AI
Tuesday, June 15, 2010 1:50:52 AM
The LTD is definitely a mixed bag. If you compare the IIS with the Q1 financials, a couple things become apparent.
Loans payable - Inventory and merchandising displays.
IIS 424,883 Q1 815,303 + 390,420 (increase)
This was the debt that was due to mature in 2010 at 6-8% interest but could be extended at 12% interest. Since the amount has nearly doubled, I'm assuming they've chosen to extend the loan rather than convert it to shareholder equity with a 25% market discount.
Loans payable - Working Capital
IIS 354,948 Q1 242,174 - 112,774 (decrease)
As far as I can tell, this was a collateral-type loan taken against their inventory.
Loans payable - Brand development
IIS 1,278,737 Q1 1,179,819 - 98,514 (decrease)
This group appears to be long term/open. Apparently 300k in stock was issued to a lender, but still remains on the books as the shares are restricted from trading?
IMO, it appears that the company is using dilution not just to close the gap between sales/operating costs, but also to help pay down long-term debt. It looks like they've extended the debt from the first loan and are paying down the other two loans. In 3 months approximately 61 million new shares entered the float. If you subtract the difference between shareholder capital deficit in Q1 and IIS, you get 646,826. This amount is roughly equal to the amount they spent paying down debt and their operating cost for the quarter, giver or take 10,000. It's also equal to the amount they diluted, the math essentially checks out.
Some interesting things I take from this.
If they are able to raise their revenues above their operating expense so that they are profitable, (it seems like the current operating expense for the company is 1.6-1.7 million annually) dilution would pay off current long-term debt at an issuance of 223,729,600 to the market (at current .01 pps)
If they are able to raise their revenues significantly, say around 3.8 million, the company would have made enough to cover operating costs and pay down all long-term debt.
If they are able to increase their revenues a little more, say 4-5 million, the company will be profitable.
Even if they just manage to perform as well in the U.S as in Canada, in terms of population ratios, 10x last years profits would equate to a little over 5-million dollars, and the company would be profitable, debt free, and wouldn't have to issue any more shares. Although they might choose to for the purposes of expansion.
It seems that the company is going to defer payment on the 800k merchandising loans in hopes that they can pay this down in the future without having to resort to more dilution. IE, they are incurring more interest themselves rather than make shareholders pay.
For Q1, the liabilities increased but so did the assets. (accounts receivable, sales, and inventory) The shareholder deficit increased, but the actual deficit between Assets and Liabilities decreased from 1,779,589 to 1,516,652. Essentially 1,516,652 is the amount the company is "in debt" That's not to say the company isn't technically in debt to the shareholders, but that's the risk we are willing to take.
Even if the company continues to dilute essentially only for the purposes of covering advertising/operating costs, if revenues stagnate I can't see the dilution rate being more than the first Quarter's. IE 50-60 million every three months, IMO. If the revenues increase, as it looks like they are, we will probably see the dilution rate go down. If they are able to match their operating costs/revenue, say around 300-400k per quarter, they would essentially only have to dilute to pay down their debt. We are going to have to wait for Q2 to see.
This is just my opinion and how I am interpreting the balance sheet. Could be reading the whole thing wrong, who knows.
OH YEAH, and I know what your thinking, increased revenue will lead to increased operating costs, but they denote their costs of sales separate from their operating costs - IE revenue is meant to mean sales MINUS the cost of sales. The operating costs would appear to be fixed. The costs of sales for last quarter were approximately 30%
Loans payable - Inventory and merchandising displays.
IIS 424,883 Q1 815,303 + 390,420 (increase)
This was the debt that was due to mature in 2010 at 6-8% interest but could be extended at 12% interest. Since the amount has nearly doubled, I'm assuming they've chosen to extend the loan rather than convert it to shareholder equity with a 25% market discount.
Loans payable - Working Capital
IIS 354,948 Q1 242,174 - 112,774 (decrease)
As far as I can tell, this was a collateral-type loan taken against their inventory.
Loans payable - Brand development
IIS 1,278,737 Q1 1,179,819 - 98,514 (decrease)
This group appears to be long term/open. Apparently 300k in stock was issued to a lender, but still remains on the books as the shares are restricted from trading?
IMO, it appears that the company is using dilution not just to close the gap between sales/operating costs, but also to help pay down long-term debt. It looks like they've extended the debt from the first loan and are paying down the other two loans. In 3 months approximately 61 million new shares entered the float. If you subtract the difference between shareholder capital deficit in Q1 and IIS, you get 646,826. This amount is roughly equal to the amount they spent paying down debt and their operating cost for the quarter, giver or take 10,000. It's also equal to the amount they diluted, the math essentially checks out.
Some interesting things I take from this.
If they are able to raise their revenues above their operating expense so that they are profitable, (it seems like the current operating expense for the company is 1.6-1.7 million annually) dilution would pay off current long-term debt at an issuance of 223,729,600 to the market (at current .01 pps)
If they are able to raise their revenues significantly, say around 3.8 million, the company would have made enough to cover operating costs and pay down all long-term debt.
If they are able to increase their revenues a little more, say 4-5 million, the company will be profitable.
Even if they just manage to perform as well in the U.S as in Canada, in terms of population ratios, 10x last years profits would equate to a little over 5-million dollars, and the company would be profitable, debt free, and wouldn't have to issue any more shares. Although they might choose to for the purposes of expansion.
It seems that the company is going to defer payment on the 800k merchandising loans in hopes that they can pay this down in the future without having to resort to more dilution. IE, they are incurring more interest themselves rather than make shareholders pay.
For Q1, the liabilities increased but so did the assets. (accounts receivable, sales, and inventory) The shareholder deficit increased, but the actual deficit between Assets and Liabilities decreased from 1,779,589 to 1,516,652. Essentially 1,516,652 is the amount the company is "in debt" That's not to say the company isn't technically in debt to the shareholders, but that's the risk we are willing to take.
Even if the company continues to dilute essentially only for the purposes of covering advertising/operating costs, if revenues stagnate I can't see the dilution rate being more than the first Quarter's. IE 50-60 million every three months, IMO. If the revenues increase, as it looks like they are, we will probably see the dilution rate go down. If they are able to match their operating costs/revenue, say around 300-400k per quarter, they would essentially only have to dilute to pay down their debt. We are going to have to wait for Q2 to see.
This is just my opinion and how I am interpreting the balance sheet. Could be reading the whole thing wrong, who knows.
OH YEAH, and I know what your thinking, increased revenue will lead to increased operating costs, but they denote their costs of sales separate from their operating costs - IE revenue is meant to mean sales MINUS the cost of sales. The operating costs would appear to be fixed. The costs of sales for last quarter were approximately 30%
OK. We've got the hot tub hot, the wine cooler's cool. It's Hammer time!
