Starting a new thread, the old one is getting too big.
In response to the question about bankruptcy: Stock price alone can not cause a company to go out of business, but can cause a few problems for the company and shareholders.
1) If the price stays low for long enough the stock runs the risk of being delisted from the exchange. Delisting reduces access to capital markets and limits institutional investing, as does the low share price. Some funds and institutions explicity can not invest in low share price stocks and non-exchange traded equities.
1a) Delisting lowers liquidity for shareholders and increases the spread between bid vs ask. Margin can no longer be used at this low share price and information from analysts becomes limited. Further, if the stock is delisted the company may begin releasing less information since most of the reporting requirements are exchange imposed.
2) As the share price decreases the amount of dilution required to raise capital increases. Further, big money needs more "sweetener" to commit capital, such as convertible preferred instead of common. Sneaky securites such as warrents and rights are also issued which further increase dilution (GCFB has used all of the above in the past).
3) Once equity is no longer a viable funding option the company has to resort to debt with unfavorable terms to leverage equity and to grow. They did this last quarter with the financing arrangement that they committed to. Debt, especially at high interest, or worse, variable interest causes the same problems that your credit cards cause you- it strains cash flow, lengthens the time until profitability, lowers the credit quality of the company and slows growth.
Bottom line- we need to turn a profit and grow organically. What's the hurry? Let's not go out of business because we want to grow too fast. A little patience will allow this investment to returns multiples on the orininal investment.
<<I'm still a believer in the concept, but we need some significant capital and operating improvements to have any value in 5 years.>>
I'm not that worried about the margins, I think in a year they should be back in that 17-18% range, (at least for the comps) baring an economic meltdown.
I haven't had the time to do a spreadsheet, but by roughing the numbers, most of the ground is going to be gained by changing the structure of new store financing which is supposed to happen in 2009. In the majority of these locations, they don't own the dirt, and they're paying cost + 10.5% which is killing them.
They're getting to the point that with normalized margins, there should be enough cashflow that they can stick some cash into new locations. Figure in a 2% improvement in interest costs and you're looking at additional cashflow of roughly $100k per location. At $4M revenue per store, that would be about 2.5%, or enough to get them to profitability with decent margins. Then it becomes a matter of how many stores they need to open to drown out the effects of the land leased stores.
They can't really retire debt with raised capital since most of it is the leases, but they certainly could use it to open new stores. A little more dilution really wouldn't bother me if they got store level operations in order first and it significantly improved cash flow.
I have a feeling that it's going to take another 20 stores to see the numbers we're looking for.
Excellent post wawallace. The stock price will come back eventually. The thing to remember is that the "real" investors in the company do not own the stock you are watching, they have other avenues of investment in the company. We called them VIP's and they have cards that allow them to discounts and immediate seating no matter how long the wait. If I had the money I would buy the stock where it is now, as I think it will mirror the stock of Steve's previous company, Chammps.
Are these VIPs institutional holders or are they analysts which the company is courting in hopes of institutional support? I could see them doing that to somebody like Craig Hallum who helped them in a private placement and bought some shares. Boy, in hindsight, that was a heck of a deal for the company!
Second question on insider trades:
According to the SEC, corporate insiders are a company's officers, directors and any beneficial owners of more than ten percent of a class of the company's equity securities.
I don't think by this definition Wachman is an insider. The filings were to report that Waggenheim and Pew (both directors, one an officer) had disposed of shares through a "control entity" the filings then reported their remaining beneficial interest in GCFB after the distribution.
However, note the following paragraph from Wachman's letter
6. I have not received or relied upon or received any legal or tax advice from Briggs and Morgan P.A., other than advice from that firm on behalf of GCFB that the Shares will constitute “restricted securities” as that term is defined under federal securities laws and that my resale of such securities must comply with applicable rules and regulations under such laws and, in particular, SEC Rule 144. I will consult with my own counsel in connection with this Agreement and the other agreements contemplated hereby and acknowledge that Briggs and Morgan, P.A. has not represented or advised me in connection with the transactions contemplated hereby.
Link to text of Rule 144:
We'll see form 144 when the selling begins. Which depends on if the one year holding period started when he bought into Brewing Ventures, or when he receives the shares. My guess is that it's the latter.
Third question: Are they taking a break from new store openings?
Please see their press release dated Tuesday December 11, 9:00 am ET
We intend to use the facility to help us complete our 2008 development schedule,” commented Steven J. Wagenheim, President and CEO of the Company. “At present, we intend to open in Orland Park, Illinois, in December, 2007; Creve Coeur (suburb of St. Louis) in mid-January, 2008; Fort Wayne, Indiana, in late January, 2008; Toledo, Ohio, in February, 2008; and three additional stores in mid-to-late 2008 in South Bend, Indianapolis and St. Louis. We may open additional stores in 2008 depending upon the timing of site availability. This facility plays an important role in helping us continue a balanced growth schedule during 2008 while our management team implements initiatives intended to increase the efficiency and profitability of existing locations.”