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I do not often post here. But the 10-Q is very troubling and I would like to share my thoughts with everyone. Good for Dave that he bailed out. For those of us that choose to stay put, we need to probe a little instead of merely waiting wringing out hands for good things to happen. True, it is a new company having its fair share of road bumps, but the management are supposed to be industry old-hands and should know what they are doing. Yet, we need to see that they are.
The red flags from the 10-Q: 1. accounts receivable went up a lot, reflecting failure to collect; 2. shareholder/investor relations expenses increased greatly with no obvious result to show for it; 3. other operating expenses decreased, which can mean enhanced cost-cutting efforts or less operational activities; 4. cash flow is dipping below the comfort zone. In addition to dwindling cash, overall cash flow decrease may mean less manufacturing and delivery activities.
The things we did not hear the management discuss are: 1. why sales did not increase much (the same old! i.e., the signed stores did not convert into sales); 2. why did not the forecast CW orders materialize; 3. at this moment, the cash position is presumably close to zero; 4. the big increase in A/R; 5. how the company will finance its continued operations.
As of now, I suspect the company is spending its last dollars and yet they are not telling us if a meal will be on the table. If more stores do not necessarily turn into more revenue, why are we doing it and not instead consolidating our efforts on making the already signed ones work and put our products on shelves? Even if we sign up Walmart/Costco, so what, can we deliver, do we have money to manufacture and deliver, can we get enough profit margin from our sales to these big guys?
I believe a seasoned management should be more forthcoming with information to investors. At this moment, we have to guess if (1) they have found new capital to keep up the operation, (2) they are channeling their energy and resources in the right direction. It is never wise not communicating with shareholders in a timely and open-minded fashion. By not explaining to shareholders, they are not making the problems go away, but only leaving us confused and concerned. A few months ago, Mr. Yates said that the CW orders will make the 2nd Q results triple. That did not happen. Fine, just tell us what was the cause. Mr. Yates, as an adult and CEO, should at least try to explain it away. He can not just hope that we do not remember what he said. Investors and shareholders are not dopes. Dave was talking about dilution. He really thinks that there will be new investors coming to the rescue? Are investors stupid?
In terms of corporate governance, there is the board and there is the shareholders' meeting. The CEO is accountable to the board and the board is accountable to the shareholders. If we are not happy, we should let the board members feel the heat and push themselves to be reactive and proactive by asking the management questions, talking to employees to understand what is going on and recommending resolutions to the board to decide on. The board is supposed to be up for reelection each year. Shareholders should not just wait quietly aside. They have rights!
I will not sell for now because I will lose a lot of money. I would like to see that the ship will right itself or be righted. My patience is running out with the management. We have trustingly and nicely given them the benefit of the doubt, but judging from the past 4/5 quarters, they have not done well. Good luck to us all!
Driller, thanks. Good to know that. If many think Pulse CW tastes better, the word will spread eventually.
In terms of presentation, I found Zico and Goya CW come in pleasantly and cooling blue or green paper cans. I am not sure if Pulse CW is as visually attractive, but I guess that is not the most crucial issue as compared with taste and the design and packaging may evolve as Pulse progresses.
I recently had my vacation in Miami Beach and searched for coconut water on the nearby Publix, a pretty decent health-oriented supermarket chain. To my surprise, I found many brands, the main ones being Goya, Zico, and a few S. American brands. I bought a can/bottle from each brand for comparison. The S. American ones are generally not very natural although they are labelled pure CW. Suger is added. Goya has different flavors. The Goya pure CW I tasted obviously also has some sweetener added. Zico pure CW is for me the closest to natural coconut flavor. I did not find Cabana products on the shelf. My impression is that this is not an entirely new field. Some brands are already established, but not yet strong enough to keep new brands out. In the quite trendy juice bar of the hotel I stayed at, Goya CW was the ingredient they use for mixed smoothies and juices. I live in China and have drunk CW in each Southeast Asia country. For coconut water, taste varies greatly from region to region and even within the same region, location, age of the tree and the coconut, etc, will make the taste different. I am really curious whether the taste of the CW for any of Cabana, Goya or Zico CW also varies from batch to batch. I remember eithe Goya or Zico is also sourced from Thailand. To me, Qiang Mai in northern Thailand has better coconuts than Bangkok, Huahin or Phuket, but it is just my personal view.
Has anyone done a CW tasting of different brands and can share his opinion which brand stands out? If pure CW is really pure, shouldn't X's CW be the same as Y's CW. I have never tasted Cabana CW and cannot compare it with the Zico one or Goya one I tried. It seems that Pulse chose correctly to enter into a crowded yet promising drink space, but it will be tough competition. I hope that it will beat Goya or Zico.
Best luck to you all.
Plesse,let the forum discussion be constructive for everyone! No need for insults.
I always miss your debate due to time difference. But I would like to add my thoughts to your discusssion of warrants.
Dave linked exercise of warrants with bank's line of credit. I am not sure if it will work that way. If a bank offers credit, it is based on the company's ability to repay the loan. If warrants are exercised, the company will borrow less. Having the warrants exercised does not logically improve the company's repayment ability. A warrant is a right granted by the company to the recipient that is exercised in the recipient's discretion when the warrant is in the money. Right now, with the stock price being so low, the warrant exercise price is higher than the stock price, no rational holder of warrants will exercise them, and neither the company nor the bank can coerce him to.
An equity financing is very difficult. That means all existing shareholders including Yates will be seriously diluted as a result of equity financing when the stock price is so low. New investors will have qualms as well although they will get a windfall because the price they will get will be discounted off current stock price. So, a bank credit is the only way out.
I agree a major ramp up of delivery to distribution will call for a lot more working capital. With Pulse being a new co, suppliers, especailly CW suppliers halfway across the world, will most likely ask for payment before delivery or at least a chunky prepayment arrangement. So a possible hiccup to the growth of the company right now is its ability to the working capital.
Too bad I could not be on the call. But I am glad you guys got the answers to many issues of my concern. I believe that recent progress bodes well for the Company and that the management are upbeat about the prospects.
Just wonder: (1) if anyone asked specifically how the Company will tackle the low cash flow issue (did they say specifically that they will try to get loans?),(2)on CW delivery, did Yates mean to say that due to the transportation lag, our CW delivery of CW to distributors currently is not meeting their quantity and time requirements?
Thanks for the invite to be on the call. I am in a +12 time zone (compared with Eastern Standard Time). If it is a morning call, I can make it. If it is past 10:00 am, mountain time, I would not be able to participate.
In case I cannot be on the call, could someone be kind enough to ask these questions that I care about, in addition to the rollout issues:
1. How should we understand the time lag between signing a distributer and the products making to the shelf? Is there a team that tracks and pushes for stores to stock up our products?
2. What is the status with Krogger and Pulse Products? Are we completely out?
3. Cash Flow: how long will our cash balance carry us under best case and worst case scenarios? if a private placement is required, who will be the targeted investors? Friends and families? How to make sure negotiations/deals are armlength? Are we to do it from a position of strength instead of weakness as we are in now (i.e., after the result of the 2nd Q comes out and new functional products rollout)? Will there be many warrants to be issued to investors?
4. How many people do they have on their management? We know that Bates doubles as CEO and CFO (not ideal, because we have no budget for a good CFO), and there is this SVP in sales and marketing at the recent promotion event. Anyone else on full-time basis? I assume that they are people focused on signing stores, but do they also follow up with the post-signing details, such as delivery schedules, etc., or a different team is doing that? If there is a glitch with execution, are they on top of it for improvement?
5. What are they doing to increase people's awareness of the existence of Pulse products? Any online/mobile promotion strategy to do it at small budget or for free? If they do, great, but when people go to supermarkets, can they surely find Pulse products on the shelves? The problem is: if some of us on this Board, who are diehard supporters of Pulse drinks and are the lookout for Pulse drinks to hit the local shelves, have difficulty locating them in their nearby stores, that means the logistics is falling behind, and the marketing efforts are somewhat wasted.
6. Is Bates changing his earlier promise to reach the 1 million case target? What is his view of the 3rd quarter? What is the arrangement with his Thai supplier of CW? Will they be able to supply our demand? Exclusively?
If the 2nd quarter sales is 250K cases and the 3rd quarter sales is 300K quarter, the current cash balance will not sustain the company through the year, because: one, they need to pump in cash to build production and inventory, second, they will build a war chest to get through the winter without a lot of sales. For a company with good financial planning, they have to do it during the summer when the sales look good. The Company did not time their last private placement well: they should have done it when their stock price peaked at $1.40, not when it was around $.5. But it is hindsight. You and I may also have done the same. The key is planning way ahead with also a bit of luck.
I agree that the company is not employing a smoking gun or anything. It is just things did not go as the management envisioned. Over a year ago, when I started to buy in, everyone got a bit carried away that the company is way ahead of the curve in growing the company and that the 1 million case mark was within reach. Now the management know and we know that after all Rome is not built in one day. They are looking to 2015 for the 1 million holy grail. It is just their timing is not always right. Now when the stock price hovers around $.5/share, a private placement will have to be priced with a little discount and sweetener such as warrants. Compared with two years ago, the management has fewer bargaining chips to play with: they will miss the 1 million benchmark again this year, the euphoria is gone, equity is further diluted. The management will also have to explain away why Q1 2014 result is worse than Q1 2013 with a wider distribution network in place: is cold weather a good explanation? Did other sellers of lemonade suffer similar decreases?
It is not hard to imagine that even if the management is able to pull it off, the new shares will put a damper on the stock price. We will be back where we were two years ago and probably lower.
The most important thing now is how fast the management can grow the top line. They know the best where the glitch lies and have to remove it. Their efforts of expanding the distribution channels will need to turn into sales. Like any company, they should be very cautious about giving out rosy forecasts. If they miss the target once or twice, not a problem. If they keep telling people what they like to hear but are able to deliver on their promises, then shareholders will start to question their integrity, execution capability, or professionalism. Once credibility is lost, not much can be done, letting alone financing ability.
I am still a believer in the company, although the foundation for such belief has become a little shaky.
If anyone in the management sees this message, I offer my free service as a private equity lawyer to the Company so that the Company will not screw up their next round of equity financing. I have done hundreds of deals advising investors and founders and I have rarely seen investors pulled off such generous offers of warrants. It pisses me to see the management issue warrants recklessly that it begs questions whether the investors in these financings are friends and families. What windfalls they got.
If the Company has to get another round of equity financing, my advice is: never agree to 1 to 1 warrants. They are killing the existing shareholders INCLUDING the management: warrants do not get the company immediate cash and will have a major negative impact on the Company's income statement once the holder convert because the Company will have to account for the difference between the fair market value and the exercise price. I cannot believe that they have so foolishly agreed to issue so many warrants! Such lack of financial savvy!
Hi, all. I hold a substantial block of PLSB shares. The 10Q is a great disappointment to me. Orders did not rain down as we expected. Even the smaller operation loss is not created by any operational improvement, but through virtual no issuance of incentive shares to distributors. If Q2 case distribution as it happens is only 200% or 300% more than Q1, then we will not likely see the annual total delivery break the 1 million case threshold that Bates promised over and over because even if we have a sensational Q3 (unlikely given the pace of chains loading our products on shelves), Q4 cannot be expected to be better than Q2 for weather reasons. The danger of not converting store signing into distribution is the novelty factor will rub off and momentum lost. The worse message that did not get highlighted in the filing is the cash position. The 1m left will get the company through Q2, but barely enough to sustain the company through Q3, because although the company will collect on its accounts receivable, but it will spend more on inventory and accounts payable as orders are being filled. Even with no acquisition in sight, an equity/debt financing is needed to get the cash for the company to tide over the winter season. The management is quite laughable for mentioning that any conversion of the warrants will supply the company with the cash needed. Given that the stock price is below the exercise price of many of the warrants granted and that the warrants do not get expired till 2015 or 2016, I doubt any warrant holders will want to convert in the next two quarters if the stock price continues to hover around $.5-.6. The share overhang situation will be enhanced if we get another few million shares issued. Now, the company has appx. 52 million shares issued and outstanding, 20 million warrants outstanding, appr. 5 million incentive option shares authorized. All added, the fully diluted share capitalization is 75 million shares.
At the point, the elements of the company that attracted me to invest in the company are still there. The management is still intact, I hope. But execution seems to be the weakness of the management. If they spend time and energy signing the stores, it will be a huge waste if the stores do not stock up your drinks and sell them. This is a growth company and should be treated as such. If it stops growing fast (should be 100% or more growth each year), the numbers will not impress Coke or Pepsi. Once it stays stagnant, it is the end.
SHOW ME THE MONEY!
I like the $10 target.
To get to the $10/share, how long do we have to wait?
My guess: Just read an article re Monster and Vitamin Water acquisition, where it said the multiple in the Vitamin Water buyout was 12 times revenue and the price tag was $4.2 billion. That means the revenue of Glaceau of the year before the acquisition (2007) was $350m, which in turn means that the company sold 17.5m cases of beverage ($20 per case for beverage seems a fairly good benchmark). 12 times is now seen as too generous for the Vitamin Water deal. Let's be a bit conservative and adopt an 8 times revenue for Pulse. Assuming no more new shares issued by Pulse in the next few years, we have 75 million shares (fully diluted based on today's numbers). Timed by $10, that is $700m for Pulse's valuation. We divide the valuation by 8 times, and we willneed $87m revenue to get the $700m valuatoin. That $87m will consist of 4.4m cases of Pulse beverage, roughly. Since a coconut water case has 24 bottles, the number of case we need will be lower. If the management can do 1 M cases in 2014, will it take them another 2 years to get to the 4.4m number? Probably.
Of course, if the Company keeps issuing new shares, the time will be longer.
I am all with Dave on the great points he made. One correction, though. Dave said that the 51 million shares are inclusive of all the warrants issued. But that cannot be right. The 10-K said that the Company had as of March 31, 2014 issued and outstanding common shares at roughly 51.7m. It also mentioned that around 20m share warrants are outstanding, which if exercised in full, will add another 20m shares. Therefore, the fully diluted share capital at March 31, 2013 should be: 51.7m outstanding+23.2m shares issuable upon exercise of warrants & options=75m. Plus the Company will probably issue incentive shares to distributors from time to time as compensation.
Two scenarios of diluting events in 2014. One, to maintain current operation and enhance its capacity to meet the coconut water demand, the Company will need more working capital on top of its cash balance. Given the time gap between the cash demand and collection of receivables, there will have to be another private placement in 2014. As in past three years, I suspect that the raise will be around $2-3 million.
Two, to help grow the Company faster, the management are contemplating acquisitions. It has been talking about the subject for a while. We need to assume that it is in the pipeline and remember the statement fromnthe last 8-K that it has lined up investors to finance such acquisitions. Depending on the size of the acquisitions, the dilution can be serious.
It is unfortunate that the financing activities happened in 2013 when the shares were traded at fairly low levels. It can be the case for 2014 as well. That means many shares will be issued. I do not believe that the Company has a very savvy financial adviser to advise it. It needs a major institutional investor to set a high price bar with a large chunk of shares to give its valuation a boost. Not a bunch of small investors.