Why all the noise?, page-3

Having now had a chance to listen to the Conference Call I’m happy to say that I was favourably impressed. Let’s have a look at what was said.

The first point to note is “That the King is Dead. Long Live the King.”

As Steve made crystal clear. In his words “OBJ is a completely new company with a new Board”.

And that is just as well. We are running out of money. As CMK has pointed out since 2014 we have sold something like 1.5 million gadgets at an average price of about 75 cents each. Our running costs are close to $2,000, 000 a year and at our current rate of cash burn we have only enough to keep us going for a couple of years, with the possible qualification that the second technology may be released within that time as well as several other P&G products.

But in essence what we all should realise by now is that the old Board did not have the skill set to commercialise the technology and it seems like the new Board has.

We should also forget about cracked coconuts, whatever that means, and the promise of being tied up with other FMCG companies. The Board indicated that discussions with major companies other than P&G were ongoing but said that it was not in a position to discuss them.

That’s about all we are going to hear on that subject until something turns up.

Obviously the Board was not going to give answers to simplistic questions such as “What is the Board going to do to increase the share price before the end of this year?’ but what it did say was revealing.
There seems to have been some disappointment to the Board giving their bios in answer to questions like that. But that is exactly what we needed to hear.

What they told us were that they were entrepreneurs. They had all built companies before. Along the way they raised capital, and, significantly, sold them. In the case of BECCA Steve and Tony ended up with a company supplying 2,000 retail outlets. That is clearly their long term objective for OBJ.
But they didn’t stop there. Steve in particular was quite explicit. The policy of the new Board is to get “closer to the consumer to get a bigger share of the retail dollar.” That was said several times and is significant.

When explaining how that will be done he gave a straightforward answer along the lines of “It depends on the circumstances. It is not a binary choice. Whatever process is identified does not exclude the alternatives.” That is, we could go it alone, we could be part of a joint venture, we could be a supplier to others or we could be all of these together.

All of which makes sense.

In answer to the question about Bodyguard we learned some detail. Whatever we have been told in the past about “It is not a question of who takes it up but how many” was nonsense. As of now there is no one about to release a Bodyguard product.

But what the Board has done over the past year seems significant. We were told that in order to sell a Bodyguard product its cost of production needs to come down before it will sell in large volumes.
In this respect we were told that they had been “making some ground having advanced discussions with manufacturers in the US as well as one in the UK.”

There was no mention of Nitto. There was also no mention of “incubators”. Obviously the commercialisation of Bodyguard is still some years away.

The questions about future revenue and a date for being “cash flow positive” received reasonable answers.

Whether we like it or not the Board does not know enough about the marketing plans of P&G to give any reliable projections about future income. It obviously has some idea what’s going on because we have to supply the goods, but beyond that we are pretty much in the dark.

As to when we will be cash flow positive Steve made the reasonable point that we could be cash flow positive simply by not spending money on R&D but that would be contrary to our long term interest.

In connection with the question about whether or not the Board would say that OBJ was a worthy investment, Tony answered it reasonably by expressing that he had just been through that issue himself before deciding whether or not to invest in the company himself. His due diligence, the company’s technology and its validation by P&G, together with its wider prospects, like Surface Hygiene, convinced him to join up. He also pointed out that he was a “realist” and “in it for the long haul”. He said that “clear objectives are needed” and “time to achieve them”.

He also pointed out that “Jeff is a world class inventor”, the company “does research efficiently” “is not expensive to ruin” and “has a very low valuation.”

With respect to Cameron the stand out items for me were that he, like the others, was entrepreneurial and that his particular expertise lay in his knowledge of corporate structures and capital raising either by way of loans or through the capital markets. There were hints from Tony and Cameron that listing elsewhere might be considered.

In response to a shareholders question about whether the Board had met its 2017 “objectives” I thought that Jeff’s answer was interesting. He replied along the lines that it was important to maintain the relationship with P&G, which it is, and that the objective of achieving significant results in the double blind study with Bodyguard were important.

All of which is true, but the failure to answer the question by discussing how matters had gone with other products and other “partners” gave me the impression that Jeff may be content that P&G had validated his work and that that was achievement enough.

A question which was not put, but which should have been asked of Steve, was what needed to be done to build five divisions with annual turnovers of $100,000,000 within five years. P&G might be one of them. Bodyguard another, but where are the other three going to come from?

So what can we make of all of this.

The overriding impression is that we now have a Board which can move the company to another level. Jeff and Glynn were going nowhere. Fortunately they were prepared to step aside and let the Olympic team have a go.

It is also significant that the new Board has a specific skill set. They build companies then sell them.

As shareholders we will be delighted to have the company built up, but will we be happy to see a successful company sold?

What I was particularly pleased to see is that the Board has a clear strategy. It wants to get closer to the consumer in order to get a larger share of the retail dollar. That makes perfect sense, especially when we have a Board that has done it before. But that means developing our own products and taking them to market, either alone or as part of a joint venture.

Inevitably this will mean that OBJ will need to raise capital.

A company with little income and unpredictable sales is not going to be able to get a loan. So look forward to an announcement sooner or later about a capital raising.If the new directors were to take up a reasonable number of shares in any capital raising that would give me some confidence.

But at what price would shares need to be sold to raise $10,000,000?