Monthly Archives: August 2008

eFood- Catching a Bit of a Bid

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In case you hadn’t noticed, EFSF has been catching a little bit of a bid of late. I believe I know why.

First- I want to comment on their recent press release concerning the “relaunch” of the DR campaign after evaluating the test phase and making changes. In my view, for these products and the future of the way they are marketed, this is do or die. They tried marketing through traditional retail outlets, and it was a failure. They believe they have products consumers want and need. I do as well being a daily user of Cinnergen. There is no question they will get going with a big campaign- the bigger issue- will it work? That’s the speculation. The whole company is not pinned on these two products- Cinnergen and Cinnechol- however, I believe their credibility and judgment are pinned here, and they need to get a positive result.

Now, on to the recent apparent renewed interest in the stock:

One factor is seasonality. The stock is very oversold, and seems to have found a bottom. Everyone who wanted out has gotten out. Short covering might be helping with a bid. Shorts know the company isn’t going to zero, and the summer doldrums are nearing an end. They might be thinking they’ve rung out as much profit as possible.

However, I believe a far bigger issue for a few folks willing to take a flyer is the recent appearance of the painfully long awaited PurEffect web site. It could be a signal that this product is finally ready to launch- I make it about a 15 month delay from when I first heard about it.

If you go to www.pureffect.com, you will find a live web site without much substance- yet. There’s a rotating picture on the lower right, and an order tab that doesn’t let you order anything.

The stock enjoyed a little volume surge on Thursday and Friday, and seemed to firm up just a bit.

I think it’s kind of funny. People like to complain about this one more than just about any stock I cover, but they’re still looking for a reason to buy the stock at this low level to profit from a rebound.

We’re far from out of the woods on this idea, but at least it’s a glimmer of progress at long last. Coupled with the recent announcement of the relaunch of the DR campaign, there is a good chance this one will turn in the right direction at least for a little while. Eventually, they will have to deliver the goods.
Comments and questions are welcome.

PhotoChannel’s First Call: Company Rolling in Black Ink

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After about 2 1/2 years of growth with their current business model, the management of PhotoChannel Networks finally held its first conference call in conjunction with the Merriman Equities conference the company attended this past week.

The call is very revealing and worth a listen. I’m hoping this first step marks a new policy by the company towards a more open disclosure and communication with the markets.

They announced Q2 numbers- the top line rose to $4.2 million for the quarter- a 231% increase over the same quarter in 2007. Losses were a bit higher as well, which primarily related to increased costs associated with new customer acquisition and their new Toronto based data center.

It’s a 45 minute call, but let me simply condense it for you with some of the highlights. The first and foremost best news I heard was the simple statement that the company was operationally cash flow positive today and expects to continue to remain in that state on a permanent basis. Therefore, no capital will be required to fuel operations. Cash is growing. EPS will be the next threshold for the company.

Secondly, I learned they were averaging about 21,000 uploads and/or transactions every day at the beginning of June. By the end if June, with the Costco deployment, they were averaging 30,000 transactions per day. Therefore, we can assume an additional 50% in organic growth, combined with moving into the best quarter of the year for more organic growth- pretty good stuff.

Revenue growth is outpacing expense growth at this time by a considerable margin- another major positive.

Their China initiative with Kodak did not get started in time for the summer Olympics, but they are now moving forward rapidly on 200 China locations.

On the application side, I heard one development which sounded exciting. They are testing a service with Hallmark in Europe that allows the user to design their own Hallmark Card, complete with text and images. You create it and order it to be sent. You can also select calender dates and arrange for future sendings throughout the course of the year for individuals who want to plan in advance. Great stuff if you ask me.

In short, everything I heard was extremely positive, and bodes well for a breakout in the stock as we get into the Sept to Nov time frame.

Oh- did I mention?- they will be bringing in a new CEO- I’m good with that move, since Fitzpatrick is basically CEO non grata day to day.
Here’s the chart:

It’s another fairly typical Bear Market chart. It sold off early in the summer, but has been consolidating for most of July and August on pretty low volume.

This is another stock I believe could make a strong run in the October to December time frame. You’d do well to accumulate.

The company desperately needs to expand its shareholder communications efforts, and hopefully this past week’s conference call was just a first step.

Comments and questions are welcome.

Platina Gets A For Effort

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Unfortunately, I couldn’t attend the Platina multi media web presentation this past Wednesday. However, I did catch the replay last night, and I have some observations.

First, I want to give the company an A+ for effort in shareholder communications. The multi media presentation they put out gave investors the opportunity to go directly to their wells/drilling site and see what the company is up to. A few other client companies unnamed at this moment would do well to take a page out of the Platina Playbook.

If you take the time to sit through the entire 1 hour plus presentation, you come away with a feeling this company is now worth far more than where it is trading, and much better levels are out in the future.

The one improvement I would suggest- There was a great deal of time devoted to giving everyone a visual and verbal tour of all their wells- however, I would like to have heard exactly what each well means in revenue flow to the company.

Also, an issue that has been of concern is the steep rise in the number of shares I&O. CEO Blair Merriman stated shares were issued as collateral for loans, but once the wells began producing and generating cash flow, the shares would be retired. I would like to have heard more specifics on that issue.

If I heard the presentation correctly, Mr. Merriman stated the company is currently generating a annual revenue stream in the $6 million range right now, which would put the stock a lot higher. It’s difficult to peg a number that it’s worth, since the shares I&O are a moving target. I’m not sure how many are going to be retired, and how many others will be issued.

There are currently 11 wells drilled and either in production or going into production before the end of September. There are many more sites they have yet to explore.

Take an hour an watch the Webinar. It’s in the multi media section at the home page: www.platinagroup.com.

Here’s the chart:

After attaining an $.18 level shortly after introducing the company at $.12, the stock has seen a low of $.08. I set the SSL at $.10, so right now if you’re not long term you should be out. If you don’t understand this concept, go to the home page and watch my video on Suggested Stop Losses.

I think the stock is probably a no brainer for a move up from these levels as we move into September and October. The company is doing a very good job in the shareholder communications arena, and that sets the stage to develop a loyal shareholder following.

I wish I could pinpoint a good upside target price, but that will have to wait until I have better understanding of the capital structure.

Comments and Questions are welcome.

Platina Takes Kentucky- Quarterly Filing Not the Story

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Platina had a couple of events worth commenting on today. Sorry for the lateness of this posting, but I am traveling and thus have to get to these updates when I can.

Platina filed its 10Q quarterly financial statement with the SEC today as it announced well #7 in Kentucky has gone into production.

Here’s the biggest challenge for Platina. If you read the company’s press releases and independent appraisals of their reserves, you can argue the stock is absurdly undervalued.

If you read the company’s financial report from the June quarter, you can make the argument the company is a total disaster, and the capital structure is a mess.

The truth, as always, is somewhere in the middle.

Here’s my message to investors on PLTG. I have put this in print, and I’ll continue to reinforce the message- the June quarterly performance numbers are in a sense a moot point. On the plus side, PLTG is carrying its properties as a $6 million asset in “uproven reserves”. The rest of the balance sheet reveals a company with $11 million in assets, very little cash, and a variety of different sorts of debt.
To understand the company, you have to understand the $6 million in uproven assets started to turn into a real revenue stream in July- so far disclosed to be at least in the neighborhood of $1 million for the three month period beginning July 1st.

The real, hard number in revenues for Q3 won’t be seen until mid November- six weeks after the quarter ends. If the top line is not in the neighborhood of at least $1 million, then Houston, we have a problem.

There is some revealing information in the 10Q- PLTG has paid for a lot of stuff of all kinds by issuing stock- this might help explain some of the sloppiness in the chart. according to the 10Q, there are now 150 million shares I&O- up from the number in the filings from their end of March. The new stock issuances might not be free trading, but they are part of the capital structure, and therefore dilutive in nature.

However, it’s all about return on investment. PLTG has been investing in Kentucky for some time, and it’s evident in the growth of their assets vs the number of shares I&O. The big question?- Are the shareholders going to get an ROI- again- 7 producing wells since July 1st is strong, but the market needs to see the hard numbers.

Here’s a messy chart, but has potential:

The stock sold off pretty abruptly in August almost perfectly in concert with the drop in natural gas prices.

Since then, the stock has consolidated in the $.08 to $.10 range and is building a base.

When I first published, I set the SSL (suggested stop loss) at $.10- so if you decided to stay in you should be thinking a bit longer term.

If the stock sells down tomorrow on the 10Q, it would be an opportunity to jump in and accumulate - a low number, in the $.07 to $.08 range might even be good for a trade to the upside.

The news of the 7th well going into production could send the stock the other way. We’ll have to see. At any rate, the sooner they can monetize their investments, the sooner we will be able to quantify what we have here.

If we haven’t seen it already, I suspect we will see the summer low tomorrow, and it will end up being a great opportunity.

For those who want some education on reading these SEC filings- go watch my video entitled, of all things “Understanding the SEC Filings and Financial Statements”.

Comments and questions are welcome.

Nighthawk Q2 - Soaring With Eagles and Scratching With Chickens

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I reviewed the Nighthawk Q2 quarterly filing late yesterday afternoon, and there’s some really great stuff and some information that is moderately troubling.

For starters- the top line growth was, as it continues to be, impressive on a percentage, year over year basis.

Here’s some comments in the same format as the Spicy Pickle review:

  • Revenues: were $736,356, up 116% from Q2 ’07, but down 10% from Q1 ’08- in short, the company is continuing to grow admirably, but not in sequential quarters.
  • Profts: NIHK lost $950k in the quarter, down about 10% from the losses in the same quarter in ’07, and about the same as Q1 of ’08. I estimate negative cash flow to really be in the $400k range. This is going to have to change in pretty short order.
  • Balance Sheet: The balance sheet is a bit troubling, but far from fatal. On the last day of June, they only had $75k in cash, and receivables and payables more or less matched up. There is almost $500k in inventory, which could translate into $700k to $800k in revenues, but you can’t know exactly when.

Based on the cash levels, it’s tough to predict if the company will need to raise a little more capital to see them through. Doug Saathoff, in his letter to shareholders, notes they had an order for 4,000 set top boxes which will now fall into Q3. That’s great news. More importantly, and I know this from discussions I had with him some months ago, they have refined the manufacturing process to reduce the costs, and therefore will get much better margins on the order.

So, I think’s it’s a bit of a horse race on the cash vs order front. Clearly, the company is running on fumes. However, if Doug can deliver and collect on that 4,000 set top box, and get paid in Q3- it’s likely all problems likely go away.

Here’s today’s theme- NIHK is soaring with the eagles on the revenue side, but scratching with the chickens on the cash side.

I hope the company does not have to raise more capital in this market environment. Capital is scarce and very expensive right now. It would likely be highly dilutive, and the last thing they need is more dilution.

On the major good news side, the shares issues and outstanding didn’t even budge quarter over quarter- standing at 136 million. To me, this static number is a great technical indicator. It means the stock could move up quite easily if and when volume comes back.

My view- hold on for the last and strongest part of the year. NIHK- deliver those 4,000 set top boxes, get the cash in, and do a lot more in Q4. Hopefully, you won’t need to raise any more capital.

Comments and questions are welcome.

Platina’s CEO Fills Us In

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There have been a couple of items worth mentioning out of Platina of late.

For those who want to take a little “voyeuristic” tour of a couple of their producing wells, here’s a link you can visit:

http://platinagroup.com/multimedia/adam_tour.htm

For those who are interested in an update of current events at the company, here’s a letter going out to shareholders from CEO Blair Merriman.

From the Desk of Blair Merriam
President and CEO

Dear Shareholder:

It gives me great pleasure to inform you that we are now on the eve of our first million cubic feet of natural gas production day. We’ve done our best to provide news releases relative to Corporate progress, but each day more is happening than we can reasonably report.

As you are aware from our previous press releases, our most recent developments have focused on our Kentucky property although other activity is simultaneously happening on other fields. Again, much more can be talked about, but the focus of my letter to you is most relative to Kentucky.

Toward the end of last month we announced a reserve report relative to the combined “proved” reserves for Kentucky and Tennessee, which included over 20 BCF of gas and almost 2 million barrels of oil. Based on our data from well activity in Kentucky, it is clear to us that our potential reserves may be significantly understated. However, definitive data is still premature, yet we remain very optimistic.

Over the next couple of months, as the Kentucky field becomes more developed, we will have the independent reserve report updated with the most current data and have the reserve values reanalyzed for a potential increase. Unfortunately, the oil and gas business is not an exact science, but our results now speak for themselves.

The Company is well on its way for fast track growth and we continue to acquire new oil and gas lease holds to increase our future well site capacity. It is important that you understand that we believe that the Company has a “whale by the tail” and that the potential for growth remains at levels beyond our forecasts and expectations. This includes increased production, considerably beyond the recent dip in natural gas and oil prices.

It is critically important that shareholders understand that our growth and future profitability is forecasted using pricing that is significantly below current market levels, and that as we increase production and have more predictable cash flow, we may consider sophisticated hedge strategies to lock in higher profits.

The focus of Platina continues to be responsible development of our fields including the addition of new technologies that will increase the potential recoverable reserves thus helping to preserve our environment. We also are working very hard as a Westernized Company to reduce reliance for oil and gas from controversial areas of the world.

Domestic infra-structure within Continental North America gives us a large competitive edge compared to Companies that have large overhead costs associated with transportation and other risks including force Majeure considerations for water based or unstable government or socio economic issues that may interfere with their progress. Additionally, our environmental responsibility is highly sophisticated compared to other areas of the world and even more so by Platina management.

Despite being in the fossil fuel business, we do urge everyone to conserve energy where possible and to use alternative methods for clean energy sources where feasible. Although we globally expect advancements in both clean and safe energy sources in the future, it is unlikely that air transportation will be using solar, hydro, hydrogen, nuclear or wind power.

It is also unlikely that the transformation to alternative energies will be as quick as we would like and the costs for future change over are enormous. The “Platina method” of economically responsible recovery through conservation, technological advances and through bio flora strategies, has proven itself to be the optimal method for the foreseeable future.

Platina is unique in the industry having proven that it is possible to use technology to responsibly develop reserves, improve costs, and preserve the environment while doing our part to reduce the nation’s dependence on foreign oil. The management of Platina believes that the best way to serve shareholder profit motives is to use a blend of reasonable and socially responsible decision making processes that optimize economic potentials while preserving our planet.

I look forward to writing to you after our first 2 million cubic feet of natural gas day, which I hope will be very soon. I also do not want anyone to think that our oil reserves are any less than our natural gas potential, but we simply do not have the field monitoring capability to determine exact daily metrics as we do for natural gas.

Our present blend of oil and gas production is about equal and likely to remain so on the Kentucky field. In the next coming months, we will be refocusing on the concomitant development of Tennessee, which drilling program was temporarily put on hold because of the huge success in Kentucky and limited expansion budget for two fields at once. The drilling program in Tennessee to date has been very successful and we anticipate its first production revenue checks by sometime in September.

For those of you who have participated in field tours, I’m hoping that you will share your findings and excitement with other shareholders and interested people either through our webmaster on our website or on independent services such as YouTube.com and other internet based forums. Also, don’t forget to visit our web site: www.PlatinaEnergyGroup.com and sign up for our upcoming Webinar event on August 27, 2008 4:30PM Eastern Time. ou can also access the Webinar via a simple phone connection (similar to a teleconference, but you just listen in) by calling (702) 824-9512, access code 631-773-100, then you will be asked for an audio pin, which is the # key.

Sincerely,


Blair J. Merriam

Seems undervalued to me, but technically a bit of a mess right now. Will need some good volume days to clean it up and help it move back to a more reasonable level.

Comments and Questions are Welcome

CREE Closed Out

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As an FYI for everyone, I closed out my position in CREE today at $22.45 for a net loss of $8,000 on the 2,000 shares I sold.

The stock traded up nicely off this week’s earnings release, which for the first time in several quarters was actually on the number Wall Street predicted.

Most companies are making their numbers these days as the analysts had them ratcheted way down.

Their forecast for the second half of the year was not too impressive in my view, and they have missed Wall Street estimates the last two quarters.

When LED bulbs really breakthrough and become disruptive technology, it will be time to revisit this stock. I’m keeping the 1,000 shares I have in my IRA just in case.

I’m sure we’ll revisit this stock again. For the time being, I prefer to be out.

Pickle Update, and Market Powering Higher

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Oil seems to have thrown in the towel, and the market likes it. I have talked to a number of technicians who feel this summer’s volatility was the death throes of the nasty Bear Market, and all indications seem to agree.

I believe the market’s current resurgence is tied directly to the price of oil, which as I write today’s BLOG is at $118.31- below the $120 level.

I’ll make a bold prediction- mark my words- we’ll see if it ends up being right. Oil is headed to $109. From there, it will consolidate and could go lower or start back up. In either case, I believe it is headed to that destination. I just don’t know if it will correct upwards first, or if it is going straight to $109. I hope it does trade up. There will be a way to make money on its drop to $109.

The dollar is firming again and trying to break above its June high. It is nearly there, and that bodes well for the US economy as it relates to energy prices.

In the interim, the micros we follow have now stopped going down, and some, as is the case with Spicy Pickle, are showing signs of life.

I haven’t written much about the Pickle of late- like most micros, not much to cover in August. However, there was noteworthy news early this week for folks who live in the NY area, and if you want to learn more about the company and what they are doing, all you have to do is turn on your television set.

I have a giant list of TV stations that are on cable and satellite. They include Manhattan, Westchester County, Bergen County NJ, Dutchess County, Brooklyn, Queens, and Staten Island.

Look in your local listings for a WRNN-TV. The show is entitled “Business and Beyond”, and features Spicy Pickle. It airs at 6:30 AM on August 12th, 19th, and 26th.

On the fundamental side, here’s what I have to report. The existing 43 Spicy Pickles are doing very well. The most recent opening in Portage, Michigan, promises to be the most productive store in the chain- it is generating in the range of $3,500 daily- that’s over $1 million in annual revenues.

As things stand today, growth will slow in the back half of the year as the flow of new store openings has been hit a bit by the recession. That fact is already priced into the stock. There are still about 90 more to open, and locations are being actively sought out in at least 6 different cities. The company is also working very hard towards an expansion campaign which would put a whole new light on the company.

The chart of SPKL is starting to shape up nicely. One down trend line has already been broken, and if we can get a second on to give way, SPKL should rebound to a reasonable level.

About 5 trading days ago SPKL broke through that high $.50′s level and broke above the steeper downtrend line. It now needs to get through the longer term downtrend, which would be about $.75. Then we’ll really be making some progress.

Stand by for further updates as news unfolds. In the meantime, it looks promising for a resurgence in both the markets and some of the smaller names as well. The bleeding has stopped, and the patient appears to want to get healthy.

eFoodSafety Annual 10K Report- All Priced In

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Earlier this week, EFSF filed its annual 10k report, which was due out by the end of July. The company has a weird fiscal year- It ends at the end of April. Hence, they have 90 days to publish their annual 10K filing, the most important SEC filing of the year.

By the time you read 10Ks, they are pretty dated information. Based on the information coming out of the company, it’s not too hard to predict how their financial condition might have changed since the end of April- probably, not much. Perhaps their cash levels are still decent, but their top line, which is the real issue here, has probably not improved much. The next financial filing will be the Q1 10Q, which is due out by mid September, and will let us know if their DR initiatives are working at all.

As of the end of April, the company’s balance sheet was still reasonably strong for their size. They had nearly $2 million in cash, receivables, and inventory- which I view as a source of cash- $1.5 million of it being actual cash. Conversely, they only had $145,000 in payables and no long term debt or obligations. In short, the ratio of assets to liabilities was excellent, albeit it pretty small numbers for a public company. This is the highlight of their financial condition.

On the minus side was the top line- or the revenue number. Throughout the course of their fiscal ’08, they managed to deliver $1.19 million in revenues- That compares to the $1.16 million they delivered in fiscal ’07- this equates to no growth, and there’s your big problem. Margins were a little lower and gross profits actually down- also not favorable.

One more negative to point out. Obviously, the company is experiencing ongoing losses- so- how does their balance sheet stay so healthy? A clue can be found in the number of shares I&O. The number of shares I&O at the end of fiscal ’07 was 112 million. At the end of fiscal ’08 it was 191 million. That’s dilution of 70%. Somewhere in that number is the reason the balance sheet has remained healthy, and also no doubt one of the contributing factors to the stock’s poor performance. It’s not a pretty picture.

So, fast forward to today. Their plan to get the top line moving was to bypass the retail outlets, and start selling their products directly to consumers through TV ads. They didn’t start the new campaigns until late March, and there has been little information coming from the company on the early results from those campaigns.

The market is assuming they aren’t adding much in additional sales yet. I have always believed these new programs would take a few months of fine tuning, so one needed to kind of see where the company was towards the end of calender ’08.

The picture here is simple. It that top revenue line can get moving, this stock could be fine and start trading back up. If the top line doesn’t move, the future holds more dilution, ongoing losses, and lower prices.

Here’s my view as I’ve said all along. If you’re still in this stock, you have decided to become a long term investor. As one, you can’t worry to much about the horrendous price today.

For me, the company needs to prove to me it can deliver annualized sales of $10 million by the end of this year. If they don’t, it will be time to take the pain and move on. I’m not saying they need to deliver $10 million this year. I’m just saying they need a monthly rate of about $800k by year’s end.

If a couple things fall their way, it could happen. The long delayed launch of PurEffect would help. Fine tuning and getting a strong result on their DR campaigns for their other commercial products would help as well. A licensing deal for Oraphyte would be a wild card to the upside.

There’s no point in putting up a chart. The stock is in the proverbial toilet, and I would be the last person to try to call a bottom. I would expect the stock to trade up quite easily if buyers resurface.

Something positive is bound to give this one a lift as we get out of the summer. The big question- will it be sustainable? We’ll see.

Comments and questions are welcome.