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!
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