QUESTION:
- (Paraphrased) Why convert debt at this level of share price, rather than wait when share price is higher?
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ANSWER:
I agree completely that debt conversion is best at the highest possible share price. The company is fortunate that its debt holders have been cooperative in deferring much of their conversion entitlement for the same reason; they understand that it is better for the company. The company’s policy is not to seek out debt conversion transactions at this share price level, but instead to convert as little as would satisfy the legitimate needs of debt holders to regain some of their capital and to retain the high level of confidence that Winning Brands enjoys with its debt holders that their positions are not in jeopardy. Unlike some junior public companies whose convertible debt is a threat, Winning Brands is responsibly and gradually diminishing this form of capitalization, in concert with realistic and mature funders. Where no diminishment is possible, it has been possible to improve the terms and conditions.
The dilution caused by debt conversion, or share issuance, is not “desirable” in the sense that the company would seek it out. My earlier comments about dilution were merely to point out that capital gains can occur at any price point, and that dilution, in principle, is not “as bad” as some may think if responsible dilution can also bring compensating value to the company. In the case of Winning Brands, there are operational advancements which would not otherwise have been possible. The value of these advancements will be borne out when the company demonstrates its ability to carry significantly higher sales without a comensurate increase in overhead expenses.
The point is sometimes made that it would be more intelligent of the company to raise all its money at high share price levels. The related point that is usually forgotten in this discussion is that there are legal constraints as to the timing and size of capitalization arrangements, such as the $1 Million per 12 month cap in the case of Regulation D, Rule 504. Accordingly, Winning Brands has spread the timing of its capitalization across the calendar so as not to be forced to avail itself of capitalization at inopportune times. It is a form of risk management. As it stands currently, the company has raised less than it is allowed to over the previous 12 months precisely because it would not be opportune to do so until liquidity conditions are more favourable – conditions which are also affected by business arrangements and the existence of natural buyers of the company’s shares.
Natural buyers, as I define it, are purchasers on the open market who acquire their positions on a well informed basis and a readiness to accept the risk associated with a penny stock in pursuit of the attractive returns that are possible. If/when Winning Brands is doing business with large retail chains in the U.S., it becomes a paradigm shift for the company’s prospects and the legitimate basis for a next generation of such natural buyers to come in and take the company and its share price to a new level.
These things are inter-related in a way that prevents action that may seem obvious at times, as if there were no other connected issues. Sometimes it’s emotionally satisfying to reduce things to a very simple premise – it’s natural – and I am no exception to that preference. However, a willingness and ability to see the nuance in situations is also beneficial and usually results in better outcomes over the long run. Winning Brands does its best to strike a wise balance between such interconnected issues.
By comparison to the majority of its peers, Winning Brands actively communicates its efforts and policies to its shareholders, thus resulting in a very well informed community of stakeholders. As awareness grows amongst a next generation of natural buyers of WNBD, there will be a deep reservoir of due dilligence materials available for them to see the logical progression of events to date. It will be obvious to them that this is not a pump and dump, but rather a verifiable and legitimate emerging enterprise that is advancing upward in the pursuit of a terrific business mission that is becoming increasingly plausible.
