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The 10-K makes for fascinating -- scary -- reading.
Not at all surprised at the market's negative reaction.
This post will focus on 2014 operating results (ex BMOC); another post will focus on BMOC; and a third (likely not today) on stock 'activity,' which commits significant dilution of at least 40% for stock to officers alone for newly signed employment agreements!!!
Operating results were a huge disaster:
- Despite Q4, a period which should be strong due to holidays per a company PR of a couple of years ago, revenue only increased 5% over Q3 14.
- Even without $2.5M of stock-based compensation (double revenue for the year, all booked in Q4; discussed in 'stock activity' post), the operating loss for the quarter was $510K, or $1.64 per $1 of revenue, versus $0.56 in Q3 (absent SBC).
Direct costs and compensation (read: materials and barista salaries) were down slightly from Q3; the increased loss was driven by an increase in G&A from an average of $82K/quarter in the first three quarters, to a whopping $456K for the fourth quarter alone, or almost $1.50 per $1 of revenue!!!
$193K was due to 'advertising' (10-K says $208K for the year; Q3 10-Q said $15K YTD). Have to believe a large chunk of this related to the reality show, but 10-K simply says 'advertising.'
- Interest expense was $33K for the year, versus $167K for the nine months ended Sept 30, 2014. ??? Perhaps abnormality is related to the fact that the company also booked a Loss on Loan Settlement of $314K in Q4; could have included interest in that.
Yeah, saw ur clarification after my post.
Interesting reference on the 'green lighted' locations, at least a few of those appear to be non-public at the moment.
I think it is great these mall locations are in relatively close proximity -- allows for economical advertising coverage.
It would be extremely helpful to the stock if the company would indicate its royalty fee arrangement with BMOC, if it is the company's standard 6% -- BCCI will not get rich on openings alone (Mr. Henthorn has said ten franchise openings will deliver $75K in profit, or .00025/share, significantly less than the currently quarterly loss rate for the kiosks).
Thanks for clarifying 'paid promotion' in penny land.
I still view it as somewhat misleading for posters -- and Mr. Henthorn -- to refer to 'articles' in Inc, Forbes, etc., which are actually paid advertising.
I am NOT complaining about the advertising, just its characterization by the company and posters as 'editorial content.'
Yes, the radio interview was fascinating:
- He referred to 14 locations, intimating that 5 'in process' in PA are incremental.
In fact, the company has only 10 current open locations (WA - 6; MT - 1; FL - 3). If there are 5 in process in PA, that would make 15. So not sure about the arithmetic.
- He said that the servers are 'all females,' although BMOC has said that will not be the case in the PA locations.
If you listened to the 'trailer' of the interview, stock radio.com is basically a PR firm that takes payments for its services. I read this to indicate that the radio interview was paid (for those asking about 'proof' of 'paid promotion'), but not definitive.
Re:
...proof to back up claim (of paid promotion)
What is Mr. Henthorn smoking/drinking?
Baristas CEO Barry Henthorn incorrectly characterized BMOC's theme for their mall locations, Freeman (BMOC exec) said.
One institution bought just 10K shares, $500.
The other institution bought 200K+ shares, but the dollar holding ($10K or so) was 95% smaller, than its otherwise smallest holding.
Why bother?? Somebody must be friends of somebody.
Also interesting that both of these purchases were made prior to BCCI approval of OTCQB status, which was tipped as stoking institutional interest.
75% of Twin Peak sales to males.
Exact opposite of mall customer profile.
Will be interested to see format changes for mall stores, particularly costumes and whether males are also servers, hopefully some poster can take pictures and post.
Why advertise K-cup product which can't be bought?
Sort of silly by BCCI -- just lends fuel to the fire of those who say the company is all about PRs and promises, not performance. Thus, no credibility for the PRs.
Plus a waste of corporate resource in advertising non-available products, further empowering those who argue, with merit in my opinion, that while he may have good ideas, Mr. Henthorn is weak at operations.
Hope someone buys Country Weekly, posts the ad.
I would do it -- there is a sales location within walking distance of my residence -- but I am out of the country for another week.
I am particularly interested in what this ad says about product availability:
As of this writing:
- Amazon has 175 listings for Barista Prima Coffeehouse k-cups (out of 382 for the sector as a whole), but none for Barista's announced k-cup. And it shows Barista and Barista Prima as two different brands, although the only two listings under Barista are in fact Barista Prima Coffeehouse products.
- The 'shop' tab of www.baristas.tv contains only baristas shirts -- no k-cups (or calendar, but that is a separate subject)
Not an article, it is an advertisement.
Read next to Franchise, at the top, it says 'special advertising section.'
The copy is fascinating. Refers to Baristas as 'growing,' yet the company's kiosk count has been reduced by 25% over the last 18 months; one opening was announced during that time period, but it never happened (SW FL #3). Funny definition of growth -- but that is why you advertise!!
Can you publish a url for the March Forbes 'article' featuring Mr. Henthorn, that should also be worthy of review.
.30/share means $100M valuation.
To me, hugely excessive for a company with revenues of slightly over $1M, with operating losses of $0.60 for every $1 in revenue (per most recent financials, Q3 14).
However, stock could move higher from current levels if the company were to publish its agreement with BMOC re: royalties, as certainly BMOC is investing substantial sums in the new format.
Though, hard to know what to think about BMOC and its business acumen; Mr. Henthorn is one heck of a salesman to have convinced Mr. Lehr that Baristas 'dominates' the western states. Heck, he has less than 10% market share in kiosks in his home market, SEA/TAC!! And, if we are to believe those who say that market is growing, BCCI share is shrinking as they have added no new stores in several years.
An interesting Birnel quote from that article:
“A guy would never survive owning this business,” Sarah Birnel said. “You’ve got to say things and talk to these girls in ways that aren’t typical. A guy talking to them in that way is opening a door for a lawsuit, in my opinion.”
Do you expect TVs, beer, in BMOC mall locations?
Certainly unlikely to have late opening hours in PA, which would enable watching of big sporting events like the Super Bowl, World Series, NBA Playoffs, etc, which make such locations profitable.
But I agree the larger point -- which is why I thought Pavilion 117 was a good idea, subject to the financials.
Start-up losses are frequently attributable to growth.
But, three to five years for a coffee kiosk is a long time, particularly with unit revenues not growing appreciably and no new kiosks opened in almost eighteen months (one was announced for opening a year ago but never did -- although BCCI appears to have bought the equipment for it, if I am reading the financials correctly).
BCCI is also not funding BMOC growth; Mr. Henthorn has said that the ten new franchises planned will generate $75,000 in profits. Mr. Lehr is not being paid by BCCI, and BCCI principals receive no salary.
Start-up losses are also attributed to product development. So there, we would have ice cream, reality shows, and mobile kiosks. But the ice cream was paid for by 5M shares to Calip Diaries (in fairness, $375K of this investment is included in the 2012/2013 $2M+ losses), and if I recall correctly Mr. Henthorn said that the advertorial known on iHub as a 'reality show' did not cost out of pocket cash (read: more dilution, perhaps also in financials as a loss, but hard to find; certainly, not meaningful size).
Mobile kiosks were not announced until the fourth quarter, so the 'benefits' (or costs) have yet to appear.
Net, I can't agree that most of BCCI's massive losses are in the 'it is a start-up' bucket.
Then how do you explain BCCI's massive losses?
Hooter, BatGirls, it is all the way they manage. Coffee Kiosk have been in my town for 20 years. Seems they must be making money, to be around a couple decades.
BCCI talked ten San Antonio stores in 2011.
One store opened in May, 2011 and a second in April, 2012 but both have subsequently closed.
Clearly, some BMOC/BCCI Agreement.
It would be good to know what it is, since royalties offer a great profit opportunity for BCCI. Hope it will be part of an upcoming regulatory filing -- and that it will be more specific than the May agreement.
Why 'sneak peek' of 2015 Baristas Calendar in March?
The referenced 'coming soon' post was actually made December 27, 2014 (a bit late for a calendar, IMO -- could have been a stocking stuffer if available in timely fashion).
The calendar is not currently available on the baristas website, at least not under the 'Shop' tab.
IMO, just another example of failure of BCCI to execute an idea which perhaps could have borne some fruit. Although, such Kiosk Kutie calendars are not likely to be available amongst Baristas branded merchandise in BMOC/Pennsylvania stores -- but I could be wrong.
A bit of a problem with the 'split brand' which is emerging:
1. Sexy kiosks (money losing, so far company owned); and
2. Mall-based, more conservative outlets (franchised, perhaps money-making for BCCI through franchise fees and royalties)
Clearly different advertising and promotions for these two segments (would be helpful if a poster could find a BMOC-sponsored INC half page ad, and advise which segment is promoted, if either).
If the mall-based outlets are successful, wouldn't be surprised to see the kiosks closed as real estate commitments end.
Old BMOC/BCCI Agreement perhaps a moot point.
But, data is as follows:
1. The Form 10/12G filed in July had an Exhibit 10-1, a single document signed 20 May 2014 between BMOC and BCCI, entitled 'Binding Letter of Agreement/Joint Venture.' There were two subjects in the agreement, the proposed Pavilion 117 sports bar project, and an 8 state franchise agreement.
For completeness, two of the requirements of the franchise agreement were that BMOC would
- As payment for the 8 state territory, initiate a $25K/month national advertising campaign for franchises within two months of signing (e.g., July 2014), and half-page ads in Inc magazine was the baseline offered (other media could be substituted by mutual agreement); and
- Put in place the first franchise by October, 2014 or pay $5K per month.
2. Page 4 of the revised Form 10/12G filed in November, 2014 said
The parties mutually agreed to not pursue this agreement with BMOC, and neither party has any further obligations as of the date of this filing.
First BMOC locations are least likely for success???
The locations with the best probability of success are, in order:
1.Next to colleges and universities, on a commercial walking street
2.Downtown business district, in a large office building
3.Neighborhood commercial walking streets
4.Heavy foot traffic tourist areas, with great visibility
5.Airports and large medical facilities (for carts and kiosks)
6.Strip malls
7.Inside shopping malls
Well, certainly a reasonable assumption that if the ads are to begin, the K-Cups will be available somewhere. Hopefully they will be....
What is your source for Amazon date?
Original PR said K-Cups available on Amazon in April.
No indication Walmart will carry K-Cup.
There are several steps in the product distribution process. At a high level:
1. Develop a product (reported as done)
2. Sign up someone to sell the product (e.g., Walmart)
3. Produce inventory of the product.
3. Get the product from production site to distributor's warehouse
4. Get the product to the retailer, hopefully with good shelf position.
5. Sell the product (generally, advertising is required; for the ice cream, discount coupons did appear in at least some grocery store advertising).
Nery's Logistics performs the fourth function, per their website. Just because NL delivers various products to Walmart, does not mean that Walmart has agreed to carry BCCI K-cups.
It would appear that ComNery's Brand Distribution performs the second function, although my Google search did not find this organization other than as related to this PR; indeed, I did not find it on the Nery's Logistics website (maybe was there, and I missed it)
Worth noting that with ice cream, PRs indicated that steps 1 through 4 occurred -- literally hundreds of stores were reported as signed up. But sales were insufficient to keep product on the shelves.
Not sure where BCCI will find the money to do steps 3, 4, and 5, or how competitive the product can be. In the case of the ice cream, BCCI issued 5,000,000 shares (when pps was about .10) to Calip Diaries, who appeared to perform the same functions as Nery's/ComNery's (not sure about production).
Will be interesting to watch. Next step is finding retail meaningful retail outlets for the K-Cups, whether in US or
Mexico. Hopefully, an announcement will come soon, though it has been over three weeks since 'coming soon' was announced for US distribution. Amazon was announced in the original PR, but Baristas K-Cups are still not available on that site.
As a side note, the use of "Massive" in the PR title feels like stock promotion, not a professional announcement. And I guess it worked!!
NASDAQ requires much more than 'formal application process.'
They also have to meet financial requirements.
PPS can easily be met with an RS.
Shareholder equity requirement, however, is much more difficult. They are millions below the threshold, and losing money (most recent quarter, $0.60 in operating losses per $1 in revenue, plus $0.30 in interest expense). So, that leaves a very dilutive shareholder offering, or a long slog to profitability, if ever.
Net: Investors should not anticipate NASDAQ in the near future.
OTCQB listing was touted as a way to attract institutional interest; no such investments have been announced since said listing (the two which were announced were made in Q4) -- perhaps more will be visible when Q1 institutional reports are available. Note that many institutions also have a minimum pps requirements.
Why repost March 2 K-cup PR?
Absent grocery chain distribution, I don't believe K-cups will be successful. And advertising prior to having established retail distribution makes no sense to me.
Perhaps they have a grocery store chain lined up, but it has been my experience with this company that they (or their partners) are more apt to announce things that aren't happening (New Jersey kiosk, third SW FL kiosk, five AZ kiosks, etc.) than to fail to announce things which are.
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Ask him to restore ALL old PRs, for example the October 1, 2013 PR announcing a $1.7M advertising campaign.
Marketing campaign will be complicated by split brand.
You have the kiosks and their costumes -- then you have the malls, and their (most posters are expecting 'tamer' costumes, likely including male servers). The branded products would likely relate to the latter.
Will be interesting to watch.
Fully reporting is necessary, but not sufficient for NASDAQ listing.
BCCI must also come up with millions more in shareholder equity. This means either significant dilution (particularly as private shares of stock have been sold at less than 50% of otc pps over the last year), or profits.
But the company is currently experiencing operating losses of $0.60/$1 of revenue (Q3 14; Q2 14 was $0.53), plus interest expense of $0.30 (Q3 14) per $1 of revenue.
Certainly, the mall stores will help. But even if they generate $5M in annual revenues, say (current company is barely over $1M), and all royalties flow to the BCCI bottom line (that is, none to BMOC), that is only $300K per year, not enough to cover current losses much less go profitable to start building shareholder equity.
Net, NASDAQ is either long ways away or will require substantial dilution. Not sure it is worth the dilution to be listed there, given that OTCQB now seems to allow institutional ownership.
A much better idea would be to do an R/S, which will be required anyway for NASDAQ listing but would meanwhile raise pps to the levels required by many institutions.
K-cup consumer advertising seems premature.
Certainly, the stock market is not excited by this news, with low volume and pps staying within its recent range.
I can see advertising once there is distribution, but to have consumer advertising prior to having retail distribution channels established does not make sense to me; not clear Amazon and other online sites will drive sufficient volume to support magazine advertising, even a low circulation magazine such as Country Weekly (64K in 2011, per Wikipedia). Perhaps BCCI will advertise as part of a 'group' ad, which might make sense.
For example, as they have done within an Advertising Section within Inc. Magazine.
Perhaps announcement of national grocery store distribution will be coming soon. Hopefully, advertising dollars will be saved to support promotions there (coupons, etc.), as that space will not be maintained without volume (as hopefully learned during the ice cream fiasco). Coupons were not enough there -- and I don't think Country Weekly magazine will be enough for k-cups.
Harvest and Cubic have tiny investments at 12/31/2014.
Harvest has about $10K, a tiny fraction of their $423.5M, and only 5% of the next smallest position!!
Cubic is even less -- 10K shares, so a $500 investment, out of their $577.3M.
Why is their investment posted 2 - 3 times per week? Hardly a ringing endorsement -- though I bet the reason they have any investment would make an interesting story.
Note that both investments were made BEFORE OTCQB status occurred in January. Will be interested to see if new status drives new institutional investors, as some have anticipated based on the pps 'pop' that occurred when application was made and then again when it was accepted.
Agreed -- likely Lance Lehr idea for mall locations.
Mr. Henthorn is busy buying mobile kiosks and basking in the glow of his (likely) paid recognition in Forbes.
Speaking of which, that issue is now out a week; I haven't been able to find it in the stores, does anyone subscribe or have access to see if this is, in fact, paid recognition? Would certainly be very hopeful to the cause if it were editorially determined.
$75K amounts to $.00025/share, insignificant.
I was surprised that calculation was not made of expected royalties, perhaps indicating a non-royalty deal has been negotiated with BMOC, who is committed to $25K/month for national advertising for franchisees.
Net loss improvement is misleading.
$840K of the $820K is due to factors shown in my post 34789. An additional 'help' of $137.5K came from a gain on a loan settlement, not really due to running the business. So, $977K of the $820K total improvement, due to non-operating factors.
That would suggest that operating factors had a deterioration of $150K, despite closing three kiosks.
I would not be buying stock in the business because of improvement in 2014 operating results, particularly with the pending minimum wage increase in its primary market.
Buying due to BMOC's development of an in-line format, however, could be understood -- while BCCI may not make a lot from BMOC (depending on the undisclosed franchising terms), perhaps subsequent franchisees will adopt this format.
The scantily-clad kiosk model has clearly been financially unsuccessful. Not clear how a kiosk franchisee could make money after paying BCCI $25K plus 7% of revenues, if BCCI itself loses $0.60 per $1 of revenue while paying its officers $0.
BCCI ends up with a 'split' brand (scantily glad girls in the kiosks; more conservatively costumed girls (and guys?) in the malls. Given financial non-performance of the kiosks and pending wage increase, I wouldn't be surprised to see closures of the Washington kiosks if the in-line stores are successful. May depend upon whether an individual kiosk's revenues can cover its marginal operating costs (coffee, baristas, utilities) -- since BCCI is 'stuck' with real estate costs and purchased equipment, now depreciating on the books.
Dilution analysis should include preferred stock, which is convertible into common at 1:1.
Preferred stock is being continually issued, with officers exchanging their common for the new preferred, so that common can be issued to service providers (although I believe Mr. Henthorn emailed a poster much earlier in 2014 that this form of paying for services was not expected to continue).
10.5M common shares were issued in the first nine months of 2014, and 950K more shares in the first 45 days of Q4. This comes on top of 19.7M shares issued for professional services in Q4 2013 alone (I believe this was for the $1.7M in advertising announced in an October 1, 2013 press release which has somehow no longer available on the BCCI website; reference to it can be found in Q4 13 postings).
The fact that there are significantly more shares of preferred stock outstanding, then room left in the authorized common stock, is worth contemplating for those who believe there will be no further dilution.
Reduced opex NOT due to kiosk closing.
The biggest component in the nine-month, $800K reduction in operating expenses is the $550K reduction in stock based compensation, from $586K to $35K.
The second biggest component is the $290K reduction in G&A, which the company's Q3 2014 financials report to be primarily due to a Department of Labor judgment in 2013.
These two components are $40K over the total reduction -- going the other way, there was a $50K increase in professional expense for auditing expense.
The above means that the two most important components of operating costs for the kiosks, materials (shown as Direct costs) and baristas (shown as Compensation -- note that officers do not take salaries, but they certainly take stock) stayed the same year on year.
To your point, however, in depth look at direct costs shows that 2013 direct costs were quite low as coffee purchases were curtailed due to the pending closings.
Worth looking at the trend in 'operating margin' during 2014. In Q1, the company lost $.05/$1 of revenue; in Q2, .53/$1 of revenue, and in Q3 $.60/$1. TBH, quarterly results will bounce around depending on when coffee is purchased (it appears inventory is only taken annually), stock is issued for services, etc.
For those interested in the potential impact of the pending increase in minimum wage, compensation alone was 57% of revenue in Q3 14.
Baristas operating loss is $0.60 per $1.00 revenue. An increase in operating cost will create more red ink.
I suspect all coffee kiosks will be under pressure. Perhaps "Starbucks" as well -- not sure of their pay practices.
Even if everybody raises prices -- that will mean less coffee is bought in total, so losses can be expected to increase.
Net, out of state outlets are even more important. Will be interesting to see the financial results derived from BMOC; we know Barista 'list' prices for franchisees, but we don't know what BMOC is paying. We do know that the BMOC deal announced in May was a "Master Franchise Development deal"; traditionally, this would mean two tiers of franchisee, so BMOC would get some of the franchise fee and BCCI would get some.
The specific terms applying to the 'in progress' Pennsylvania mall sites have not been disclosed, though there was mention that the first $25K franchise fee had been deposited.
We also know that BMOC has committed to $25K/month in national advertising to find more franchisees; we don't know how that affects various franchise fees.
The Inc Magazine link posted is paid advertising -- it says 'special advertising section' at the top. Not surprised.
I suspect that the Forbes article is the same; perhaps you can post a link for that as well to prove or disprove my contention? The link below shows the significant editorial material for the current edition, and I don't see Mr. Henthorn's recognition anywhere in sight.
http://www.forbes.com/forbes/
Agree Lance Lehr/BMOC potential game changer.
Finances depend on BMOC terms -- but changing the footprint from current kiosk model is critical, the kiosk model has financially failed.
I like that BMOC will apparently be experimenting with different footprints, and likely with menus. Will be interesting to see what they do about 'costumes,' I am betting toned down BUT men and women.
And if the in-line mall format works out, others can franchise it at great profit to BCCI even if BMOC terms aren't as favorable to BCCI as 'list' prices; shouldn't be, IMO, BMOC is experimenting and taking risks.
I am less enthusiastic about Mr. Henthorn's proposed 'fleet' of mobile kiosks, K-cups, beer/cigarettes, and reality TV, but time will tell.
Barista TV show very unlikely IMO.
BCCI had a single 30 minute infomercial on WeTV one time in October. Mr. Henthorn said there would be more showings of that single episode, but there is no evidence that ever happened.
Unlike other infomercials, the BCCI presentation was not even listed on the network's program schedule!
Combined with a 6AM (or 6:30AM, I forget) Saturday morning showing here on the west coast, I doubt there was strong viewership among the kiosk target market, particularly as that network caters to stay at home mothers in the first place.