***MEMO FROM ERIC***
Memo to: Forum Moderator
iHub / Stockwire
From Eric Lehner, CEO
As a courtesy to shareholders I would like to provide a quick update on the subject of Lowes. This will provide clarity about a topic of interest to many. The bottom line is that we are privileged to have support of the appropriate parties at all three levels of management in that organization; national management, regional management and local management. This is why we have been permitted to display the Lowes logo on the website with the accompanying note referring to the imminent arrival of Winning Colours Stain Remover to the first local group. The simple fact of the matter is that the discussions about the best way to handle the phase-in is what has been receiving tweaking during the past few weeks. It is Winning Brands preference to move through a natural progression of local, regional and national implementation so that product knowledge is optimized and for technical reasons that are not obvious to the casual observer. For example, our re-engineered display racks could be deployed better in such phases. We have determined that there are advantages to manufacturing the (all important) custom rolling rack as a single unit that does not require assembly by the receiving stores and can be shipped whole for future use in this sector. Implementing thousands of such displays into this sector over time considerably enhances the visibility of Winning Colours Stain Remover in stores. But there is a balance to be struck between economy of scale in manufacturing it vs the storage of a poorly considered excess quantity. So we like to think these issues through in advance. We want to ensure that we learn from the testing that we have put the first 250 units through. Our assessment is that the packaging and shipping of the original units (that are packed flat like modular furniture) is efficient in warehousing space-use and transportation cost, but efficiency is lost at the store when specialized personnel are required for assembly. This affects roll-out momentum and variations in assembly quality locally. Also, It is better not to have a mix of display units deployed recklessly because the interchangeable merchandising display panels that go into the units are different for the two concepts. There is also additional UPC number management for every variation of any item that enters the supply chain. Other technical points include use or non-use of shelf-talkers, protocol for in-store demonstrations, etc. These are just some of many technical points that are part of a comprehensive merchandising relationship with a national retailer as opposed to a smaller independent store. The exact status at this moment is that the national management of that organization last Friday offered assistance to the local management of the targeted area to implement as soon as they can. It’s just a fact of life that this then ultimately involves certain specific people being in the office, as opposed to vacation or absent for other good reason, their own pressing priorities, etc. The point is that there are no problems in this relationship. These are simply discussion points for good planning and to ensure that whatever happens, it is consistent with policies. I am changing the reference to Lowes timing on the WinningBrands.ca store locator page from “March” to “soon” in order to recognize that it is imminent. You can see now why I wanted to ensure that our associated News Release is disseminated when product is actually in-store. This will ensure accuracy in respect of a number of details.
On a different subject, I have been asked a few questions recently about capitalization which are no doubt also of general interest.
· Are some of the recent 250K and 500K blocks being traded company dilution? Answer: Winning Brands has no knowledge about specific trades. By staying completely out of the matter of who is trading on a given day and which market makers are choosing to trade in the security, we can leave the market dynamic less complicated. If the company tries to achieve some outcomes through direct influence or intervention, then the agendas become unwieldy and probably contrary to regulatory governance. In general terms, there has always been some subscription activity by qualified and “sophisticated” investors (the term “sophisticated” being a regulatory term, not a personal judgment). We are highly selective to ensure that only responsible and reputable parties are involved. The dilution since March 2008, to choose one year as a conventional measure, is reasonable in our view because of the demonstrated usefulness of capital for the company’s initiatives. The O/S will be updated this week. As of today the number of shares in circulation, ie float, is still less than 1B because 150 Million shares is held in restricted form by management.
· If it is dilution, could you let me know what the money is being used for? Answer: Contrary to the popular complaint of bashers, funds are certainly not being used to enrich management. No person in the organization has received an annual six figure compensation since the company became public, including myself. The opportunity of receiving a more suitable executive compensation is linked instead to performance by basic business metrics; sales and profitability – unlike the practices in certain well known “big board” securities. Also contrary to bashers, there are no exotic vehicles in the mix. You will find that two mini-vans and a micro-car are the only automotive items budgeted at this time. Some persons within the organization are permitted to submit mileage reimbursement at standard government recommended rates per kilometre/mile as the case may be, if such travel is pre-approved and for company business. Funds raised are used for the development of a brand identity through: Research & Development, prototyping, display design and execution, trade show attendance, media advertising, intellectual property protection, insurance, inventory build up, computer system upgrades, cell phone usage, printing, and legal fees to ensure accountability in key official documents.
· If it is dilution, is it going to end soon? Answer: The most common behaviour of a CEO is to fudge this answer by making it sound that dilution is about to end, and to make it sound as if dilution is a horrible thing. In reality, sensible and prudent access to capital during the formative period helps to keep debt low. This means that when the company’s net profits are sufficient to divert a meaningful amount to share re-purchases, the pattern can be reversed and share counts can decline again. A company with low managed debt is much more likely to make a difference to the share price by minimizing debt or by converting out of debt, not into debt through convertible debentures. It should be noted that share repurchase announcements seem to have become the ice cream flavour of the day recently. I do not consider a share repurchase announcement to be worth celebrating unless it is being financed from revenue (as opposed to a convertible debenture) and if the repurchases are meaningful either in quantity at the moment, or in cumulative sustainable quantity because the company has acquired the discipline to live without a certain percentage of its revenue on a continuing basis thereafter. This is why it is so significant that Winning Brands has chosen the contract manufacturing platform for its major growth. Our core group of personnel would be capable of handling a significant increase in business volume without any increase in our overheads.
· Are we still on schedule to roll out Winning Colours at Lowes in March 2009? Answer: we are very close, but a detailed response is above.
Eric Lehner, CEO