Nebula, thanks for your interest in my thoughts, though I think there are wiser eyes than mine on this discussion board. Here are a few first impressions:
1. The Company is having growing pains, and that's actually to be expected. Product launches are not inexpensive, and the question is how much of the general and administrative cost increase from the first quarter to the second quarter is just a one-time phenomenon. The Company states that it's putting a lot of effort into containing G&A expenses, and that's a start.
2. The growth in inventory also is to be expected, but this cash-strapped company needs to really put its best brains on how to stock as little as possible while still being able to fulfill orders as rapidly as possible. If I write any more, I'll start talking about matrix algebra and the theory of economic order quantity, and most of the folks on this board will think of me as (more of) a windbag.
3. What would trouble me most is that sales for the second quarter actually declined from the level of sales in the first quarter, even as inventories were increasing. Thinking about the growth of inventory again, I realize that stocking up is a necessary precursor to product launches, but inventory growth and revenue decline do not make a pretty pair.
4. If you read nothing else of the 10Q, read the Going Concern section and the related section shortly thereafter on financing needs. The Company says that the Typenex loan wasn't sufficient and that the BofI high-rate (that 27% number in the text of the 10Q is about a fifth of the annual percentage rate)wasn't sufficient, and the Company freely admits that it will either need to borrow or to issue more shares. Now here's where I insert my opinion FWIW - issuing new shares is dilution only if and when the shares are issued for less than they're worth (and everyone's sense of this will be different, though most will take the easy way out and say that the then-current market value is the right number).
Overall, I believe that this is a company with: wondrously innovative and leading-edge products (attribution to RPH on this board for his knowledge of the market!), an ambitious marketing strategy focusing on the new world of social media, and a burning desire not to dilute the stock. But it is a company that needs to transform some debt into equity soon, as the 50K or so cash that it had left on December 31 may be even lower than that by now. I actually think that this company will survive, but there will need to be as much energy poured into the less-fun activities of financial management as there is being poured into product and market development. My cautious optimism is partly based upon the willingness of the officers to lend funds to the company on an interest-free basis.
I hope I've been fair here, and I would expect to take a proper "beating" from the group if I've been anything other than that. I do reserve the privilege to take another look after a good night's sleep. I look forward to reading the greater wisdom of others, and that includes you, Nebula.
