effectively  on  existing  plant  infrastructure  while  creating  a  realizable
economic return on an impressively short payback period for their clients.

During six months ended June 30, 2006, the Company purchased 500,000 shares of
common stock (approximately 3% of the outstanding common stock) of General
Hydrogen for $500,000.



<PAGE>

                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS

5.       FINANCING ARRANGEMENTS

At  June  30,  2006,  the  Company  was  subject  to  the  following   financing
arrangements

                                                                       6/30/06
                                                                     -----------
Short-term borrowings ............................................   $    50,129

Current portion of convertible debentures:
   Candent Debenture, 5% convertible debentures, due December 2006     2,739,415
                                                                     -----------
     Total current portion of convertible debentures .............   $ 2,739,415

Convertible debt, net of current portion:
   Cornell Capital Partners, 5% convertible debenture ............   $ 5,090,369
   Discount on Cornell Debentures ................................   (4,683,139)
                                                                     -----------
   Total convertible debentures, net of current maturities .......   $   407,230

SHORT TERM BORROWINGS:

The Company has a variable interest rate line of credit with Lakeland Bank (7.5%
at June 30, 2006), which had an outstanding balance of $53,879 as of June 30,
2006, representing the entire line.

CANDENT DEBENTURE

During the quarter ended June 30, 2006, Candent purchased an additional $527,000
in 5%  debentures.  As of June 30,  2006 the total  amount  due to  Candent  was
$2,739,415,  which amount is convertible into Company common stock at the lesser
of $0.10 per share or the average of the three lowest  closing  market prices of
the  Company's  common stock for the thirty days  preceding  conversion,  with a
conversion price floor of $.005,  provided that the Company is not registered as
a business development company under Section 54 of the Investment Company Act of
1940,  as amended;  and,  provided  further  that in the event  conversions  are
subsequently  permissible  the  shareholder may not receive shares issuable upon
any  permissible  conversion  of  any  portion  of  its  debentures  where  such
conversion  would bring the  shareholder  to greater than 4.95% of the Company's
outstanding common stock, in which case the relevant number of conversion shares
are held in escrow by the Company pending  compliance with this limitation.  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.

CORNELL DEBENTURES

In July 2005  Cornell  Capital  Partners  purchased  $565,000 in 5%  convertible
debentures,  and in October 2005 Cornell purchased an addition  $1,475,000 in 5%
convertible  debentures.  These  debentures are  convertible  into  GreenShift's
common stock at the lesser of $0.10 per share or the average of the three lowest
closing market prices of GreenShift's common stock for the thirty days preceding
conversion provided that GreenShift is not registered as a business  development
company under Section 54 of the Investment Company Act of 1940, as amended; and,
provided  further  that the  shareholder  may not  convert  any  portion  of its
debentures  where such  conversion  would bring the  shareholder to greater than
4.95% of  GreenShift's  outstanding  common  stock,  in which case the  relevant
number of conversion shares are held in escrow by the Company pending compliance
with this limitation.

On  February 7, 2006,  Cornell  purchased  $3,050,369  in 5%  debentures  due on
February  7,  2008  and  committed  to  purchase  an  additional  $1,900,000  in
debentures  on or before April 15, 2006.  This  debenture  is  convertible  into
GreenShift's common stock at the lesser of $0.10 per share or the average of the
three lowest closing market prices of  GreenShift's  common stock for the thirty
days  preceding  conversion  provided  that  GreenShift  is not  registered as a
business  development  company under Section 54 of the Investment Company Act of
1940, as amended; and, provided further that the shareholder may not convert any
portion of its debentures  where such conversion  would bring the shareholder to
greater than 4.95% of GreenShift's  outstanding  common stock, in which case the
relevant  number of conversion  shares are held in escrow by the Company pending
compliance with this limitation.


<PAGE>

                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS

5.       FINANCING ARRANGEMENTS (CONTINUED)

CORNELL DEBENTURES (continued)

On April 17, 2006, Cornell Capital Partners  completed its previously  committed
purchase  of  $1,900,000  in  convertible   debentures.   These  debentures  are
convertible into  GreenShift's  common stock at the lesser of $0.10 per share or
the average of the three lowest  closing  market prices of  GreenShift's  common
stock for the thirty days preceding  conversion  provided that GreenShift is not
registered as a business  development company under Section 54 of the Investment
Company Act of 1940, as amended;  and, provided further that the shareholder may
not convert any portion of its debentures  where such conversion would bring the
shareholder to greater than 4.95% of GreenShift's  outstanding  common stock, in
which case the relevant  number of  conversion  shares are held in escrow by the
Company pending compliance with this limitation.

On June 7, 2006  GreenShift  transferred  its interests in Mean Green  BioFuels,
Inc. to its  subsidiary,  GS AgriFuels  Corporation.  In  conjunction  with this
transfer,  GS  AgriFuels  assumed  GreenShift's   obligations  under  a  Secured
Convertible Debenture due to Cornell Capital Partners in the principal amount of
$1,900,000.

As of June 30, 2006, the total gross principal amount due to Cornell for the
above noted debentures was $5,090,369.

DERIVATIVE  LIABILITY On June 30, 2006,  GreenShift  withdrew its election to be
regulated as a business development  company.  Based on the terms of the Cornell
debentures,  the  debentures are  convertible  into  GreenShift  common stock if
GreenShift  ceases to be  regulated  as a  business  development  company  under
Section 54 of the Investment  Company Act of 1940, as amended.  The withdrawl of
the  election  of  business   development   company   status   resulted  in  the
convertibility  of Cornell  debentures into GreenShift  common stock, and due to
the variable  nature of the  conversion  option of the  debentures,  the Company
determined that this conversion option required  bifurcation and  classification
as a derivative liability under the provisions of SFAS 133.

The conversion  feature was measured at fair value as of June 30, 2006, with the
corresponding  discount  on the  debt  amortized  over  the  term  of  the  debt
instrument. The total discount and derivative liability recorded was $4,683,139,
upon  which  interest  expense  for the  amortization  of the  discount  will be
recorded over the remaining term of the  debentures.  The  derivative  liability
recorded will be adjusted to fair value for subsequent periods.

THE CORNELL DEBENTURE COULD INCREASE OUR OUTSTANDING SHARES BY OVER 47%

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  50,903,690  shares at the
market  price on June 30,  2006.  The  issuance of these shares would dilute the
interest of our current shareholders by over 47%.

The  conversion  features of the  debentures  issued by the Company prior to its
election to be treated as a business  development company were approved on April
11,  2005  by a vote  of a  Company  shareholder  holding  the  majority  of the
Company's  voting  power,  Viridis  Capital,  a wholly owned  affiliate of Kevin
Kreisler, the Company's chairman and chief executive officer.


<PAGE>

                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS

6.       SHAREHOLDERS' EQUITY

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 offered 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.  GreenShift  completed this offering in
April 2006.

DEBENTURE CONVERSIONS

During the quarter ended June 30, 2006, there were no conversions of debentures
into common stock.


7.       RELATED PARTY TRANSACTIONS

MANAGEMENT SERVICE AGREEMENTS

GreenShift has entered into various  management  service agreements with related
entities in which it may have a controlling  ownership interest.  The management
of GreenShift also holds senior management positions at these various controlled
entities.  Accordingly,  GreenShift  management  is  directly  involved  in  the
negotiations of such management  agreements on the part of the related entities.
Pursuant  to the  agreements  GreenShift  will  provide  or oversee a variety of
management  services,   including  but  not  limited  to  financial,   strategic
development,   operational,   regulatory,   administrative,   risk   management,
insurance, and other services.

In general,  GreenShift's management services agreements provide that GreenShift
will  be paid a  quarterly  management  fee for  services  provided  and  earned
throughout the quarter. Consistent with these agreements,  GreenShift recognizes
management  fee income on a  quarterly  basis.  A limited  number of  agreements
provide that GreenShift will have earned its fee at the time it has entered into
an agreement to provide  certain  designated  management  services.  The related
entities that are a party to these  agreements may be very early stage companies
or companies that are going through  various stages of financial  restructuring.
Accordingly some of these entities may not have adequate financial  resources to
fulfill their payment  obligations under the agreement.  If any of these related
entities  cannot  fulfill  their  payment  obligations  this would result in the
reduction of management fee income previously recognized by GreenShift.

The entities that are currently a party to a management  services  agreement are
the  following:  GS CleanTech  Corporation,  GS Energy  Corporation,  GreenWorks
Corporation, GS AgriFuels Corporation and TDS (Telemedicine), Inc.

For the quarter ended June 30, 2006, the Company  accrued  $87,500 in management
fees relating to the management  services  agreements with GS AgriFuels and TDS.
For  all  other  companies  with  which   GreenShift  has  management   services
agreements,  GreenShift did not recognize  income for the second quarter of 2006
due to the  fact  that  such  fees  may  not be  realizable  in the  near  term.
GreenShift  will  recognize  income for the  management  fees due from portfolio
companies  at such  time  that it  determines  that the fees  are  likely  to be
realizable.

TRANSACTIONS WITH GS ENERGY CORPORATION

On  May  5,  2006,  GreenShift  converted  3,000,000,000  shares  of  GS  Energy
Corporation common stock and GreenShift's remaining GS Energy Series A Preferred
Stock into 1,000,000  shares of GS Energy Series D Preferred  Stock. GS Energy's
Series D Preferred  Stock may be converted by the holder into common stock.  The
conversion ratio is such that the full 1,000,000 shares will convert into common
shares  representing  80% of the GS Energy common shares  outstanding  after the
conversion.  The holder of Series D Preferred Stock may cast the number of votes
at a shareholders meeting or by written consent that equals the number of common
shares into which the Preferred  Stock is convertible on the record date for the
shareholder  action.  In the event that GS Energy declares a dividend payable to
its common  shareholders,  the holders of Series D Preferred  Stock will receive
the dividend  that would be payable if the Series D shares were  converted  into
common shares. In the event of a liquidation of GS Energy, the holders of Series
D shares will receive a preferential  distribution of $0.001 per share, and will
then share in the distribution as if the Series D shares had been converted into
common shares.


<PAGE>

                     GREENSHIFT CORPORATION AND SUBSIDIARIES
                          NOTES TO FINANCIAL STATEMENTS

7.       RELATED PARTY TRANSACTIONS (CONTINUED)

TRANSACTIONS WITH GS AGRIFUELS

On June 7, 2006 GreenShift completed the sale of Mean Green BioFuels, Inc. to GS
AgriFuels.  At the closing,  GreenShift also surrendered to GS AgriFuels 300,000
shares of GS AgriFuels  Series B Preferred Stock (which was convertible into 67%
of GS AgriFuels'  fully-diluted  capital stock).  In exchange for the Mean Green
BioFuels  shares and the GS  AgriFuels  Series B Preferred  Stock,  GS AgriFuels
assumed  GreenShift's  obligations under a Secured Convertible  Debenture due to
Cornell Capital  Partners in the principal  amount of $1,949,631,  and issued to
GreenShift Corporation 1,000,000 shares of Series C Preferred Stock.  GreenShift
controls 80% of the voting  power in GS AgriFuels by reason of its  ownership of
the Series C Preferred Stock.

GS AgriFuels is party to a management  services  agreement with GreenShift under
which GreenShift has agreed to provide management assistance, financial support,
and business development services. The agreement is for a term of five years and
provides  for  GreenShift  to receive  $150,000  per year payable in cash or the
Company's common stock. During the three months ended June 30, 2006,  GreenShift
recorded  $37,500 in management  fee income related to this  agreement.  In June
2006 GS AgriFuels  issued to GreenShift  2,025,000 shares of GS AgriFuels common
as payment for $37,500 in management  fees. On May 15, 2006  GreenShift  awarded
$20,800 in bonuses to GreenShift employees, which GreenShift paid with 1,123,200
shares of GS AgriFuels common stock subsequent to receiving the shares.

On May  23,  2006,  GreenShift  entered  into  an  amended  management  services
agreement  with GS AgriFuels  that  provides for the issuance to  GreenShift  of
6,000,000 five year options to purchase GS AgriFuels  common stock,  exercisable
at $3.00 per share,  at the later of December  31, 2006 or the  commencement  of
construction of a biodiesel plant.


8.       SUBSEQUENT EVENTS

SALE OF PORTFOLIO HOLDINGS TO GS CLEANTECH

On  July  1,  2006,  GreenShift  transferred  to its  subsidiary,  GS  CleanTech
Corporation,  100% of the outstanding  capital stock of GS EnviroServices,  Inc.
(f/k/a GreenWorks  Corporation) and 100% of the outstanding  capital stock of GS
CleanTech  Ventures,   Inc.  GS  EnviroServices,   Inc.  owns  an  environmental
engineering  business  called  Enviro-Sciences  (of  Delaware)  Corporation.  GS
CleanTech Ventures holds equity stakes in General Hydrogen Corporation,  General
Ultrasonics  Corporation,  Ovation Products Corporation,  and Aerogel Composite,
Inc. In exchange for the shares in GS EnviroServices and GS CleanTech  Ventures,
GS CleanTech assumed  GreenShift's  obligations under certain  debentures in the
principal amount of $1,900,000. GS CleanTech has also agreed to amend the Series
D  Preferred  Stock  now  held by  GreenShift  to  increase  the  portion  of GS
CleanTech's equity represented by the Series D shares from 70% to 80%.

SALE OF PORTFOLIO HOLDINGS TO GS ENERGY

On July 1, 2006, GreenShift transferred to its subsidiary, GS Energy Corporation
("GS Energy"),  all of its interest in Sterling Planet, Inc.  (approximately 10%
of the capital stock), all of its interest in TerraPass, Inc. (approximately 10%
of the capital  stock),  and all of the capital  stock of four  recently  formed
corporations:  GS Solar,  Inc., GS Wind, Inc., GS Hydro,  Inc. and GS Wave, Inc.
The latter four  corporations  were  organized to engage in the  development  of
clean energy projects.  In exchange for the shares in the six  corporations,  GS
Energy issued to  GreenShift  Corporation  450,000  shares of GS Energy Series C
Preferred Stock,  bringing to 2,000,000 the number of shares of GS Energy Series
C Preferred  Stock owned by GreenShift.  GreenShift  will be entitled to convert
its  2,000,000  shares of GS Energy  Series C Preferred  Stock into  200,000,000
shares of GS Energy  common  stock.  GreenShift  will also be  entitled  to cast
200,000,000  votes at each  meeting of GS Energy  shareholders  by reason of its
ownership  of the GS Energy  Series C Preferred  Stock.  Each share of GS Energy
Series C Preferred  Stock will have a $1.00  preference over the common stock in
the event of a liquidation of GS Energy.

WITHDRAWAL OF BUSINESS DEVELOPMENT COMPANY ELECTION

On June 30, 2006, GreenShift filed with the Securities and Exchange Commission a
notice to  withdraw  its  election  to be  regulated  as a business  development
company. The withdrawal was effective at the close of business on June 30, 2006,
and for  reporting  periods  after July 1, 2006,  as an operating  company,  the
Company will consolidate its financial statements with subsidiaries.


<PAGE>

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

In addition to  historical  information,  this Report  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.

OVERVIEW

During the quarter  ended June 30,  2006,  we  conducted  business as 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 six months ended June 30, 2006, were
as follows:

                                                                       6/30/06
                                                                     ----------
Portfolio at value                                                  $18,393,387
Investments funded                                                      535,508
Change in accrued or reinvested interest                                 78,987
Principal collections related to investment repayments or sales             --
Yield on interest-bearing investments                                     8.00%

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  during the second  quarter of 2006,
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 six months ended June 30, 2006, consisted of the
following:

                                                                6/30/06
                                                               ---------
Companies more than 25% owned                                  $    --
Companies 5% to 25% owned                                        535,508
Companies less than 5% owned                                        --
Notes receivable                                                    --
                                                               ---------
   Total                                                       $535,508


<PAGE>


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

PORTFOLIO AND INVESTMENT ACTIVITY (continued)

At June 30, 2006, we had no outstanding investment commitments.

The  Company's  largest  investments  at June  30,  2006,  were in GS  CleanTech
Corporation ("GS CleanTech") (OTC Bulletin Board:  GSCT), GS Energy  Corporation
("GS Energy") (OTC Bulletin Board: GSEG), GreenWorks Corporation ("GreenWorks"),
Sterling Planet,  Inc.  ("Sterling  Planet"),  and Ovation Products  Corporation
("Ovation"),  accounting for 30.7%, 16.1%, 5.6%, 8.1%, and 4.8% respectively, of
our total portfolio value.

GS CleanTech Corporation

At June 30, 2006 our investment in GS CleanTech  totaled  $6,360,230 at cost and
$5,969,709 at value,  or 30.7% of our total assets.  Total  interest and related
portfolio income earned from our investment in GS CleanTech for the three months
ended June 30,  2006,  was $33,414.  Net change in  unrealized  appreciation  or
depreciation  for the six months  ended  June 30,  2006,  includes  no change of
unrealized appreciation related to GS CleanTech.

GS CleanTech (OTC Bulletin Board:  GSCT) is a publicly  traded company  provides
applied engineering and technology transfer services based on clean technologies
and  process  innovations  that make it  cost-effective  and easy to recycle and
reuse resources.

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

GS Energy Corporation

At June 30, 2006,  our  investment in GS Energy  totaled  $3,341,679 at cost and
$3,352,014 at value,  or 16.1% of our total assets.  Total  interest and related
portfolio  income  earned from our  investment in GS Energy for the three months
ended June 30,  2006,  was  $7,134.  Net change in  unrealized  appreciation  or
depreciation for the three months ended June 30, 2006, includes no change in the
unrealized depreciation related to GS Energy.

GS Energy (OTC Bulletin  Board:  GSEG) is a publicly  traded  corporation  whose
mission  is  to  directly  facilitate  the  efficient   utilization  of  natural
resources.

Our chairman and chief executive officer,  Kevin Kreisler,  is also the chairman
of GS Energy, and our president and chief financial officer,  James Grainer,  is
also the president and chief financial  officer of GS Energy. As the controlling
shareholder  of the Company,  who is in turn the  controlling  shareholder of GS
Energy, Mr. Kreisler and the Company have unconditionally  guaranteed certain of
GS Energy'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, 2006,  our investment in GreenWorks  totaled  $1,174,591 at cost and
$3,408,981 at value, or 5.6% of our total assets. Total related portfolio income
earned from our  investment  in  GreenWorks  for the three months ended June 30,
2006, was $4,754 in interest  income.  Net change in unrealized  appreciation or
depreciation  for the six months  ended June 30,  2006,  includes $0  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.

Sterling Planet, Inc.

At June 30, 2006,  our  investment  in Sterling  totaled  $1,685,333 at cost and
$1,685,333  at value,  or 8.1% of our total assets.  Total  interest and related
portfolio  income  earned from our  investment  in Sterling for the three months
ended June 30,  2006,  was $16,689.  Net change in  unrealized  appreciation  or
depreciation  for the three months ended June 30, 2006,  includes no  unrealized
appreciation related to Sterling.

Sterling Planet is the nation's leading retail renewable energy provider through
the sourcing and sale of renewable energy certificates ("RECs").  RECs, or green
tags, enable retail residential and non-residential consumers to purchase green,
or  environmentally  friendly,  energy through their existing utility and offset
reliance on power generated from fossil fuel sources.  RECs represent all of the
positive  environmental  attributes of renewable  power  generation from sources
such as solar, wind and organic bioenergy power and can be purchased and used by
consumers  regardless  of whether or not their local utility has access to green
power generation.

Ovation Products Corporation

At June 30, 2006,  our  investment  in Ovation  totaled  $1,000,000  at cost and
$1,000,000  at  value,  or 4.8% of our  total  assets.  We did not  realize  any
interest or related  portfolio income from our investment in Ovation for the six
months  ended  June  30,  2006.  Net  change  in  unrealized   appreciation   or
depreciation  for the six months  ended June 30,  2006,  includes no  unrealized
appreciation related to Ovation.

Ovation  is  a  development   stage   company  with  patented  and   proprietary
technologies  involving new  implementations of vapor compression  distillation.
Ovation has invested over $9 million developing  technology that offers dramatic
price and  performance  advantages  over  competing  clean  water  technologies.
Ovation is finalizing the  development of its initial  product,  the Clean Water
Appliance - a fire-hydrant  sized appliance that can generate 25 gallons of pure
water  per  hour  from a  variety  of dirty  water  input  sources  at a cost of
approximately  $0.004 per gallon,  or about 1.2% of the cost of traditional home
distillation  methods.  Ovation  expects that its Clean Water  Appliance will be
available  in 2006  and will  sell for a  fraction  of the  price of  commercial
distillation systems. Our chairman and chief executive officer,  Kevin Kreisler,
is a board member of Ovation.

<PAGE>


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

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  $92,943 in
interest and dividend income during the three months ended June 30, 2006.

Fees and other  income for the three  months ended June 30, 2006 was composed of
the following:

                                                                      6/30/06
                                                                     ---------
Management services provided to portfolio companies ...............   $87,500
Transactional and other services provided to portfolio companies ..      --
Structuring and diligence services provided for portfolio companies      --
Other income ......................................................      --
                                                                      -------
   Total ..........................................................   $87,500

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  $508,149  during the three  months  ended June 30,  2006.  Employee
expenses include salaries,  employee benefits and bonuses,  and totaled $172,177
during the three  months ended June 30, 2006.  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 $508,249 during the three months ended June
30,  2006.  Change  in the fair  market  value  of  derivatives  relates  to the
conversion  features of certain of our  debentures  and totaled $0 in income for
the three months ended June 30, 2006.

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, 2006,  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, 2006, 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, 2006 have
been prepared in connection with BVC's  conclusions as of December 31, 2005, and
have been  adjusted by the Company for any  significant  changes  subsequent  to
December 31, 2005. BVC's  conclusions were based on a variety of  conventionally
accepted valuation methods.

At June 30,  2006,  portfolio  investments  recorded  at fair value  constituted
greater than 88% 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.


<PAGE>

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

RESULTS OF OPERATIONS (continued)

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.

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.

<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)

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.

At December 31, 2005,  Business  Valuation  Center,  Inc. ("BVC") assisted us by
reviewing our valuations of our portfolio companies.  For the remaining quarters
in 2006, we intend to  periodically  obtain  valuation  assistance  from BVC and
possibly other third parties when deemed necessary. We currently anticipate that
we will generally obtain  assistance for all companies in the portfolio at least
once during the course of the year. Valuation assistance may not be obtained for
new companies that enter the portfolio  after  September 30 of any calendar year
during that year.  Professional  fees for valuation  assistance during the three
months ended June 30, 2006 were approximately $0.

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  $0  with  108.2  million  weighted  average  common  shares
outstanding for the three months ended June 30, 2006.

FINANCIAL CONDITIONS, LIQUIDITY AND CAPITAL RESOURCES

Our  portfolio  is  expected  to  generate  cash flow from which we plan to fund
operating  expenses 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 used
by our operating  activities before new investment activity for the three months
ended June 30, 2006, was $581,928.

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.



<PAGE>

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

FINANCIAL CONDITIONS, LIQUIDITY AND CAPITAL RESOURCES (continued)

We paid no dividends  during the three months ended June 30, 2006, and we do not
expect to do so in the near 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, 2006 our total assets,  total debt outstanding,  total shareholders'
equity,  debt to equity ratio and asset coverage for senior indebtedness were as
follows:

                                 6/30/06
                                 -------
Total assets .............   $20,597,155
Total debt outstanding ...     8,201,020
Total shareholders' equity    12,396,135
Debt to equity ratio .....          0.66
Asset coverage ratio(1) ..          252%

(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
1.00:1.00. 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, 2006,  we  completed  $2,427,000  in debt  financing to provide cash for our
operations and investments.

CRITICAL ACCOUNTING POLICIES

The 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


<PAGE>


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

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.

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.

<PAGE>

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


BUSINESS RISK FACTORS

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.

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  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 Viridis may differ from the interests of the
other stockholders.

The issuance of shares under our agreements with Cornell Capital Partners could
increase our outstanding shares by over 47%.

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 50,903,690  shares at
the market  price on June 30,  2006,  which  would  dilute the  interest  of our
current shareholders by over 47%.

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,  2006,   portfolio   investments   recorded  at  fair  value  were
approximately 89% 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, 2006 have
been prepared in connection with BVC's  conclusions as of December 31, 2005, and
have been  adjusted by the Company for any  significant  changes  subsequent  to
December 31, 2005. BVC's  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

<PAGE>

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

BUSINESS RISK FACTORS

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.

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.

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.

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.

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.


<PAGE>

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

BUSINESS RISK FACTORS

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, 2006, were in GS CleanTech, GS Energy, GreenWorks, Sterling Planet, and
Ovation accounting for 30.7%,  16.1%, 5.6%, 8.1%, and 4.8% respectively,  of our
total assets value, of which GS CleanTech,  GS Energy 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 assets that are superior to the claims of our common
shareholders.  If the value of our 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 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
income in excess of 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 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,  2006,  we had $7.9  million of  outstanding
indebtedness  bearing a weighted  average  annual  interest cost of about 5%. In
order for us to cover these annual interest  payments on  indebtedness,  we must
achieve annual returns on our assets of at least 2%.

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.

 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.

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.

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.


<PAGE>

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

BUSINESS RISK FACTORS

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
     traded on the OTC Bulletin Board companies;

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



<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, 2006 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

The  following are exhibits  filed as part of the Company's  Form 10-QSB for the
period ended June 30, 2006:

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.



<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

                /S/      KEVIN KREISLER
                -----------------------
By:                      KEVIN KREISLER
                         Chairman and Chief Executive Officer

Date:                    August 21, 2006

                /S/      JAMES GRAINER
                ----------------------
By:                      JAMES GRAINER
                         President and Chief Financial Officer

Date:                    August 21, 2006