I have recently been asked by a shareholder who wrote to the company whether I would be willing to review the online discussion boards in order to respond to so-called negative posts. This request seems to have been prompted by his frustration that many friendly shareholder posts in discussion boards are deleted by moderators if the posts are supportive of the company.
I think it is appropriate that I agree to this request and am placing the response on this widely seen CEO Weblog for several reasons.
The first reason is that Winning Brands has always been more responsive than most of its peers in the Pink Sheets OTC environment to shareholder communication, regardless of its tone. The company is accessible and this sets us apart. Secondly, the purpose of the CEO Weblog is to discuss both the company’s progress and challenges; it is fitting that criticism of the company is acknowledged and addressed in the CEO Weblog for the benefit of weblog readers who do not go to the discussion boards, so that they know that the criticism exists, and what the core concerns are. Thirdly, it is not clear to what extent negative comments on discussion boards are “sincerely” critical, or are based on inaccurate assessments or have ulterior motives. Some of the most negative remarks are posted by anonymous people who acknowledge that they are not shareholders. Their posts in other discussion boards (about other companies) are often negative as well. By drawing attention to such negative concerns about Winning Brands in the CEO Weblog, I can help prospective investors (who are considering buying Winning Brands shares for the first time) to be aware of the existence of these concerns. It’s dry reading because of the quantity of detailed information, but important and helpful for any genuinely interested party. The points below are only some of the concerns. Others will be responded to as well.
1. Reverse Split (and no subsequent uplisting)
It has been said that the company promised that it would never reverse split its stock. In reality, the company did not promise that a reverse split would ”never” occur. It did promise that a reverse split, if it occured, would be made for the purpose of an uplisting to a higher quotation tier, such as OTCQB. Such elevation requires registration with the Securities & Exchange Commission. Therefore, following the reverse split April 25, 2013 auditors and attorneys were identified who would be prepared to participate in the process of registration for Winning Brands. This involves a retroactive audit of two years, plus an interim stub period for the balance sheets. Also, it is necessary to complete an S-1 registration application. The professional fees for these two steps exceed $50,000 and the outcome is not certain. This is because the S-1 process is an application; becoming registered is not a “right”. The SEC reviews, comments and requests modification of the S-1 application. No guarantee is provided by the SEC that the outcome will be favourable. For this reason, it is important to be ready when submitting the S-1 registration application that issues of interest to the file reviewers are addressed in advance. This minimizes cost overruns and reduces uncertainties during the SEC commenting period. In the case of Winning Brands, a partial deposit restriction of the type affecting many OTC stocks, also called a “chill”, is an additional factor. It has been in place for three years. It constrains trading on some platforms and not others. It would appear that E-trade, Fidelity, Scott Trade and Charles Schwab are not affected, whereas TD Ameritrade and some others are. Elevation to the next level in our case requires coordination of these three issues, not merely two. The current status of our desire to elevate Winning Brands to OTCQB through registration is that the PCAOB certified auditor (Public Company Accounting Oversight Board) agrees that completion of our 3(a)10 debt settlement process, which was announced in our previous public filing at www.OTCMarkets.com, is desirable so that the SEC has a clear record of how the company dealt with the share issuances associated with the 3(a)10, within the registration documents. It is the duration of the 3(a)10 process that is not yet known.
This process, referred to in our most recent OTC Markets public filing, is a method to settle debt on a non-cash basis. It is beneficial because not only is the debt reduced, so too are the associated interest costs. 3(a)10 is granted by one of several courts considered by the SEC to have sufficient authority and objectivity to approve the issuance of free-trading shares to qualified creditors. No proceeds of the sale of these shares by creditors may come to Winning Brands. It is not a method of financing. It is purely a method by which willing creditors are satisfied to accept shares in lieu of cash to consider themselves repaid. This is helpful to Winning Brands as it will permit the reduction of liabilities on the balance sheet, contributing to the company being more attractive to friendly investment. Like all things in life, this process has varying standards of quality, depending upon who is carrying it out. In our case, we are being careful to observe the spirit of the legislation to ensure that only creditors and lenders benefit – and that no funds come back to the company as investment. Doing this correctly takes time. Therefore, although the balance sheet will improve in 2014 as a result of the 3(a)10, the process does not provide the company with further working capital. Lack of working capital has a bearing on the company’s ability to generate sales. This is also the reason that the company has not yet implemented a reduction of its authorized share count. It would be cynical to decrease it to a much lower figure prior to knowing what degree of dilution is required to complete the 3(a)10. An earlier expressed intention to reduce the authorized share count was made before it was confirmed that Winning Brands would qualify for the 3(a)10. These elements are interconnected. The company is being conservative in discussing these points presently so as not to alter its position needlessly.
3. DTC (Depository Trust Corporation) Chill
The reason that Winning Brands has a chill is that a former subscriber to a Regulation D, Rule 504 financing, did not hold his shares long enough as required in regulations governing this form of investment. The DTC would prefer to see the resolution of the SEC’s position on that subscriber’s issues with the SEC because it has occured before for that subscriber with other companies. Therefore, the chill is not a complaint against Winning Brands, but rather concern with a 504 subscriber. The background administrative mechanisms that cause the imposition of, and eventural removal of, a chill can take a very long time. It is the DTC’s publicly stated position that a successful SEC registration is relevant in a decision of whether to remove a chill. This is possibly because registration formally accounts for the progression of shares from an unregistered life to a registered life, and thus more clearly sets out what is available to the public (and what is passing through the clearing system) and why. The current status of our DTC chill removal is a dual process of awaiting the legal resolution between the 504 subscriber and the SEC in matters between them while also obtaining confirmation from the DTC whether our S-1 registration, as presently conceived, will be satisfactory.
4. Poor Sales
Winning Brands sales have remained stable for several years, and declined in 2013, rather than growing. The expectation for a hot penny stock is that the company’s product sales will go through the roof. If a company’s product has been around for several years, then the conventional wisdom is that the product, or the company, or its CEO, or all three are not up to the task and the company will never amount to anything. The problem with that reasoning is that it ignores the fact that the majority of penny stocks have little or no sales, yet many have very high market capitalization – ocassionally up to $100 Million, even when there is no company revenue whatsoever. By that standard, Winning Brands is significantly underpriced, if one feels the company will succeed. The reason that I feel the company will succeed is that despite a lack of impressive sales, the company has impressive consumer relationships and several very good retailer relationships. The central argument about the company’s ability to soar are based on its ability to create sufficient awareness of its lead product through effective marketing. Naturally, there are many opinions as to what constitutes effective marketing. Since WNBD began trading, in aggregate, several million dollars of our products has been moved through retailers. The cost to Winning Brands of doing so, however, has been higher than the realized profit. This is why Winning Brands has a working capital deficit. However, the annual operating loss has been declining since 2009. In other words, despite the sales challenge, the company’s net financial performance has actually been improving. Also, there continues to be a flow of positive consumer feedback, good retailer engagement and lessons learned about the combination of the two. If Winning Brands can increase its marketing visibility, sales will increase commensurately. Most consumers have not yet heard of the company’s products – that is why the potential of Winning Brands is so great. If most consumers had heard of our lead product 1000+ and rejected it through disatisfaction, then the situation would be completely different. However, in reality, the vast majority of North Americans are completely unaware of the existence of this very useful product. Consumers who have discovered 1000+ (and our other products), seem to like them, and they let us know how much through testimonials. Winning Brands’ operating goal is to increase consumer awareness and achieve major tipping points in distribution. Slow, organic growth is not viable because the costs of waiting are too high. The most impactful tipping point would be the listing of Winning Brands’ lead product, 1000+ Stain Remover, World’s Most Versatile Stain Remover, by a corporately operated national banner in the USA.
5. Lack of USA national banner
The three most important banners for Winning Brands in this context are Home Depot, Lowe’s and Walmart. Our product has earned its place on the shelves of all three of these banners in Canada. Winning Brands has a relationship with all three U.S. parent offices also, including formal vendor numbers, but not yet a national on-the-shelf presence in the USA. Home Depot USA has placed 1000+ Stain Remover into its online offerings at www.HomeDepot.com. Lowe’s USA has been testing 1000+ at three Lowe’s locations in Ohio. Walmart USA has tested 1000+ at its Sam’s Club division. All three banners are happy with the product, satisfied with Winning Brands as a vendor but have not yet committed to a roll-out nationally. We have come close to larger regional tests, but circumstances on the retailers’ end has delayed that for a number of reasons. The protracted nature of these delays give critics the message that it will never happen. In the company’s opinion, that assessment would be more logical if these three retailers chose to end their relationship with us - that would be easy enough for them to do. Some version of a brief e-mail asking us not to bother them anymore would take one minute to send. Yet, they have not done so. Securing any one of these three national banners would instantly make Winning Brands financially self-sufficient allowing us to move from being an aspiring brand requiring funding to survive into a brand with traction that can be confident of its future and grow much faster with a distribution platform of a national retailer for national advertising purposes. The dramatic impact on Winning Brands of securing such a national banner can be determined by extrapolating the sales numbers that we have with the stores in the Canadian subsidiaries. The stores are virtually identical in concept and layout between the two markets. Throughout this prolonged waiting period it has been possible to calculate what the impact would be for Winning Brands of increasing its national big box store count by a combined 8,000 locations. This may never be achieved. But then again, it may be. It is simply not known at this point. The criticism of which you should be aware is that the prospective banner partners could have acted by now if they intended to. Their failure to list nationally may represent indifference or even a negative orientation. It is the position of Winning Brands management that the U.S. headquarters would not be wasting their time with us if there were no interest, nor would our presence in their Canadian stores be sustained and even nurtured. It is possible that they are assessing whether the brand has staying power and will continue to build loyalty amonst its existing consumers. In the meantime, we are seeking expanded presence in independently owned retailers. The principal distribution channel is hardware, accounting for a potential 40,000 locations across a range of co-operatives and locally owned outlets. Do it Best, with 3,500 affiliated stores is an example of one cooperative. Others include Ace and True Value. We have made some progress, but need to perform much better to make a real difference.
6. Lack of activity or sporadic activity in other Winning Brands products
The company is considered by critics to have abandoned or botched other product launches, and even that reference by Winning Brands management to other products is a diversionary tactic. The reality is more nuanced. The business plan calls for focus on a lead product to achieve national or international prominence. The others are follow-through products. What is less obvious is that the competitive marketplace calls for continuous product development. A static product is a sitting duck, waiting to become obsolete. Accordingly, we have been using this period (i.e. while the lead product seeks traction) to keep refining the follow-through products with R&D and small scale tests with key partners. The reason that we do not substitute one of the follow-through products for 1000+ is that 1000+ has unique techncial and branding elements which make it suitable to become a household name across tens of thousands of retail points of sale in North America and beyond. If the right tipping points occur, then this model has been shown in the case of other relevant consumer product precedents to have dramatic financial consequences. Even with 1000+ Stain Remover, there have been refinements to respond to learning in the marketplace. The name change from Winning Colours was very well received by retailers.. The new package treatment, including new label and bottle both, have been appreciated by retailers whose personnel, and buyers, prefer the brighter bolder look, with good shelf presence and complete elimination of bottle pannelling (a form of gradual deformation that arose from an interaction of the product and its container). For several practical reasons, more will be heard about Winning Brands’ other products going forward. Several behind-the-scenes events, such as the retirement of formerly exclusive distributors, new alliances, etc are emerging. In the case of TrackMoist, to give one example, Winning Brands had been lacking an operational field team for this specialized soil conditioner for dirt entertainment surfaces. This has been rectified. Also, there were new environmental regulations looming that needed to be addressed. Now in 2014 TrackMoist is more visible than previously, and implementation is likely to recover. The new website is www.TrackMoist.com Other Winning Brands products will have their first-ever dedicated websites in 2014 as well. From a critic’s perspective, the special concern for possible investors should be that the failure of these various projects to take off sooner is a sign of weakness, failure or incompetence. The company’s perspective, however, is that the perseverance shown by Winning Brands to stay on mission and retain respectful relationships with a variety of commercial parties in all of its endeavours can just as much lead to breakthrough-events eventually. The role of the penny stock environment is to provide a setting in which interested investors and companies can meet and take risks in the pursuit of rewards.
7. Losses by shareholders
Critics would like you to know that many long term shareholders have lost a great deal of money by holding on to their shares. Here again, the reality is more nuanced. WNBD began trading in 2006. A review of all trades ever made, and all prices ever paid, is possible. Records of these transactions are permanent. They reveal that in terms of dollar volume, a period of several years existed with enormous liquidity and gradually increasing lows. Close to $80 Million worth of shares were traded during this period. A great deal of profit was made by persons who bought at what they perceived as lows (including the triple zeros) and what they perceived as the highs. As a result, it is a myth that a large number of Winning Brands common shareholders have been with the firm as holders since inception. The share turnover proves otherwise. There are some very long term shareholders, but a much smaller number than claimed by critics. The company has consistently asked long term shareholders to make themselves known to the company. Through the years, the aggregate number to have responded is less than 100, whereas at any point in time, there may be several thousand people in and out on a trading basis, according to the formal Non-Objecting Beneficial Owner List (NOBO), which sets out how many shareholders have their shares in street form with brokerage accounts. The important point here is that no loss is “acceptable”. The company strives to accomplish a mission and to provide a platform for speculation or investment as best suits the profile of the participant. The company aspires to being worthy of long term relationships, but cannot define in each case what that means for each individual. Over the years, many people have made a profit from their investment in Winning Brands. After taking their profit, some reinvested a smaller amount. There is a broad range of experiences - several thousand people have purchased, and sold, WNBD. The most respectful thing that the company can do for its shareholders is be clear in describing what it is trying to accomplish, provide information that illustrates progress (or lack thereof) and to encourage discussion with the company to ensure that the views of its shareholders are understood, including suggestions where applicable. Winning Brands files financial statements regularly. Sometimes they are late by a few days. They are always of sufficient quality in content to have earned the highest trading tier available to non-reporting issuers, the “Current Information Tier”. The history of public filings by Winning Brands demonstrates respectful, consistent disclosure, with no attempt to conceal the extent of the challenges, nor any attempt to conceal the enthusiasm by Winning Brands to accomplish a terrific undertaking. We are passionate about creating a national consumer brand(s) with all the exciting potential that flows from that difficult accomplishment, if attained.
The purpose of replying to these 7 points above is to ensure that you know that certain posters on discussion forums would like to you fully understand the risk involved with Winning Brands. They feel the company cannot, and will not “make it”. They wish that you would find another place to put your money.
Thank you for your interest in Winning Brands. I would be pleased to hear from you.
Eric Lehner, CEO