WARNING! The information below, if committed to memory, may make you appear much smarter than you really are! Use it to impress others at your next social gathering!
The Skunk has mentioned before - we can only get so far
with our still here in Kornfield Kounty. The question has always been - How do you get from 190 proof (95%) to 200 proof (100%) alcohol? In the early days of fuel ethanol production, this problem was overcome by azeotropic distillation. One technique involves adding an entrainer - typically benzene - that breaks the azeotrope so the ethanol can be further purified. A couple of issues with this technology are additional distillation steps are required (i.e., more equipment and more energy) and benzene is a known carcinogen. But this was used successfully for years, until more recently when molecular sieves were introduced to the industry.
Just as the name implies, molecular sieves separate molecules. The mole sieves are large vessels filled with BB sized desiccant beads – millions of them. These beads are made of a synthetic zeolite material and engineered to have tiny pores in them that are 3 Angstrom (3A) in size (an Angstrom is a unit of measure used in molecular studies; a human hair is approximately 1 million Angstrom wide. In other words, an Angstrom is really, really small). Water molecules are slightly smaller than 3A and ethanol molecules are larger than 3A.
The 190 proof (95% ethanol) vapor made in distillation is sent through a molecular sieve and the small water molecules get trapped in the pores of the beads. The larger ethanol molecules pass on through, resulting in a final product that is nearly 200 proof alcohol.
Some Ethanol Plants use three molecular sieve “bottles”, each one running in sequence for only five minutes at a time. After five minutes, the pores in the beads are full and too many water molecules begin to pass through with the alcohol. The vapor feed then switches to the next bottle, and the saturated one that just shut off goes through a regeneration cycle where negative pressure is used to pull the water out of the beads to get the bottle dried out, soon to be fed again.
The use of molecular sieves has substantially improved the energy efficiency of ethanol plants and the overall safety of the industry – and now you have the proof!
with our still here in Kornfield Kounty. The question has always been - How do you get from 190 proof (95%) to 200 proof (100%) alcohol? In the early days of fuel ethanol production, this problem was overcome by azeotropic distillation. One technique involves adding an entrainer - typically benzene - that breaks the azeotrope so the ethanol can be further purified. A couple of issues with this technology are additional distillation steps are required (i.e., more equipment and more energy) and benzene is a known carcinogen. But this was used successfully for years, until more recently when molecular sieves were introduced to the industry.Just as the name implies, molecular sieves separate molecules. The mole sieves are large vessels filled with BB sized desiccant beads – millions of them. These beads are made of a synthetic zeolite material and engineered to have tiny pores in them that are 3 Angstrom (3A) in size (an Angstrom is a unit of measure used in molecular studies; a human hair is approximately 1 million Angstrom wide. In other words, an Angstrom is really, really small). Water molecules are slightly smaller than 3A and ethanol molecules are larger than 3A.
The 190 proof (95% ethanol) vapor made in distillation is sent through a molecular sieve and the small water molecules get trapped in the pores of the beads. The larger ethanol molecules pass on through, resulting in a final product that is nearly 200 proof alcohol.
Some Ethanol Plants use three molecular sieve “bottles”, each one running in sequence for only five minutes at a time. After five minutes, the pores in the beads are full and too many water molecules begin to pass through with the alcohol. The vapor feed then switches to the next bottle, and the saturated one that just shut off goes through a regeneration cycle where negative pressure is used to pull the water out of the beads to get the bottle dried out, soon to be fed again.
The use of molecular sieves has substantially improved the energy efficiency of ethanol plants and the overall safety of the industry – and now you have the proof!
(The Skunk has read some on this subject - but this rendition seemed to have just the right balance of interesting information and ostentatious minutiae. )
SHORT TERM
EOY FORECAST
Well last week the ol'Skunk got involved in some GERS research and all of a sudden it was Monday night and I still hadn't got it my weekly forecast done. Since the price jumped pretty good on Monday - I figured I didn't want to jinx anything by doing it a day late. After a little reflection (accuracy achieved vs summertime expended) - I decided to no longer try and regularly forecast share prices a week out. I will make a comment or two whenever I get the urge. So for those few who found it slightly amusing - may I suggest the Sunday Funny Papers - LOL
To fill the spot in my weekly blog I decided to now give you something you really need - the PPS six months out. I will list my assumptions and record my prediction. I list my assumptions for two reasons - first to give myself an excuse if my prediction does not stand the test of time. And second - and on a more practical level - to allow you to insert your own assumption where ever you think mine is weak - and come up with your own prediction without doing all the work. It's always easier to fix a straw man - than to start digging clay.
My 1st assumption is that we will reach our stated end of 2008 goals:
"Our goal is to have at least 15 million gallons per year of corn oil extraction capacity, 20 million gallons per year of biodiesel production capacity, and 16 million gallons per year of oilseed crush capacity online by the end of 2008, . . "
2nd assumption is we will maintain the same gross profit as claimed in the 1st Quarter Rpt of over $2.00/gal corn oil to bio-diesel. 3rd assumption is production equals (on average) 83.3% (based on Minimum Yagi Debt standards of 1.25MMGY) of extraction capacity. This average will constantly improve into the '09 first quarter - when most 2008 commissioned COES will be then producing over 90% capacity on average. 4th assumption is only 20% of EBITDA will move to net income. Until debt is refinanced and paid down, and until more localized bio-diesel plants cut down on the average transportation cost of corn oil - this ratio will remain low. 5th assumption is Sustainable Systems will complete its expansion during mid 4th quarter;
(. . . the completion and commissioning of Sustainable's current plant expansion, which is expected to be completed in the fourth quarter of 2008. [p. 24 1st qtr rpt])
and will still be ramping up operations EOY - running at 62.5% of their new 16M gallon capacity - or 10MMGY production rate. Rate of Revenues to gross profits during the first quarter were just over 10% - the unique sales last quarter of whole seed seems to have driven this ratio abnormally down from the Company predicted 15%. The Skunk will use 12.5% and split the difference. 6th Assumption is Bio-Diesel Construction for third parties will be about $2.5M. Given we were told of about 15M in sales and the expected completion of two units in the first and second quarter each, I estimate that 50% percent of the remaining $5M in revenue will be claimed in the 4th quarter. Historically 50% of revenues move to EBITDA in this area. 7th assumption is NEXTDiesel will have 20MMGY bio-diesel capacity with or 12.5 MMGY of Corn Oil to bio-diesel production (83.3% mentioned earlier). The Skunk will assume that they will be able to utilize only 50% (or 3.75 MMGY of the unused 7.5MMGY capacity to produce bio-diesel from tallow and waste fats.) This produces .70/gallon of gross profits or $2.625M of additional EBITDA - an entirely new revenue source.
12.5MMGY of Corn Oil Bio-diesel = 25M EBITDA
3.75MMGY of Waste Fat Bio-diesel = 2.625M EBITDA
$2.5M Third Party Bio-Diesel sales = 1.25M EBITDA
10MMGY Sustainable Systems = 1.25M EBITDA
TOTAL EBITDA = $30.125 at an annualized rate or $30M
With 30M EBITDA the Skunk estimates we could have 175M shares outstanding at the end of the year. This is due to the various reward programs with preferred stock tied to EBITDA. Historical indications are these stock conversions are awarded when the company reaches an annualized rate of EBITDA earnings over a quarter. (We will explore how this works at a later date)
Public Float 56,044,957
Employee Pool (B) 36,379,995
Viridis Capital, LLC (D) 49,920,000
BIG Shareholder Group (E) 32,000,000
Total 174,344,952
The Skunk is also going to throw in 25M shares as possible debenture stock conversion by YAGI. This is based on past history and also wanting a good, round number to work with. That gives us 200M shares OS. Moving only 20% of EBITDA down to Net income we have: 6M/200M Shares Outstanding = .03 *P/E factor of 15-25 = .45 - .75
*PE I used very conservative P/E ratio here - compared to the two year forecast - since in six months, even with these short term goals met - we will still be a work in progress - still a diamond in the rough.
My prediction for the last trade in 2008 for GERS is - .60** - trading range of .45 to .75 during mid December '08 to mid January '09. I am making this prediction on 6 June 2008. GERS stock just closed down 9% for the day at a dime.
One of the things I left out of my assumptions was I based this prediction on the annualized rate of EBITDA during the 4th quarter 2008. The results for this will not be published until 30 March to 15 April 2009. Believing in the ultimate collective intuition of investors - I think we will have achieved a psychological turnaround of sorts by then - where all GERS news is no longer bad. Some of it is good and only some of it is bad. I think by 31 Dec '08 investors will have factored in the news before it comes out in the report and that will be reflected in the 31 December PPS. So besides having a blindfold on and having to sink the eight ball - I also have to use three rails - and all this while the balls are still moving.
Today's Forecast - For those who think the above is PIE-IN-THE-SKY (75%?) - Lets quickly back check this against the last price where we had good numbers and use the same assumptions. Say mid - May when the quarterly came out. $920,324 EBITDA X 4 X .2 = $245,911. Total Shares OS = 85,031.348
245,911 / 85,031,348 = .002892
.002892 X 20 = .0578
So by using the same conservative formulas and ratios used for the EOY prediction - backdated the inputs to May '08 - we have produced a price of 5.8 cents and a conservative trading range of .43 - .72
The actual trading range for the month of May was from .07 to .113 !
Maybe this ol'blind Skunk stumbled on to an acorn here ? ? ? Well I just took my three rail shot - now on to the six rail long range forecast - looks simple right?
LONG RANGE FORECAST
I stand by last weeks detailed update of my long rang forecast with two updates. First of all, the Skunk believes he has overestimated the number of shares outstanding by a likely 75M shares. What I suspect is we are counting some Employee Pool shares twice and not subtracting shares already converted. However, I would rather error on the side of caution and use those numbers until I can better analyze the situation. To give you an idea of the possible magnitude of the error, if it is as I suspect - that would increase my estimate of share price more than a dollar - to just over six dollars.
The second update has to do with the amount of 1st quarter '08 YAGI debt conversion. By accounting for everything I could, I assumed the remaining dilution was YAGI debt conversion in the area of about 30M shares. As I researched further, I was able to account for about half of those shares and I updated the blog as I found the shares in question. For those who missed it you can re-read last weeks blog or here is a quick synopsis:
"In January 2008, the Company issued 25,085 and 6,797,633 shares of Company common stock to relatives of Kevin Kreisler upon conversion of 1,254,244 shares of Company Series A Preferred Stock and 151,250 shares of Company Series B Preferred Stock, respectively, which Series A and Series B preferred shares were originally issued in 2003 in connection with financial accommodations provided to the Company by the holders." (p.28 1st Quarter -This issue deserves archival research & a separate blog). We also converted almost 7M shares (using MIF) to settle an old $1M Lawsuit judgement. (p.23 1st Quarter. Which relative owns MIF?)
So now we could have had a maximum of 15,702,808 shares of YAGI debt dilution in the first quarter - not good - but better than the 30M or so first estimated.
So with the remaining convertible debentures all paid through dilution - we get a grand total of 388,295,382 shares "possible" outstanding in FEB 2010. Or, with your permission, the Skunk will round up to 388.3M Shares Outstanding. This is where we may stand with the OS shares - some 4.6 times the present levels in under two years. Yet, what shareholders need to remember is in order to have that kind of number of OS shares - the EBITDA will be over 31 times its present amount ($920,324 X 4 = $3,681,296 or 1st Q at annualized rate of 3.68M) 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: 34.7M/388.3M Shares = (net income)/Total OS) = .08936 (PE) X (Diluted EPS) = (est PPS) 55 x .08936 =
$4.91 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.
SKUNK
I stand by last weeks detailed update of my long rang forecast with two updates. First of all, the Skunk believes he has overestimated the number of shares outstanding by a likely 75M shares. What I suspect is we are counting some Employee Pool shares twice and not subtracting shares already converted. However, I would rather error on the side of caution and use those numbers until I can better analyze the situation. To give you an idea of the possible magnitude of the error, if it is as I suspect - that would increase my estimate of share price more than a dollar - to just over six dollars.
The second update has to do with the amount of 1st quarter '08 YAGI debt conversion. By accounting for everything I could, I assumed the remaining dilution was YAGI debt conversion in the area of about 30M shares. As I researched further, I was able to account for about half of those shares and I updated the blog as I found the shares in question. For those who missed it you can re-read last weeks blog or here is a quick synopsis:
"In January 2008, the Company issued 25,085 and 6,797,633 shares of Company common stock to relatives of Kevin Kreisler upon conversion of 1,254,244 shares of Company Series A Preferred Stock and 151,250 shares of Company Series B Preferred Stock, respectively, which Series A and Series B preferred shares were originally issued in 2003 in connection with financial accommodations provided to the Company by the holders." (p.28 1st Quarter -This issue deserves archival research & a separate blog). We also converted almost 7M shares (using MIF) to settle an old $1M Lawsuit judgement. (p.23 1st Quarter. Which relative owns MIF?)
So now we could have had a maximum of 15,702,808 shares of YAGI debt dilution in the first quarter - not good - but better than the 30M or so first estimated.
So with the remaining convertible debentures all paid through dilution - we get a grand total of 388,295,382 shares "possible" outstanding in FEB 2010. Or, with your permission, the Skunk will round up to 388.3M Shares Outstanding. This is where we may stand with the OS shares - some 4.6 times the present levels in under two years. Yet, what shareholders need to remember is in order to have that kind of number of OS shares - the EBITDA will be over 31 times its present amount ($920,324 X 4 = $3,681,296 or 1st Q at annualized rate of 3.68M) 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: 34.7M/388.3M Shares = (net income)/Total OS) = .08936 (PE) X (Diluted EPS) = (est PPS) 55 x .08936 =
$4.91 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.
SKUNK
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