Borislav Tonev

Energy Focus Inc (OTCMKTS:EFOI) Really Shining Now

by Borislav Tonev October 3, 2013
6EFOI.pngAt the beginning of May, there was a major overhaul of Energy Focus Inc (OTCMKTS:EFOI, EFOI message board)'s management team. The former CEO, Mr. Joseph Kaveski stepped down and Mr. James Tu was called in to take the helm. At the same time, Eric Hillard was appointed President and Chief Operating Officer and just a quick look at the chart on the right gives you an idea of how profound an effect those developments had on the price.

As soon as the announcement about the changes went online, the ticker jumped. Two weeks later, the value had already doubled and while it did showed a correction, it managed to sustain a relatively stable (for a penny stock) range throughout the next couple of months.

Minutes before yesterday's opening bell, EFOI announced another addition to the management team. Mr. Thomas McAuliffe will take on the role of Vice President of Business and, according to the announcement, he will help the company increase sales and achieve profitability. In addition to this, he is supposed to bring in quite a lot of experience and expertise - he started his career at General Electric Company (NYSE:GE) and quickly worked his way up to the position of Managing Director. He has also founded and develop several software enterprises if the press release is to be believed. On the whole, quite an impressive professional resume.

Apparently, this was more than enough to excite investors. EFOI gapped up at the open and immediately started climbing. It never fell below Tuesday's close and finished the day at $0.59, just a cent shy of the 52-week high. It's pretty clear that the shareholders are quite happy with the management team. It's a shame that not everyone shares their enthusiasm.

On August 17, a law firm called Faruqi & Faruqi, LLP started an investigation against EFOI's Board of Directors. According to the press release, the company's 2013 Stock Incentive Plan "could have a substantial dilutive effect" on the share price. There is no information on how far the investigation has gone, but needless to say, if Faruqi & Faruqi's doubts turn out to be founded, the company credibility could take a significant blow. Certainly, the increase in the number of authorized shares approved during the last annual shareholder meeting suggests that some dilution might follow.

It would really be a shame if the stockholders need to suffer the effects of the litigation since they have already gone through quite a lot. The ticker was sitting well above the $1 per share mark less than three years ago and the people who jumped in back then (and are still supporting the company) are looking at more than 50% in losses. What's more, EFOI are finally showing some signs of real progress. The latest 10-Q shows us that over the second quarter of 2013, they have managed to improve virtually all aspects of their financial statement:

  • cash reserves have been increased
  • the negative working capital has been dealt with
  • quarter over quarter revenues have gone up by about 38%
  • quarterly net loss has been halved

By the looks of things, they are determined to achieve profitability which should give the ticker a more continuous push in the right direction. As always, however, you shouldn't ignore the things that could hamper EFOI's progress in the long run. Faruqi & Faruqi's investigation is definitely one of those factors.

23NAMG.pngA definite plus is the lack of a paid promotion. EFOI is one of the few penny stocks that, according to our database, have never been a part of a paid promotion. If you've been around small cap ventures for a while, you know how badly the performance can be affected by such practices and, in case you don't know what we're talking about, we have included the chart for North American Oil & Gas Corp (OTCBB:NAMG) (who lost more than a third of their value in just four sessions) so that you can get the picture.

Comments 1

1. Guest
October 03, 2013, 09:52AM

Quotes I found this on an EFOI messageboard: "On August 29th the company withdrew proposal number 4 from the proxy for the annual meeting. That was the stock incentive proposal that Faruqi & Faruqi was investigating."

If true, there's nothing to worry about as far as a lawsuit.

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