QUESTION
It appears the reverse split didn’t do much good at this point. I don’t believe this. How does someone as intelligent as yourself and with apparent business acumen continue to be unsuccessful wilth such a great product. I hope there is a light at the end of the tunnel that isn’t visible at the momment. Maybe in the near future you might consider going to a direct marketing plan. There are so many successful companies out there that have followed such a plan and have become enormous successful as a result. Maybe it’s time to reconsider because things haven’t looked too bright lately. Thanks again
ANSWER
Our cessation of financing under Regulation D, Rule 504 in early 2012 had a significant impact on our operations. We stopped 504 funding because shareholders had expressed discomfort with it and regulators had started to look unfavourably upon its growth generally in the OTC environment over the past several years. We “bit the bullet” and took ourselves off that important source of capital. Thereafter, we limited our share issuance to debt retirement.
As a (forseen) consequence of seeking less 504 equity capital, marketing and operating constraints were adopted. These constraints impacted initiatives that we had underway at the time. It slowed down our ability to respond to opportunities and reduced the supply of ready-made inventory available at any specific time.
On a parallel track this year, we began a determined effort to obtain SEC registration – a process that everyone knows takes time and is expensive. The long term benefit of that effort and expense is that the company will regain the ability to issue equity on more favourable terms than the former 504 equity issuances. The regulators and clearing authorities have a favourable view of registered offerings by contrast to “exempt” offerings of non-reporting issuers. All this can be summarized as present pain for long term gain. The Reverse Split was part and parcel of this long term process.
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We were approved yesterday for a much more affordable form of insitutional purchase order financing that we had been seeking for some time as a means to clear up our rolling back orders. So, for example,as of today more than $100,000 worth of product orders are awaiting delivery to eager customers. We will be able to deploy this new form of PO financing over the coming few weeks to begin to regain our momentum at least in meeting pent- up customer demand. (For clarity, pent-up demand means orders that were placed but not delivered, causing a reduction in reported sales). As we advance toward qualifying for new equity financing options, we will deploy co-op marketing intiatives with our retailers under our official Modified Strategic Plan. Our operational base has become extremely efficient. We have a break-even point that is lower than ever. This places us in a good position to gain profitability when volumes pick-up.
It’s been extremely difficult getting through the discipline of a severe capital diet, however we took the initiative ourselves and are combining it with an elevation to a higher level of more reasonable sources that will emerge in due course. If/when sales growth accelerates, we are well positioned to be authentically profitable.
As to “Direct Marketing” – very smart people have strong opinions on both sides of the issue. Winning Brands is open minded to improvements, however, there are drawbacks as well as positives in this specific suggestion. If you would like to discuss this in greater length, feel free to contact me. In the meantime, our top retailers continue to work with us and express enthusiam over our future. We have a number of very good relationships to build on.
Shareholders who wish to participate in direct investment are welcome to contact the company so that legal counsel can review what options are permissible under current regulations in your circumstances.
