Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
Tiger and Adler together on CNBC Nov 11th 2011 = Rise to $1.00 by december.....that did a lot for me and I'm sure a few others at the time. I'd love a repeat performance.
Watching the clock!!!
Volume
Volume is in no way a measurement of a stocks underlying long term investment value or quality. In reality this stock has settled into what I would call a more stable and normal pattern in line with many quality stocks at higher price levels of $1 - $5 range. This stock is at a very good price for those willing to take the risk. I believe all the high volume trading over the past year were the short term make a quick buck up or down traders. Now were down to the people who are truly interested in being part of a startup and the stock price is not going to move much in the near future.
We are all waiting to see how things progress over the next quarter now. Everyone is anxious to get their samples. I know I am. That’s really the next thing they need to deliver on. Looks like Foster got his, ours should be coming soon.
I question how anyone can say warrant holders are not executing. We really have no insight into that until the next 10-Q or 10-K. You could be a warrant holder for any number of shares and converting them in part or whole. Below is an example from a warrant of the Exercise clause. Pay close attention to the conversion right. I could be a warrant holder for 100,000 shares but convert them in lots of 1000 if I wanted. I find it interesting that the price is hovering right around the conversion price of the last warrant rounds that were adjusted.
Bottom line as long as financing continues to come in and the EnerJel brand revenues continue to grow we will start to see a slow and steady rise as this company matures into a profitable entity. So if you’ve been concerned or worried sick for a long time please relax….you are going to give yourself an ulcer or worse a stroke from all that fretting day in and day out :)
ARTICLE 1
EXERCISE
1.1 Method of Exercise. Holder may exercise this Warrant by delivering a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the conversion right set forth in Article 1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.
1.2 Conversion Right. In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Article 1.3.
1.3 Fair Market Value. If the Company’s common stock is traded in a public market and the Shares are common stock, the fair market value of each Share shall be the closing price of a Share reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public offering, the “price to public” per share price specified in the final prospectus relating to such offering). If the Company’s common stock is traded in a public market and the Shares are preferred stock, the fair market value of a Share shall be the closing price of a share of the Company’s common stock reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or, in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public offering, the initial “price to public” per share price specified in the final prospectus relating to such offering), in both cases, multiplied by the number of shares of the Company’s common stock into which a Share is convertible. If the Company’s common stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value in its reasonable good faith judgment.
1.4 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant representing the Shares not so acquired.
1.5 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation or surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.
1.6 Treatment of Warrant Upon Acquisition of Company.
1.6.1 “Acquisition”. For the purpose of this Warrant, “Acquisition” means any sale, license, or other disposition of all or substantially all of the assets of the Company, or any reorganization, consolidation, or merger of the Company where the holders of
Thanks karen!
I don't know about you or others but as a stockholder of a startup I feel like we need to be representatives for this company. Not just idle share holders, after all we own a piece of this company. I just spent some time at my local GNC yesterday educating the clerks who didn't really know anything about EnerJel. Both were body builders and are now interested in trying the product and those coming down the line. While a few members of a board like this may not be able to change the overall direction of the stock price I feel it still is relevant that we present truthful and objective analysis of what is going on with this company and champion the success not failure of Fuse. If someone who is looking into the company does a Google search on FUSE Science this board is one of the top hits. Do we want them seeing a bunch of negative spin or honest, thoughtful discussion? Are they going to be enticed into trying the product or buying some stock or be driven away?
I joined the board because I saw more than a few posters doing a good job of championing the company and thought I could add to the conversation. I’ve appreciated yours and all those others posts and look forward to the ongoing discussion.
Just some quick comments on your points, I love MRay think she is doing a great job. I think it’s great you got a response from Tuffin, and I agree with everything you said. Long and red at the moment as well but averaging down as I can.
Completely agree with everything you said here. I tend to be outwardly cautious when dealing with a startup, but inwardly I'm very bullish on FUSE, very impressed so far. But don't tell anyone ;)opps I guess I just did.
Thanks York and thanks everyone who has responded to the post! I agree it would not supprise me at all that this would lead to an aquisition. That a very common practice for executives working in the starup arena. They get a company going, grow it to the point it is attractive, sell it off and move on the next venture.
Bay,
I'll be watching for a peak as well. My intuition tells me a year would be to short just based on how long it takes to build out the various distribution channels and gain market awarness. But the sales numbers will tell the tale. But with each distribution channel that is added we should see a steady climb for at least a few years.
Part 2 - The startup - “What does it take to get a company off the ground”
This got a bit long so I appologize :)
So at the time of the Tiger interview this company had no product on the market, was little known and would be operating as a startup for the foreseeable future. How were they getting cash to finance the startup? Warrants or PIPE(Private Investment in Public Equity) financing as some refer to it, a lot of people see this as a bad thing when they don’t understand the startup phase, if you’ve ever started a company from the ground up it’s not. It’s one of the few options you have for raising necessary capital during this critical stage in your business if you don’t have substantial collateral and revenue to secure credit.
So what’s a warrant?
A stock warrant is just like a stock option because it gives you the right to purchase a company's stock at a specific price and at a specific date. However, a stock warrant differs from an option in two key ways:
1. A stock warrant is issued by the company itself and generates operational cash flow
2. New shares are issued by the company for the transaction. Unlike a stock option, a stock warrant is issued directly by the company. When a stock option is exercised, the shares usually are received or given by one investor to another; when a stock warrant is exercised, the shares that fulfill the obligation are not received from another investor, but directly from the company and the company receives cash for operations in return.
Companies issue stock warrants to raise money. When stock options are bought and sold, the company that owns the stocks does not receive any money from the transactions. However, a stock warrant is a way for a company to raise money through equity (stocks). A stock warrant is a smart way to own shares of a company because a warrant usually is offered at a price lower than that of a stock option. The longest term for an option is two to three years, while a stock warrant can last for up to 15 years. So, in many cases, a stock warrant can prove to be a better investment than a stock option if mid- to long-term investments are what you seek. Not every warrant holder will exercise their warrant they weight the risk for themselves and decide if they want skin in the game or not
what affect does a warrant have in the current phase?
1. Provides the company with critical cash to continue operations.
2. It will dilute the OS lowering the stock price initially, but really 145 million OS and some further dilution is nothing in the long term if the company turns profitable. As a long term holder you will recoup any loss you currently have on paper many times over if the company is successful in exiting the startup phase. You’re just looking for a good entry point that meets your tolerance for risk. Getting through this phase can be tough and stressful and there is always the risk they won’t be successful. But you have to be willing to accept that going in with a new business.
What is PIPE?
A private investment firms, mutual fund's or other qualified investors' purchase of stock in a company at a discount to the current market value per share for the purpose of raising capital. There are two main types of PIPEs - traditional and structured. A traditional PIPE is one in which stock, either common or preferred, is issued at a set price to raise capital for the issuer. A structured PIPE, on the other hand, issues convertible debt (common or preferred shares). Fuse is using PIPE/Warrants to raise capital and that is a normal thing for startups to do.
So where is the smart money?
If you are expecting large institutional or brokerage firms to be snapping up Drop shares forget about it. Most of these entities have specific clauses in their charters preventing them from investing in these listings, and even if they can most investment managers stay clear because of the high risks to their clients, while a few may tinker with Pinks in their personal portfolio. The other driver is the fact that there are good deals on stocks on the big boards, why invest in a highly risk stock when you can get a deal on a proven company.
The latest searches show that there are 5 firms currently holding Drop for a total of about 237,500 shares or .16% that’s less than 1% of all holdings. You have to focus on the “other qualified investors” in the startup phase. These are your Angel investors, your warrant holders. These individuals or groups are well financed and willing to put their cash on the line to own a piece of the company for the potential of a significant return in the future. That return could be right away if the stock price is trading above the warrant price at a good margin or if the margin is narrow they may have to wait. So the warrant holder determines the level of risk they want to take, buy in on a tight margin and wait for the price to rise, buy in now and sell if the margin is acceptable, buy and hold for the long term, or wait and see. It’s their money that keeps the company going in the startup phase. Obviously it’s in our best interest if they buy in now to get that money to the company, but they have to have incentive and feel that the risk is worth it.
The current breakdown on DROP from what I can find is
Brokerage firms 0.1%
Investment Managers 0.1%
Strategic Entities 13.9%
Non-Institutional 85.9%
What’s with the Warrant price changes?
Cash is the lifeline for a startup end of story. If you look at the February 2012 Series A and B they were issued at $.26 per share. At that time the stock was trading at roughly $.44 that’s 69% if the stock has the support to maintain that level after the warrant is executed and the initial dilution occurs (Value Dilution). In the case of DROP I feel that when the warrants are executed all the individual investors are panicking and selling due to the initial price hit which is what has driven the price down to the current levels. In theory the price should have recovered to the support level of the value diluted price. But when dealing with investors in pinks, the majority of investors are looking for the quick return and the stock price is driven by irrational tendencies in both directions regardless of the underlying fundamentals of the company. Other than the missed target on the drops there was really no underlying reason for this stock to fall to these levels other than individuals not understanding what was happening and abandoning ship.
Value Dilution
Value dilution describes the reduction in the current price of a stock due to the increase in the number of shares.
The theoretical diluted price, i.e. the price after an increase in the number of shares, can be calculated as
Theoretical Diluted Price = ((O * OP) +(N * IP)) / (O + N) where
O = original number of shares
OP = Current share price
N = number of new shares to be issued
IP = issue price of new shares
So just for fun I set this up in excel to see a rough idea of what should have happened with some of the original warrants executing at $.11 over the last few months. So on the Fuse Science site there was a question concerning outstanding shares. The reply was that as of May 11th 2012 the count was 126,202,256. On May 11th the stock closed at $.24. Today we have 145.5 OS and the stock trading at or around $.11. $.11 being the execution price of the original warrants. So we’ve added roughly 19,297,744 to our share count. Not massive in the scheme of things, and if you did the math on the warrant offerings they are in line with the financing needed to meet the budget, I’d be concerned if they were going after numbers that far exceeded their required budget. Now this is ballpark but if those shares were added and price support remained at the correct level, with this amount of dilution the price should have recovered to $.22 roughly but everyone panicked and now we sit at the execution price not the value diluted price. Basically support dropped out because a lot of people don’t understand the financing behind the startup phase. I’m ok with that; it creates a good buying opportunity for long term holders to average down or get a good starting position. You can create this formula in excel very easily and play around with the numbers using the current OS and price along with the new warrant execution price and share count.
O = 126202256, OP = $0.24, N = 19297744, IP = $0.11 and TDP = ((126202256x0.11)+( 19297744x0.32))/( 126202256+19297744) = $0.222758029
However this creates a problem for Fuse in that the new warrant holders are not going to execute when the stock price is below the execution price, thus Fuse had to go back and change the price to make it attractive to keep financing coming in. Fuse can’t control the stock price so they have to adjust to what has happened in the market just like we have to adjust and move forward. They need continued cash flow and they took the steps they needed to try and bring that cash in.
Is this a dilution scam?
I don’t believe it is, sure there is always that risk, but I believe this is truly a startup that is doing what is necessary to get the business through the startup phase. A share dilution scam happens when a company, typically traded in unregulated markets such as the OTC Bulletin Board and the Pink Sheets, repeatedly issues a massive amount of shares into the market for no reason, considerably devaluing share prices until they become almost worthless, causing huge losses to shareholders. Then, after share prices are at or near the minimum price a stock can trade and the share float has increased to an unsustainable level, those fraudulent companies tend to reverse split and continue repeating the same scheme. When you look at the number of shares Fuse is issuing with warrants they are appropriate for the funding needed to meet the business plan. In the February 2012 issuance that was roughly $7m if they were all executed. The series A had 5 years to execute and the series B had 7 months.
Series A Total 15092185 @ $.26 = $3,923,968.00
Series B Total 15092186 @ $.21 = $3,169,359.00
So what’s it going to take to get this PPS headed north?
In my opinion Fuse is executing well against their business plan. They now have a base revenue stream that really is in its infancy. As distribution and awareness grows that base revenue is going to grow and reduce dependency on warrants. But don’t look for that to happen dramatically this year. It will take a few years to get there. What we really need to see is that it is moving in the right direction and financing continues to come in to support the business. Quarter over quarter growth is going to make the balance sheet look more and more attractive to investors. I’m not even looking for much at the end of this quarter what I’ll be keeping an eye on is growth over the next year or more as it gains momentum at GNC and goes into additional distribution networks. That is going to bring confidence to investors willing to finance the continued startup operations. Now we are adding a second revenue engine which will further aid in the slow march to a solid balance sheet.
People questioned the 5 year EnerJel projection that it could be $200MM plus consumer products business. Those projections are not just pulled out of the air. Whenever you bring a product to market there is a significant amount of research that goes into forecasting. It’s not “hey I’ve got this widget I want to sell, let’s just see what happens”. Target markets and distribution are planned and implemented over time given the budget you have to work with. This team is doing a great job of building incremental growth in my opinion. The sales department that I support has projections going out 5 years for each product we sell based on market conditions now and predicted conditions going forward. This is so that management can accurately budget and forecast for operations and capital improvements. For a startup this is no different. They have projected numbers for each product and distribution network they plan to go into at least for the next five years. That’s part of your presentation to potential investors.
Well that’s my current ramblings on where we are in this thing is as and where it’s heading. Continued financing is critical for at least the next year or two until FUSE products reach revenue levels that can sustain the business. The PPS will rise slowly as this thing gains momentum. The initial rise and fall in my opinion was irrational market emotions in both directions. Fuse doesn’t control the stock price, we ultimately do and when confidence starts to return that this company is for real and headed in the right direction I believe we will see it start to climb and the long term holders will be rewarded.
Take a look at SIRIUS radio it was flying high in the $50 range. Then it went steadily south to $.11 in 2008. OS count kept increasing in order to bring funding into the business and reduce debt. They now stand at 3.9B that’s billion with a B for their OS, had you bought at the low in 2008 today you would be sitting on a cushy 2200% gain. I’ll take that any day of the week. Bottom line is we can fret about OS and day to day fluctuations and drive ourselves crazy trying to make a quick buck, or we can believe in this company and support it’s long term success. They’ve delivered on bringing one product to market, now a second is coming. I’ve used EnerJel, I love it and can’t wait to try the new products. Go FUSE…
My Thoughts on Fuse
Some of this is rehash but here is what drew me to fuse and where I see this as a long play. Some of it is also information for those new to investing and are getting nervous about what’s happening in the current operating phase. To me this is at least a 3 to 5 year commitment. Forget about the daily price and even near term action. You’ll save yourself a lot of stress and sleepless nights.
Part 1. The Endorsement effect. – “Who is this company called Fuse Science”
Fuse is laying the ground work to establish global recognition for their products. It takes time, I mean years for this to come to fruition and establish brand recognition and loyalty. The Tiger interview is what brought me in; if it were not for me catching that interview I still would not know about fuse today. The fact that they had signed some major names even before the products were on the market was important and critical to the business. Startups are so small in the scheme of the global economy. Getting these types of athletes to sign up was a major indicator and tells me there is some substance coming down the road with the company provided they can sustain operations, get the products to market, and successfully exit the startup phase. With each athlete they bring on and the integration in to the gaming and social media networks Fuse gains much needed exposure. But don’t equate that with the stock price going anywhere significant in the near term, more to come on that. Patience is the name of the game here. I’m long fuse and feeling good about what has transpired over the past year. I’ll try to cover what I think about the startup, financing, “the smart money” and some other things in the next post
Thanks Shore!
Never had a handicap but in my younger years I shot consistently in the low eighties, now with younger kids and only getting about 5 - 10 rounds a year in I'm shooting in the low 90's most days. We won't talk about what happens on the really bad days :)
I started putting together my thoughts on Fuse but it was turning into a small publication. So I'm going to narrow it down and maybe post it in bits.
New to the Board
Hi all,
I stumbled across this board a while back when doing DD on Fuse and have been following along for a while. I finally got around to signing up so I can add to the conversation. I've been long on Fuse since I caught the Tiger Woods interview and I am very excited about the long term prospects for this company.
To provide a little background on me, I am an IT professional by trade working with large global enterprises. I have an MBA with a specialization in Technology Management. I'm an avid golfer and fitness enthusiast.
I’ve been investing for a while and really enjoy it. I’ve got an entrepreneurial spirit at heart so I tend to be drawn to startups. I look forward to adding to the conversation and will post my overall thoughts on Fuse later on.