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Harris L. Berenholz, CFA
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I like analyzing stocks, especially small caps and micro caps. My firm, Carpe Diem Advisors, LLC provides investment ideas, research and analytical services. Before establishing my firm I was (for 18 years) a Managing Director of Invemed Associates LLC, a New York Stock Exchange member firm,... More
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  • Update On The Drinks Americas' ($DKAM-$0.69) Turnaround Story

    Recently I wrote about how the company has risen Phoenix-like from the ashes of its past to become a lean, focused national importer and distributor of a line of unique premium alcoholic and non-alcoholic beverages that includes KAH Tequila, the market's fastest growing premium tequila. KAH Tequila is sold in an iconic skull-shaped bottle decorated as the famous God of the Dead and recently has won platinum and gold industry awards. The word KAH means "life" in the ancient Mayan language. Every bottle is an individual, hand-crafted work of art; no two bottles are the same.

    Growth will be driven by the success of the KAH brand in the tequila market. Worldwide sales of tequila were up about 2% in 2011, similar to the performance in 2010. In the U.S., however, total volume grew by double that rate (4%) fueled by increased promotional activity and popularity among Hispanics, the country's fastest growing ethnic group. High End and Super premium brands outperformed, increasing 9.5% and 11.3%, respectively, last year. Drinks Americas' $2 million marketing drive now underway (paid for by the distillery) backs KAH Tequila's national launch in the United States. Distribution of its Tequila and Beer brands is expanding into the Asia Pacific markets. Entry into the larger Latin America markets likely will follow in the next year or two.

    The company has cleaned up its balance sheet; is reducing debt and payables and is starting to see a ramp up in sales. Since September, all of the company's distributors have re-ordered at least three times, some as many as six. Quarterly sales should reach $6 million late this year, up from the $1.27 million reported for the quarter ended October 31, 2011.

    In view of these recent sales trends and ordering patterns, I now estimate that Drinks Americas can earn more than $0.20 a share (untaxed) on its upward revised $20+ million sales run rate.

    DKAM has a $44 million tax loss carry forward (over $2/sh). There are about 21 million shares outstanding, of which management owns 35%.

    Harris L. Berenholz, CFA

    Disclosure: I am long OTCPK:DKAM.

    Feb 12 4:27 PM | Link | Comment!
  • Drinks Americas Holdings Is A Yet-to-Be Discovered Turnaround Story
    Investment Thesis

    Drinks Americas Holdings (OTCBB-DKAM-$0.60) is a company that has arisen Phoenix-like from the ashes of its past to become a lean, focused national importer and distributor of a line of unique premium alcoholic and non-alcoholic beverages including KAH Tequila, the market's fastest growing premium tequila.

    The company has cleaned up its balance sheet; is reducing debt and payables and is starting to see a ramp up in sales. I think that at its $15 million run rate, Drinks America can earn more than $0.10 a share(untaxed) on its 21 million shares outstanding.

    Strategic relationships; an experienced management team; unlimited access to production capital; a restructured balance sheet; four core brands: KAH Tequila, Old Whiskey River Bourbon, Rheingold Beer, Mexican Beer Portfolio; and a building sales momentum, places the company in a good position to achieve above-average growth and profitability.

    The Company

    Drinks Americas was founded in 2002 by an experienced team of beverage, entertainment, retail and consumer product industry professionals led by J. Patrick Kenny, a former executive at Joseph E. Seagram & Sons. Management's relationships with manufacturers, distillers, development/research companies, bottling concerns and certain customers provided the foundation tostart and build the business. Products are sold through established spirits, beer and wine distributors, virtually all of which are well known from prior business dealings with them. In certain markets the number of distributors has been increased. Mexcor (Mexcor International Wine and Spirits) distributes a limited number of products to a national network of wine, spirits and beverage distributors for Old Whiskey River Bourbon, Olifant Vodka and Damiana Liqueur.

    The company utilizes contracts with independent manufacturers or contractors (called co-packers) to prepare, bottle, and package its line of beverages for sale primarily in the continental United States. Drinks Americas owns the trademarks for the majority of its products. It also has developed the formula for some of its distributed products. Certain products are owned jointly with brand owners, celebrities, or their affiliates.

    Company brands have an association with iconic histories or iconic entertainers that provide efficient promotion and marketing opportunities. The Old Whiskey River Bourbon brand is promoted with Willie Nelson .Rheingold Beer's long history and brand identification with New York dates back to 1883.Management believes that the consumer awareness of these brands provides a marketing advantage that permits more efficient brand marketing across electronic, social and print media formats and to building brand awareness and create consumer excitement.

    Management

    The driving force at Drinks Americas is its founder, President and CEO Patrick Kenny, an experienced businessman and entrepreneur with over 25 years experience as a Senior Vice President of Joseph E. Seagram & Sons. In addition to six years of running a public company and five years of entrepreneurial activity, he has also acted as adviser to several Fortune 500 beverage marketing companies, and has participated in several beverage industry transactions. Prior to joining Seagram, Mr. Kenny was employed in a range of sales and sales management positions with Scott Paper Co. and Coca Cola.

    Brian Kenny, Vice President of Marketing, has over ten years experience managing beverage marketing and marketing strategic alliances at senior corporate levels. In addition to working at Coca Cola, he has had marketing engagements for Sobieski Vodka; launched Trump Vodka; and produced several film and media projects.

    Joe Belli, National Sales Manager, has sixteen years experience as a sales and marketing representative both with alcoholic and non-alcoholic beverage companies where he directed multiple national brand launches.

    Jim Sokol, National Sales Manager, has twenty five years of sales experience with Pepsi Cola Company, Arizona Ice Tea and Snapple.

    Major Brands

    Olifant Vodka, which is manufactured at the Wenneker Distillery in Holland 1841, and rated by the New York Times as the second best Vodka in the world

    Old Whiskey River Bourbon (NYSE:R), an award winning small batch 6 year old bourbon

    Aguila Tequila, a 100% tequiliana weber blue agave reposado tequila

    Damiana, a Mexican liqueur often given in Mexican culture as a wedding gift because of its perceived aphrodisiac characteristics

    Rheingold Beer ,"New York's Beer" ( that had a 35% share of the state's beer market in the 1950's) was established in 1883 and has been sold by Drinks Americas since September 2010. Distribution of the product in bottles and cans has already been expanded to 13 states.

    KAH Tequila is sold in an iconic skull-shaped bottle decorated as the famous God of the Dead and recently has won platinum and gold industry awards. The word KAH means "life" in the ancient Mayan language. Every bottle is an individual, hand-crafted work of art; no two bottles are the same.

    Ed Hardy Silver Tequila fashioned in the famous and iconic designer Ed Hardy logoed bottle. Ed Hardy is a world class global trademark.

    Mexicali Beer has been a feature in Mexico since 1928. The beer has the same lime but better taste than other Mexican brands.

    Chili Beer, which features a unique hot chili pepper flavor (one chili actually in every bottle) now is sold in Trader Joe's and is expanding nationally.

    Red Pig Ale, is the only craft ale from all of Mexico. Its dark craft beer taste is available in 12 ounce six packs.

    The Milestone Transaction

    After successfully commercializing and launching six core brands; building distribution; and generating repeat business the company ran into a working capital crisis in 2008-2010-at a time when banks cancelled small cap credit facilities. With no credit, no access to production, mounting payables and declining sales it appeared that the company was doomed. But that all changed in June 2011, when Drinks Americas sold a 49% interest to Worldwide Beverage Imports(WBI).This company is owned by one Federico Cabo, a wealthy Mexican businessman whose interests include ownership of the fifth largest distillery and the third largest brewery in Mexico. This new relationship provided the Drinks Americas with, among other things, a $1.5 million cash infusion; high profile products (KAH Tequila; Mexican Beers); access to production , to product, and to working capital.

    The strategy going forward is to use the WBI partnership and the newly- licensed brands, together with existing distribution relationships, to keep overhead costs low; to support margins; and to create consumer awareness and demand for company brands. Near-term goals include: growing the top line; achieving 30+% gross margin; turning profitable; expanding domestically and internationally; and reducing debt. Drinks Americas just announced an agreement to expand distribution of its Tequila and Beer brands to the Asia Pacific markets.

    Financials

    For the six months ended Oct.31,2011, Drinks America reduced its loss by 59% to $730,000 on $1.4 million in sales (up from sales of $246,000 and a $1.7 million loss in the year-earlier period).The balance sheet shows $115,000 in cash; buildup in inventory and accounts receivable (for anticipated and reported sales);$1 million in current notes payable (which, under my assumptions, could be repaid over the next 12 months); no long term debt and a negative equity of $2.8 million. Because of the WBI relationship, there will be no need for additional debt or equity financing.

    The company has a $44 million tax loss carry forward(over $2/sh). There are about 21 million shares outstanding, of which management owns some 35%.

    Harris L. Berenholz, CFA

    Disclosure: I own DKAMD shares

    Disclosure: I am long OTCPK:DKAM.

    Feb 03 4:49 PM | Link | 1 Comment
  • Business at International Fuel ($IFUE) is shifting into high gear

     

    IFUE has developed unique, revolutionary additives for diesel and bio-diesel fuel that provide a number of important benefits to users. The commercializing of a destructive technology is a long, arduous process, despite clear evidence of efficacy in the lab and in the field.  Now after nine years, the company’s products are being commercialized worldwide. Two major  international chemical manufacturers have been contracted with to produce the product; key distributors have been and will continue to be signed up in major markets; and patents have been issued. Initial focus is on the rail industry but any industry using diesel fuel is a potential customer.

     

    How successful profits and stock price will be is totally dependent on how fast sales build. In our view, the excitement and revenues are just starting to gain momentum. Incremental profits and profitability could be substantial. For example, I estimate that $10 million a year in revenues should mean some $1.5 million (or more) in pretax income. And the leverage could be enormous. Higher revenues and rising oil prices will bring a widening in gross  profit margins on a smaller percentage growth in SG&A.

     

    This operating profit outlook compares to the current $17 million market cap. International Fuel also has a $42 million tax loss carry forward. The weak link is the balance sheet but, in my opinion, a relatively modest capital raise will carry International Fuel until the sales come in.

     

    The Company and its Products

    IFT has two primary product lines, DiesoLiFTTM 10 and the PerfoLiFTTM BD-Series.

    DiesoLiFTTM 10 is IFT’s proprietary surfactant-based fuel additive formulation. The product has been scientifically proven to provide a significant improvement in fuel economy and a reduction in harmful emissions. In addition, DiesoLiFTTM 10 increases fuel lubricity provides detergency benefits and co-solves normal amounts of free water, which collectively reduce maintenance costs for the end user. The product is easy to use, only splash blending is needed, and its use has been proven to have no effect on fuel composition, make-up or standard specification.

    The PerfoLiFTTM BD-Series is a series of fuel additive formulations specifically developed to provide superior oxidation stability and deposit formation control to bio-diesel and bio-diesel fuel blends. These desirable product characteristics are well-documented through extensive independent laboratory and field testing.

    A report, by Stuart A. Brown, an award-winning science and technology writer and reporter (stuartfbrown.com) arrived at some important and compelling conclusions:

    ·        Users of DiesoLiFT in the railroad, trucking and other industries consistently report fuel savings ranging from 3% to 6% and higher, lower exhaust emissions and a reduced need for maintenance of fuel system components such as fuel injectors and fuel filters.  The consistency of these results is noteworthy.

    ·        The body of test data supporting IFT’s claim for DiesoLiFT’s fuel-conserving properties is overwhelming. The project manager at the UK railway consulting firm Interfleet stated that the “fuel economy claims by IFT are irrefutable.”

    ·        Laboratory testing for fuel economy is considered highly reliable because of the controlled conditions and the established procedures that are adhered to.

    ·        IFT’s technology can potentially apply to every diesel engine in the world since diesel engines have injection systems that spray pressurized fuel into the combustion chambers and therefore can benefit from DiesoLiFT’s ability to enable more efficient and cleaner combustion.

    ·        DiesoLiFT is a patented formulation comprising a complex mixture of surfactant detergent substances. 

    ·        Because of its surfactant chemical formulation, DiesoLiFT cannot cause any harm to engine components

    ·        DiesoLiFT’s benefits also extend to users of biodiesel fuels.

    ·        Improved combustion reaction reduces emissions of pollutants including carbon monoxide, unburned hydrocarbons (soot), and less of the climate-altering gases oxides of nitrogen (NOx) and carbon dioxide (CO2).

    A Nobel Laureate heads research

    Director of Science & Technology Dr. Sergio Trindade is a globally recognized consultant and expert in sustainable development and energy, with especial reference to bio fuels.

    He served five years as the Assistant Secretary General of the United Nations for Science and Technology and continues to provide consulting for the UN system, including the World Bank, and many private organizations worldwide, regarding energy, technology and the environment. 

    Dr. Trindade is a co-laureate of the 2007 Nobel Peace Prize as a member of the International Panel on Climate Change - IPCC. He provides expert technical consulting for IFT and its commercial clients and plays an integral part in the research, development and demonstration of IFT products, as well as the protection of IFT’s intellectual property rights.

    Commercial business and prospects abound

    The products’ benefits and safety have been documented over and over again through rigorous testing by highly regarded and recognized independent laboratories and by extensive testing in “the real world”. But, at this stage, prospective customers want to satisfy themselves that these good results will also happen on their equipment. I think that  that at some point  the growing body of documented favorable results combined with a customer list that includes highly- respected companies will give prospective customers  the confidence to place orders without doing their own testing!

    United Kingdom rail industry is shifting into high gear

    ·         East Midland Trains Light Rail Division is buying and using DiesoLift  10.The product  will be tested soon in two of its other fleets

    ·         Two new rail customers are expected to place orders early next year

    ·         Six railways will be launching field testing programs soon

    ·         Bombardier, one of the leading rail equipment manufacturers in the world, has agreed to do field testing of DiesoLiFT 10 on engines used by East Midlands at their cost. Testing is expected to commence in Q1 2012

    ·         International Fuel’s partner Unipart, the leading distributor to the rail industry, is investing heavily in people and resources, and continues to be a driving force in introducing and marketing IFT’s products in the UK.All indications are that there will be significant increases in revenues next year.

    European rail Industry

    ·         Two major railways are testing the product

    ·         Ten rail and industrial companies in Ireland, Romania, Germany, Spain, Czech Republic and Cyprus are expected to begin testing within six months

    ·         Discussions with a number of major  National railways are under way

    ·         The German-based distribution partner, Nordmann Rassmann’s  (“NRC”),  is successfully marketing   DiesoLiFTTM 10 to numerous European rail operators and the expectation is that it will provide additional commercial opportunities going forward.

    Africa

    A major supplier/distributor to the rail industry in Africa and the Middle East  (similar to Unipart in the UK) is interested in partnering with IFT; a distribution agreement likely will  be signed within months. This relationship could lead to initializing field testing at some 10 national railways sometime next year.

    Other industries

    ·         Field testing by Tesco, the  world’s third largest retailer, should be completed within a few months

    ·         The power generation industry is emerging as another major potential market with distribution agreements signed or soon- to- be-signed in a number of overseas markets

    ·         Field testing programs are under consideration by seven bus and truck operators in France and Belgium

    ·         Negotiations for a distribution agreement are underway with a leading environmental management company for sale to European governments, industrial leaders and environmental experts worldwide

    The Bio-Diesel Opportunity

    The worldwide production of bio-diesel as a diesel fuel renewable extender is rapidly increasing, catalyzed by the emergence of national and/or regional bio-fuel mandates. All these bio-diesel productions need to be stabilized in order to meet the oxidation stability specifications that have been adopted around the world to guarantee the quality of bio-diesel. The company’s engineered liquid fuel additive formulations are specifically designed to provide superior oxidation stability, long term storage stability, and deposit formation control to bio-diesel and bio-diesel fuel blends. Sales of PerfoLiFT BD-Series already have already been made in several European countries (Germany, Spain, Romania, The Czech Republic, Portugal and Cyprus) and in Brazil. The coming months should witness sales growth in Europe (including new countries such as Spain, Poland, and Austria), South America (Brazil, Argentina), North America (US and Canada) and Asia.

    The company’s products are gaining recognition as one of the top performing technologies for bio-diesel stabilization. They have received the coveted “No Harm” certification from the German-based Association for the Quality Management of Bio-diesel (AGQM) under its “No-Harm and Efficiency” program.  This certification is the international standard in the bio-diesel industry due to the demanding requirements necessary to obtain such certification and, in many countries, this is necessary before entering the market.

    The Brazilian Opportunity

    ·         In a major (and surprise) announcement in June,  International Fuel received a purchase order to supply its PerfoLiFT BD-4  product to Petrobras, a $139 billion (in revenues) company ( the third largest energy company in the world) that has become one of the world's leaders in "green" fuel technology.  Affiliation with Petrobras could mean substantial revenues for International Fuel. It also provides the company with the credibility necessary to call on other potential customers.PerfoLiFT BD-4 is part of the PerfoLiFT BD-Series of proprietary IFT fuel additive formulations that provide superior oxidation stability and deposit formation control in bio-diesel fuel blends. It appears that Petrobras will promote the use of bio-diesel blended with diesel on a larger volume scale much as they previously implemented ethanol blended with gasoline in Brazil. The additive will be used in Petrobras' three wholly-owned bio-diesel manufacturing plants in Brazil that collectively produce over 150 million liters of bio-diesel per year. Last Summer, Petrobras took a 50 percent stake in local biodiesel company BSBIOS Industria e Comercio de Biodiesel Sul Brasil S.A. as  part of its initiative to more than double its bio fuel output over the next few years. The testing results  were similar to earlier testing of BD-4(as expected). This  places International Fuel in a position to bid, with a good chance of success, on a long term supply contract.

    ·         Bio Capital, one of the largest bio-diesel producers in Brazil, is in final testing of PerfoLiFT BD-7. Here, too, an expected  successful outcome should result in orders.

    ·         International Fuel is negotiating with the country’s largest rail operator to start field tests and with a major Latin American chemical company for exclusive manufacturing and distribution rights to company products

    ·         The Brazilian Fuels Regulatory Agency, Agencia Nacional do Petroleo (http://www.anp.gov.br/) (ANP), registered DiesoLiFT™10 as a fuel additive after an extensive and thorough evaluation process.

    The United States

    Customers include:

    -          Schnuck Markets: large regional grocery store chain that has been purchasing and using DiesoLiFT 10 since 2007.

    -          Magruder Limestone, an operator of heavy duty equipment, has been a customer  since 2009.

    -          Addicks Services, another operator of heavy duty equipment, has been using DiesoLiFT 10 since 2002.

    -          Earl Gaudio & Sons, a regional Anheuser Busch distributor, has been purchasing and using DiesoLiFT 10 since Mar 2002.

    The United States is the world’s second largest producer of bio-diesel. Testing is underway at ten major bio-diesel producers.

     

    UK/Europe 

    Eight major companies are customers and three major companies are testing the product.

      

    Harris L. Berenholz, CFA

     

    Disclosure: I own IFUE shares and have been retained by the company as an independent consultant 

     

    Dec 20 7:59 PM | Link | Comment!
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