Since the first quarter report is due out about the 15th of May, the Skunk has decided its time to don the Karnac The Magnificent Hat and give a look see into the future. In order to do this we need to review a few things - follow along if you would like. First the Skunk is going to take a look at the last quarterly report (Sept 07) to see the structure. Since the Annual was published post first quarter - that will be our most up to date source for company information. There are many numbers in the Annual Report that are labeled as first quarter figures. In fact, although it was published on 7 April, it had figures added to it as late as the 4th. The February Shareholder letter - published with the SEC as well - will be my secondary source. The Yagi debt agreement will be the third. The PRs published during the quarter will be reviewed as well. OK - got everything?? We will both do our review and lets meet back here (sober) in two hours . . . . ................. . . . .............. zzz ........ . . . ZZZZZ . Well that was fun, Huh?
What the quarterly report will say somewhere:
Total revenues for the three months ended March 31, 2008 were $?,???,???representing an xxcrease of ??.?%, over the three months ended March 31, 2007 revenues of $3,291,178.
The Skunk thinks he can fill in the blanks. We will come in with revenues below a quarter (7.5M)of the almost 30M we were able to generate last year and above the revenues from the same period last year - 3.29M. Now that isn't much of an estimate since the spread is so big - so lets try to refine that a bit. Now the Skunk is just smart enough to know that if he gets lucky and is close in his estimate - some will say he is an insider and a "company clown". AND if he is way off (more likely) he will be an "asstard clown". But luckily, since he is really an "I don't give a XXXX what anyone thinks clown" - here goes. LOL
First we have to eliminate some of the revenue since we sold the Environmental Services Division (ESD). Next we have to add in the additional revenues we will get from the corn oil extraction, the increased equipment sales, and the engineering for hire team running the third party bio-diesel plant we have installed. Finally we add in the culinary oils from the Montana plant. That should get us in the ball park.
We all know that COEs have a plate capacity of 1.5M gallons per year. That is 375,000 gallons/quarter. What I am going to do is use a 1.25M gallons per year rate for the Utica Plant in Wisconsin - that would give us 312,500 gallons in the first quarter. The 1.25M gallons comes from the Yagi debt agreement (paragraph 5.16) - anything less than that and it may affect our ability to draw down on our $10M revolving debt. What about the second COEs at Medina, New York? Well, we were told on 25 Feb that “We still have to finish installing the tank farm and other infrastructure but we’re going to start moving product." This was well over half way through the quarter, and without the infrastructure in place - I would say we might expect maybe 50% production over those 5 weeks left in the quarter - or an additional 60,000 gallons. This gives us a total of 372,500 gallons. At Skunks estimate revenues of $2.25/gallon (based on the 19 Feb Shareholder letter) that provides us with $838,125 total dollars of Revenue from the COES for the First Quarter. (If we see significantly less here this will add doubt as to the maturity of our technology and/or GERS will have some serious x'plaining to do. With the Utica Plant now over one year old - we would expect it to be running at near showcase capacity.)
The February Shareholder letter has us bringing in $15M in additional sales for third party bio-diesel sales in 2008. The Annual Report mentioned that future sales would report construction revenues over time - not only at completion - since after the completion of prior installations - they have the documentation to properly track/predict the progress. (Annual Report P.56-57) One third of that 30M gallon capacity was commissioned in the first quarter. (But some 1.67M? was accounted for in the 2007 Annual report?) So the Skunk is going to take 1/3rd of $15M and subtract out the 1.67M to get 3.33M as his wild arse low ball guesstimate. (Damn those bean counters)
Next we are looking at the engineer for hire team running third party Plants (NextDiesel?). An engineer and a technician sub-contracted out at a $200,000 and $100,000 ea including benefits. Plus corporate support. I would have to really wing it here and guess we see $400,000 on an annualized rate or $100,000 for the quarter revenues from this source.
The final source is the Montana Oil Seed plant. We saw 5.087M last year on an annualized basis. Since none of the expansion is reported completed - except for increasing oil prices - this number should not change much. I will try to find a way to account for seasonal quarterly changes and refine this number later - but for now I go with 1/4th of the annual or 1.27M.
So, adding up the 4 sources of revenue (in blue above) - here is my best guess:
Total revenues for the three months ended March 31, 2008 were $5,538,125 representing an increase of or 68.3%, over the three months ended March 31, 2007 revenues of $3,291,178.
Think you can do better? Play along in the poll to the right - and for those who want a more serious challenge - email me your estimate - and I will post it on the blog under your board name or the pseudonym of your choice.
Over the last two weeks we have covered two basic subjects:
Two weeks ago Skunk asked and answered this central question: "What is important?
Skunks answers were:
1. Getting as many Coes on-line as quickly as possible.
2. Getting conventional Financing to support getting as many COES on line as quickly as possible.
In last weeks blog the second question was addressed: "What is not important?"
1. Skunks short answer was -"Everything else." One detail to that answer was getting rid of the Environmental Services Division (ESD) was a good thing. First, it helped to focus on getting as many COES on line as quickly as possible and two, it helped towards better financing.
Now a question has arisen about the basic technology of the COES.
Is this question important? YES!!! REFER TO FIRST ANSWER ABOVE: (Getting as many COES on-line as quickly as possible) . Of course a corn oil extraction system is no good to anyone if it is not on-line and in production. This is a new technology and it will have problems. Our first COES was commissioned in April of 2007 and has been running since. It did not run at plate capacity from commissioning to years end. I know that since on page 38 of the annual we claimed $491,655 for annual corn oil biofuel up to 31 Dec 2007 and yet bouncing that off the table on page 78 we see only $270,866. (Side note: That difference, however, is reflected in the opposite change in the two culinary oil entries - did we make edible corn oil in a COES? Or did we make corn oil in Montana?) In either case, even if we divide the largest number of 491,655 by $2.25 per gallon we see a production of 218,513 gallons - or less than two months at full production over the eight months after commissioning. Clearly we have had problems getting started here. Clearly, using the company's own numbers - the potential for continuing problems still exist.
People who claim to know, or claim to know others who know, have written that neither of our COES system work as advertised and both have significant problems that continue to this day. Here are three specific posts so you can judge for yourselves:
I do not know for sure one way or the other, but I have enough doubt as a supporter of this company to realize that this question must be confronted head on, and quickly. That was the purpose of my questions on the Raging Bull message board. It is comforting to know that a COES can be made to work - but do ours work? - and how well? The shareholders have the right to production numbers at a certain point - or at least an immediate no wiggle room answer that our units are operating as advertised. I realize this could open a can of worms with present and future customers. Yet with the share price haven broken through the dime support - its time for action. As I have said like a broken record - if this is going to work - it all depends on the COES. There can be no doubt that our COES work, or can work - and at a commercial level. We need to acknowledge any problems - tell the shareholders the plan to fix the problems and move on quickly to fix those problems. In any case, we shareholders will eventually be able to determine the rough extent of any problem by crunching the numbers in the filings - the only question is - will the company make the process easy or hard? Will they tell us the correct assumptions or do we have to make our own?
A True Little Story
A hour's drive from my cabin is a metropolis of over 20,000 souls. A billionaire got his start there and still maintains his HQ in the area. He started with almost nothing and is now a hugely successful businessman. 35 years ago his first employees would run to cash his checks before they bounced. The quality of his product was famous for being bad - but he was always the cheapest. He treated his employees like crap if they were expendable - and he worked hard to make sure they were all expendable. He tried to screw every business that ever made a deal with him. One of a thousand examples was when he offered a deal to a gas station. He would run his fleet through them if they would expand enough to handle his business. Soon after they did, and they were mortgaged to the hilt, he told them what he was going to pay for the gas. They said that they would lose money at that price. He said that was the price or he would go somewhere else. Forced into a corner they chose the slow death of subsidizing his fleet - and he eventually bought them out for pennies on the dollar. Well let me tell you something - he is business successful - but there are thousands? of people who love to tell stories about what an evil dude he is to just about anyone who will listen - just like I did for you. AND do you know what - most are true. Now don't you wonder how the Skunk was involved here and how he came on this story? Was he the manager of the gas station? Was he he a manager for the evil dude? Is the Evil Dude his uncle? Maybe Skunk was just holding down a bar stool next to one of the above? Does it matter as to how much credence you give to the story? Of course it does.
An Even Truer Story
Every Enterprise has its 10%. Even the best Boss possible in this world, who hand picked his 12 disciples, still had one who did not appreciate his Boss. (OK 1 out of 12 is only 8.33% - but it is the one exception that proves the rule.
What the Heck is your point Skunk?
My point is every boss fits in between the two examples above. Most of the bosses I know are not as bad - but are of course, closer to the first example than the second. Although I don't know Mr. Kreisler - I see no reason to single him out as one who might get less than his full 10% of malcontent employees. In fact from what I have heard, I think Mr. Kreisler will generate at least his typical 10% of dissatisfied employees and former employees. Then there is the failed businessman who felt he got took in a business deal - like the owner of the gas station above, he would naturally want to get even. So the rumors about the COES may be wrong - fed to others to spread like gossip to even an old score - real or imagined. The possibility exists however, that the rumors about the production of the COES are very true. The Skunk has enough information to want detailed answers and will not dismiss his concerns until the company proves otherwise.
OK, THE REAL POINT IS:
In the absence of news from the company to counter rumors - those 10% can generate a lot of trouble telling stories: some embellished, some fabricated, some true. We need to listen, evaluate the message, evaluate the messenger and evaluate their sources and each make our own decision. It leaves us poor shareholders asking questions and looking for answers - answers the company needs to answer. Answers that will hopefully be answered in the 1st quarter results - or at least within the next 30 days.
FORECASTS
Well Skunk you got the move south right - but the single big trade to .7 caught you by surprise - didn't it? It sure did. I was also surprised by the three closes at 9 cents. Here is what I said last week:
". . .As the bottom band moves between 9 and 10 cents - it could be possible for the PPS to meet that band in the 9 cent range during the week, however I do not see a close below 10 cents - and that means I expect the bottom to hold firm again. "
Detailed Forecasts for 5-9 May 2008
Best Buys: 9.5-10.5 (actual .7) WOW almost a quarter Million shares at .7! = D
Closes above .15 (none this week)(actual none) Too easy = A
Range for the Week: 9.5-.12(Actual .7 - .11) If not for the big .7 cent trade - I would have only been a penny high on both ends = D
Friday's close: 11.5 (Actual .9) ouch! D-
Skunk earns a grade of D going into finals week! Here comes the First Quarter Report!
Forecast for 12 - 16 May 2008
I think the technicals here are not much help. I would normally say that the PPS will either continue to ride the lower band at .9 and try to establish a new low - or start the move to the higher band. This week I think will be dominated by the Company Report - and any news will simply wash away anything that stands in the way. I think if the investors are sophisticated enough to have written off the EDS revenues as old good news, AND the Company brings the bacon home with good news about new COES Installations nearing completion, Production at decent levels and Financing in hand - then the sky is the limit. If on the other hand - we see the opposite - say hello to new lows. Up or Down, I think you should keep the antacids handy - next week may make a skydiver nervous. I see a low start to the week - with a strong finish after the release. Does our CEO have a rabbit up his sleeve?
Well, Bullwinkle this is Rocket J. Squirrel calling: "It's time!"
Detailed Forecast for 12 - 15 May 2008
Best Buys .7 - .8
Weekly range .7-.16
Closes above .15 One - Friday
Fridays Close .15
Long Term Prediction FEB 2010
As promised, the Skunk will adjust his forecast as his assumptions change based on the best information available . We stand with most of the details in the blog from two weeks ago. However, reflecting his concerns about COES production combined with the failure to systematically bring one COES online during either March or April, the Skunk has reduced his PE factor 25% to 75. The Skunk will be quick to move this factor up or down depending on information provided or not provided by the company in the following days. The Skunk sees 280M Shares Outstanding - some 4.2 times the present levels. However, In order to have that number of OS shares - the EBITDA will be over 37 times its present amount - and that difference will be reflected in the share price. Using a factor of one-third to project net income from EBITDA, we can see: 28.97M/280M Shares = (net income)/TotalOS) = .1035(PE) X (Diluted EPS) = (est. PPS)75 x .1035 =
$7.76 Share Price in FEB 2010**
**Note: I am a shareholder - I do not work for, nor do I receive any direct or indirect payment from GERS or anyone associated with them. (But it would be Kapitalist Kool if I did) I will not intentionally mislead - but I can be wrong (ask Mrs. Skunk for specific frequencies) - so do your own due diligence - and take responsibility for your own financial decisions – (and your own life in general) good or bad. And some good garage logic luck to ya.
Since the first quarter report is due out about the 15th of May, the Skunk has decided its time to don the Karnac The Magnificent Hat and give a look see into the future. In order to do this we need to review a few things - follow along if you would like. First the Skunk is going to take a look at the last quarterly report (Sept 07) to see the structure. Since the Annual was published post first quarter - that will be our most up to date source for company information. There are many numbers in the Annual Report that are labeled as first quarter figures. In fact, although it was published on 7 April, it had figures added to it as late as the 4th. The February Shareholder letter - published with the SEC as well - will be my secondary source. The Yagi debt agreement will be the third. The PRs published during the quarter will be reviewed as well. OK - got everything?? We will both do our review and lets meet back here (sober) in two hours . . . . ................. . . . .............. zzz ........ . . . ZZZZZ . Well that was fun, Huh?
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