Tuesday, May 20, 2014

Metabolix CEO Joe Shaulson States Company Will Have Financing By June

Full Disclosure: I own 125 shares of Metabolix Inc, (MBLX)

Summary

  • Based on Metabolix's financials - they only can survive a few months without a round of financing, fundraising or buyout. 
  • Each passing day, the ability to raise money in the public markets is impossible with shares trading < $1.00/share. 
  • "Newly" appointed CEO Joe Shaulson has done nothing but a few conference presentations, but has promised at least one leg of the financing needed to keep the company going will come by June 30, 2014.
You don't need a financial degree or even know how to read a balance sheet in order to know that Metabolix is in trouble financially. The company states very early on the most recent 10-Q that they need money:
As of March 31, 2014, the Company held unrestricted cash, cash equivalents and investments of $10,418. The Company’s present capital resources are not sufficient to fund its planned operations for a twelve month period, and therefore, raise substantial doubt about its ability to continue as a going concern. The Company will, during 2014, require significant additional financing to continue to fund its operations and to support its capital needs. (March 2014 10-Q)
So the company needs money. They can't raise any funds via the public markets because investors have little confidence in the companies existing & future product line. The company can't go to a bank, mainly because they have very little sales or revenue from an existing product line to borrow against (see below).

Three Months Ended



March 31,



2014

2013

Revenue:





Product revenue

$
539

$
790

Grant revenue

467

724

Research and development revenue


380

License fee and royalty revenue

63

49

Total revenue

1,069

1,943







Costs and expenses:





Cost of product revenue

695

557

Research and development

4,900

4,859

Selling, general, and administrative

3,634

3,312

Total costs and expenses

9,229

8,728

Loss from operations

(8,160
)
(6,785
)

Metabolix needs a believer .... with lots of money. If Metabolix was a young tech company with an iPhone app, finding $50,000,000 dollars of investment money might not be that difficult. Instead, this is a mature company that has never proven it can bring a product to market that makes significant revenue or a profit. Finding believers with lots of money is rather difficult when your are Metabolix.

CEO Joe Shaulson has been on the job long enough now that he should be well oiled up with excuses why Metabolix continues a free fall into bankruptcy. While he did avoid specifics on a fundraising effort (probably because there is no progress) - he did set a date when investors could expect to hear about financing the operations going forward in the latest call to investors.
So yes, I mean our plan – right now, our focus is balanced between financing and operations. I’m looking forward to the point in time where the balance shifts more to the operations than where it’s been for the past couple of months. But I would say that our plan to complete at least the first phase of financing by the end of June and we would expect to have a full set of information for investors about what that financing looks like when we announce it. And to complete it by the end of June, it means we’d have to announce it by the end of June.
- CEO Joe Shaulson (Q1 2014 Conference Call
So Joe couldn't have been more clear. While it's clear Metabolix's cash was going to be near empty by the end of June, Shaulson is setting a self imposed deadline to get something done. Way to go out on a limb Joe! My guess is that he has a 'backup' financing plan he knows he can put together at the last moment, but he's giving himself until June to see if he can't find something more attractive.

Any guesses on my part on who would want to finance this company would be more hopes & dreams than anything based on actually facts or solid business strategy. The company (as of May 2014) has a book value of $0.38 - that includes $0.30/share in cash ... which is scheduled to run dry by the end of the year. Metabolix is not an attractive buy-out candidate. The company doesn't have a noticeable balance sheet value for intellectual property, patents or proprietary materials. The odds of a buyout, partnership or white knight don't seem likely for Metabolix considering they don't possess any proprietary that another company would want for anything but pennies on the dollar.

What do I think will happen by the end of June?

Personally I see some kind of reverse-split/fundraiser. The ownership of the company is spread out evenly enough that it'd be surprising if someone tried to put the breaks on anything that helped the company survive another few years. In the next 18 - 36 months, I see Metabolix burning off any cash they manage to raise by June.

Wednesday, May 14, 2014

Full House Resorts Inc Reports Weak Quarter & Stock Tumbles

Several years ago I had a position in Full House Resorts (FLL) and ended up keeping a measly 25 shares after selling the the rest of the shares I had for a profit. So the stock has stayed on my watchlist for a while now and I've monitored the companies progress.

When I initially invested, Full House Resorts a few years ago they had a cleaner balance sheet. They were more of a manager of casino properties, and I like that since they didn't have to be the one's on the hook for an expensive remodel every decade ... which seems like the norm in the casino/hotel business. Since 2012 they have acquired Silver Slipper Casino, Lease/Purchase the Rising Star Casino, and acquired the Fitz Casino

I'd call that a spending spree!



Since 2012 - the stock is trading down about 40% - so investors clearly haven't benefited from the acquisitions & increased debt levels the company has had to take on in order to buy, renovate and maintain these new properties.

The company is now under a large mountain of debt (see page 12) and is beginning to look like most casino stocks. Below is what the company just had to say about it's recent quarter. I have added bold text for emphasis.
Revenues
The $8.7 million, or 22%, decrease in total revenues for the three months ended March 31, 2014 primarily consisted of the following changes by revenue type: an $8.3 million, or 23%, decrease in casino revenues, a $0.2 million, or 8%, decrease in food and beverage revenues, and a $0.2 million, or 16%, decrease in all other revenues. The decrease in total revenues was primarily due to decreases in casino revenues, as discussed below, by property. Total slot revenues accounted for approximately 87% of casino revenues in 2014 and 85% of casino revenues in 2013. The decrease in food and beverage and other revenues was primarily due to decreased revenues at the Rising Star Casino Resort, as discussed below.
The $8.7 million decrease in total revenues was principally related to a $6.4 million, or 32%, decrease in our Midwest segment revenues primarily as a result of increased competition and adverse weather conditions, a $1.4 million, or 10%, decrease in our Gulf Coast segment revenues primarily due to adverse weather conditions and a $0.9 million, or 18%, decrease in our Northern Nevada segment revenues due to poor ski conditions in the Lake Tahoe area and continuing economic weakness.
The $6.4 million decrease in our Midwest segment revenues was mainly the result of lower casino revenues at the Rising Star Casino Resort, which decreased $6.0 million, or 33%, as well as a $0.2 million, or 81%, decrease in other revenues and a $0.1 million, or 17%, decrease in food and beverage revenues. The decrease was primarily a result of increased competition due to the opening of an Ohio racino in December 2013, a new casino in Cincinnati, Ohio, which opened in March 2013, coupled with adverse weather conditions in the Midwest that affected the entire Indiana/Ohio market. Rising Star’s slot coin-in in 2014 was 32% below the prior year period and table drop was down 30% compared to the prior year period. The win percentages for slots were consistent with the win percentages in the prior year, whereas the table hold decreased slightly over the prior year period.
The $1.4 million decrease in our Gulf Coast segment revenues was the result of lower casino revenues at the Silver Slipper Casino, primarily as a result of adverse weather conditions. Silver Slipper’s slot coin-in in 2014 was 12% below the prior year period and table drop was down slightly compared to the prior year period, although the win and hold percentages for slots and table games increased 1% and 12%, respectively, over the prior year period.
The $0.9 million decrease in our Northern Nevada segment revenues was the result of $0.8 million, or 23% lower revenues at the Grand Lodge Casino and $0.1 million, or 7%, lower revenues at the Stockman’s Casino due to lower casino revenues.  The lower casino revenues at the Grand Lodge Casino was primarily a result of lower volume due to poor ski conditions which provided little draw from the excellent weather of our feeder markets in central California. Slot coin-in and win percentage for the Grand Lodge Casino were both down in 2014, 8% and 11%, respectively, as compared to the prior year period. The lower casino revenues at the Stockman’s Casino were primarily a result of lower volume due to continuing economic weakness. Stockman’s slot coin-in in 2014 was 12% below the prior year period, although the win percentage for slots increased 4% over the prior year period.
(Source: Page 22 Q1 2014 10-Q)

Awesome ... so Full House totally bricks the quarter and is blaming the weather and 'economic weakness' which must be the stock line the companies executives are still using since 2008, poor weather conditions ... which I can buy, but shows you as investors that you need to pay attention to your meteorologist when you invest in this stock. Finally, the company mentions competition - which is never going to slow down and will continue to be a fight they will wage. For a company who has been on a buying spree, you'd sure like to see them have a better suitcase of excuses, but the executives at FLL do not ... they use the same old excuses why they fell on their face this quarter.

You'd also think that after spending millions to acquire and renovate several casinos during the last few years, they'd have a cleaner balance sheet but they don't. Take a look at the Goodwill & Intangible assets (in bold below) .... I'm not sure what those are for, but it's fair to say you could cut those in half for the majority of companies out there, except for one's with actual brand recognition like Coca-Cola or Apple.

That leaves the company 76.7 Million of debt, with 14.5 million in cash and 91.6 million in property, which needs to be remodeled & upgraded to compete in this business - so it's worth a lot less than that.

 
March 31,
2014
  
December 31,
2013
 
  
(Unaudited)
    
ASSETS
      
Current assets
      
Cash and equivalents
 $14,519  $14,936 
Accounts receivable, net of allowance for doubtful accounts of $429 and $471
  1,735   1,869 
Prepaid expenses
  4,757   6,288 
Other
  735   726 
   21,746   23,819 
Property and equipment, net of accumulated depreciation of  $24,907 and $23,096
  91,671   91,168 
         
Other long-term assets
        
Goodwill
  18,127   18,127 
Intangible assets, net of accumulated amortization of  $4,697 and $4,055
  14,909   15,533 
Long-term deposits
  2,593   761 
Loan fees, net of accumulated amortization of $2,698 and $2,327
  3,189   3,558 
Deferred tax asset
  1,321   1,321 
   40,139   39,300 
  $153,556  $154,287 
LIABILITIES AND STOCKHOLDERS’ EQUITY
        
Current liabilities
        
Accounts payable
 $2,347  $2,661 
Accrued player club points and progressive jackpots
  1,848   1,999 
Accrued payroll and related
  2,921   3,276 
Other accrued expenses
  2,469   3,139 
Deferred tax liability
  66   66 
Current portion of capital lease obligation
  689   736 
   10,340   11,877 
         
Long-term debt, net of current portion
  59,500   57,500 
Deferred tax liability
  113   113 
Capital lease obligation, net of current portion
  6,793   6,983 
   76,746   76,473 
Stockholders’ equity
        
Common stock, $.0001 par value, 100,000,000 shares authorized; 20,227,276 and 20,107,276 shares issued
  2   2 
Additional paid-in capital
  45,428   45,350 
Treasury stock, 1,356,595 common shares
  (1,654)  (1,654)
Retained earnings
  33,034   34,116 
   76,810   77,814 
  $153,556  $154,28
 

With the stock trading off 15%+ today, a quick scan of these numbers and competitive casino industry environment makes it easy to see why investors are avoiding this stock. If I didn't have 25 shares just sitting in my account, I'd long forgot about this gaming operator - and you'd be wise to stay away from investing in Full House Resorts.

Disclosure:
I own 25 shares after selling a larger lot years ago.
I advise selling or shorting this company.

Monday, May 12, 2014

My Personal Experience With Diamond Resorts International Inc DRII

Some of the best investment insights over the years have come from an experience you might have with a company. Last week I was on my honeymoon, which was a week stay in Lake Tahoe, CA. We stayed at the Lake Tahoe Vacation Resort, which was has changed ownership/management over the years, and is currently under renovations. The week long stay was a gift from some co-workers of my wife who were members of Diamond International (DRII).

Diamond International is essentially in the business of selling 'points' on an annual basis to consumers. You purchase these points, and redeem them for hotel stays around the country which are managed or affiliated with Diamond International. While similar to a timeshare, the DRII saleswomen was quick to point out that this was not a timeshare, and that it was far different than one. They were also quick to refer to people who have signed up with DRII as 'owners' - which I found clever, but not actually accurate. But I'll get to that a little later on.

First was the sales pitch. Like many sales presentations, they get you to sign up for the sales presentation by waving a free gift in front of you. In our case, they offered a $75 Visa gift card, which I actually did receive at the end of a 2+ hour presentation. The presentation included a brief tour of one of the remodeled rooms and an extensive sales pitch by a fairly seasoned saleswomen who had been in the business for almost 20 years.

During the pitch, they refer to you (if you buy) as 'owners' which I found a bit inaccurate because Diamond International themselves don't own a large portion of the properties, they are simply a management company in most situations. DRII salespeople were also quick to point out that this is NOT a timeshare - which traditionally allow you to vacation in one location and during one season or part of the year. In that case, you actually do have some ownership, although your vacation options are typically less than what DRII can offer. In essence, buying into a DRII membership was essentially pre-buying your vacation each year in the form of 'points' ... which probably works for people that vacation each year, but for a young couple who's looking to save money, rather than spend it - it's not ideal or financially responsible.

One of the weakest parts of the presentation was when they brought over the 'sales manager' who was a middle-aged man, who came across as somewhat slick & polished. He was less interested in explaining the benefits of joining Diamond International, rather he was looking to close the sale by getting my wife & I to sign a contract. I remember when the contract was presented to us - the saleswoman legs began to shake in anticipation and she was on the edge of the seat .... I took that as a sign of desperation. Recently I've visited a Tesla location inside a shopping mall (only to window shop) and an Apple store (for service on my iPhone) ... and never did the sales person pressure me or seem anxious to make a sale. That's because they are confident companies, not desperate for a sale. Companies like Diamond International - who have more debt than most of the customers are probably somewhat desperate for sales.

Details of the contract they were trying to get my wife and I to sign were:

Interest Rate: 17%+
Amount Financed: $10,000+
Monthly Payment: $175 - $250/month
Maintenance Fees: ~$800/year

We politely declined, saying that our financial situation wasn't going to allow us to spend nearly $200+ per month for the right to take a vacation. We simply don't travel that much, and finding deals online is not particularly difficult.

There are many reasons why just about anyone would never want to agree to this type of vacation spending habits. While your points carry over for a maximum of 2-3 years, if you don't take a vacation ... or don't spend all your 'points' you end up paying for vacation time you never used. Additionally, if your families budget, lifestyle or vacation habits change in any way, you are locked into spending money you don't want to spend. During the sales pitch, the saleswomen did say that you could sell your points to friend/family ... but I'd figure just getting into the vacation planning business might be easier than collecting money from family members. Additionally, something like this is almost impossible to sell - so you don't really own anything considering Diamond International is never going to limit the number of these memberships.

While I haven't decided if I would invest directly in DRII - I know that I would never be a customer of their product, so it makes it difficult for me to invest my money. However, if they get enough people to sign up for their services - it's an interesting way to capitalize on the hotel/travel segment of the market.

Wednesday, May 7, 2014

The Difference Between Binary Options & Vanilla Options

The Difference between Binary Options & Vanilla Options


Now, if you haven’t heard by now, there’s a lot of buzz surrounding binary options. The reason is simple, the barrier of entry is low, easy to understand and don’t require you to be staring at the screens all day.

Of course, many people are familiar with US Equity options, however, they are not really sure what binary options are all about.

First, vanilla options are priced using a partial differential equation. The most famous being the Black-Scholes-Merton model. In order to calculate the value of a vanilla option, one must know the options strike price, the price of the underlying asset, the risk-free interest rate, implied volatility and the expiration period. Once you have all these inputs, you plug it into the model and it gives you an estimated value for the option. With that said, there are two prices for a vanilla option, the bid and the ask price.

In reality, the price of an option is what someone is willing to pay for it. The model is just used as an estimate for fair value. To truly understand vanilla options you should understand the theory behind them and the role that probability plays in the model.

On the other hand, binary options are not based on a pricing model. In fact, there is one price, the price of the underlying. In addition, you have two choices, whether you think the asset will trade higher or lower by the expiration period. Not only that, but you don’t have to worry about the role that implied volatility or time decay have like you would if you were trading vanilla options.

Of course, this makes binary options a lot easier to comprehend. However, they do have their drawbacks. For example, with a binary options trade, you’re locked in. This means that you are either going to win a pre-determined fix amount or lose your entire investment. As you might now, vanilla options allow you the ability to get out of a position in order to cut losses or take gains. Also, the profit potential of a vanilla call option is undefined. Whereas with a binary option, the profit is pre-determined before you get in.


In conclusion, binary options are just a simpler product to trade. Although they make sense for the small investor or trader, vanilla options will continue to be the leaders for institutional investors as they offer greater flexibility and profit potential.

 If you’d like to learn more about binary options, make sure to visit www.binaryoptionsexplained.com