QUESTION
Happy New Year to you and the Winning Brands team. I am writing today asking a question about a blog entry you posted regarding “friendly financing”. Is this just a possibility if and when we are ever approved by the SEC, or is this something you are currently working on, with or without the approval. I am getting pretty nervous about my investment here as I continue to see the float increase and authorized share count being depleted. At the rate of dilution we have witnessed in the last year due to our ridiculous share price, in my opinion, we will hit the maximum within the first 6 months of 2012 or close. Can you elaborate somewhat on what has transpired and what discussions are ongoing regarding the financing end of things? One other thing that is bothersome to me is the partial freeze that continues. Some posters state that we will be in need of spending a lot of money on lawyers to have it lifted. Is there any truth to that and if so, what will be done to get us trading again with certain brokers. I have been a faithful long for a few years now, but without anything positive in the partial freeze or the friendly financing end, I cannot foresee getting new money interested in the stock to create some upwards momentum in share price. As you very well know, many of us longs are pretty much tapped out of funds to continue to throw at this investment. We really need your help here in these matters if you ever think longs will find any more cash to help fund operations. Thanks for your time Eric and again, I am looking forward to a positive 2012 for you, the company and of course, myself.
ANSWER
Thank you for taking the time to share your thoughts and questions.
My definition of “friendly financing” is investment which fosters the health of the company, rather than being toxic, by being supportive of the interests of the common shareholders. Winning Brands is a dedicated, hardworking small company with fine products and potential. It has good relationships with a number of desirable retailers, large and small. The company has shown that it can make its products to specification, deliver them as needed and support customers. In other words, the company does its work well and has appropriate attributes for growth. Its financial challenges arise only from the fact that its sales volume is not at the level required for self-sufficiency. There is no shame in this – it is not even unusual. Bio-tech companies, as one example, are are often funded in the public markets to the extent of 10’s or 100’s of millions of dollars with no certainty of future profitability. Or in another example, the IPO of Pandora is described this way by Om Malik, Senior Writer at Gigaom on June 15th, 2011 “…More than a decade after it was started by Tim Westergren and cohorts, Oakland, Calif. based Pandora Music completed an initial public offering that saw the company raise about $235 million at $16 a share. Pandora’s management team rang the opening bell today at the New York Stock Exchange. Pandora stock opened at $20 a share and started trading at $20.30 a share, giving the company a market capitalization of over $3 billion – not bad for a company that has never made a dime in profits…”
Many companies are funded prior to being profitable. In the big picture, the amount of financing received by Winning Brands, relative to its potential, is modest. If/when Winning Brands will hit its stride, the entirety of financing to date will be a relatively small portion of its future cash-flow.
I make this point above because there is a tendency of some people in the discussion board environment to choose specific challenges faced by this company, or any other, and exagerate their meaning. The company is still at a high risk stage of its life – there is no dispute about that. Any point that a poster makes along these lines is merely stating the obvious. In my opinion, the determination of a dedicated staff group, working with terrific products and fine customers is the most important predictor of the company’s prospects. All problems, large and small, can be managed. The dedication and goodwill available within a company, and to the company, when that company confronts its challenges, is one of its most important distinguishing characteristics. On this basis, and in many other ways, Winning Brands is a very good company. When its sales volume catches up with its potential – all the other “issues” will recede.
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In practical terms, we are being considered by a variety of parties, with a number of ideas. In fact, even while writing this response to you, a message was forwarded to me by an American associate for consideration of an additional alternative financing idea. It is only the most recent of many such positive gestures and outreach – that’s the point. There is considerable goodwill amongst parties who know Winning Brands. We will honour this goodwill by balancing the many factors currently affecting our destiny in order to make the best & most of the available openings.
As to the DTC, I disagree with the assessment that substantial legal action is required. The DTC is within its legal rights to do what it feels necessary to be comfortable with the securities that it clears. The inconvenience that this creates is not, in our case, a matter for litigation. It is a technical matter. Furthermore, with the eventual elevation of our status as being SEC registered, the matter will become a moot point.
In summary – this is a challenging time. The concerns that you have are all valid, but need to be understood within the context of a good, hardworking and effective team whose products are now enjoyed by tens of thousands of “regular” customers and offered by a number of fine retailers. The company has enormous upward potential by being astute in its financial engineering so that it can make the most of the many positive opportunities that already exist. It is, in my opinion, more likely that the firm will overcome its current challenges with the same positive determination that it applied to its difficult beginings. Success doesn’t come easy – that is the bottom line. There will always be people “booing” amongst the spectators for reasons of their own. What matters is that Winning Brands continues to play hard and effectively so that its fans’ support is vindicated.
Rgds,
Eric
