Open Letter to Mr. John Rochon & the JRJR Networks BOD

March 9, 2016 at 10:03 am 2 comments

Thank you Mr. Rochon for taking decisive action to counter what appears to be the illegal efforts of those who would try to push down the price of our stock to make a quick profit. When we became aware of the likely reason behind what seemed to be an inexplicable (even for a micro cap stock) sell off in the shares just as the company’s operations began to be demonstrably improved, members of our community asked you to consider taking several steps to help with that situation –

1) Release Q4 numbers that would address rumors circulating that the company’s businesses had a down quarter – four weeks ago CVSL (now “JRJR”) issued a press release indicated a revenue range for the quarter of $49-$50m. The record quarterly revenue that was a 37% SEQUENTIAL increase over the prior quarter made it very clear that JRJR is not dying, it is THRIVING.

2) Change the stock symbol and cusip number to force a DTC accounting process that would require all short positions to prove a borrow. With the pre-release of Q4 numbers it was also announced that the company would be changing its ticker to JRJR to reflect the new JR Networks corporate name and that they would also change the cusip number. This will likely cause any short positions that are naked to either prove a borrow or cover. Regardless of which route they take, we believe this will make it more difficult for naked short sellers to attack our stock and we appreciate that management is willing to go the extra mile to protect shareholder value when it is necessary.

Bravo Mr. Rochon and thank you for leading a management team that hears shareholder concerns and is proactive in taking steps to protect shareholder value.

In light of the fact that JRJR Networks is still trading at a very large discount to its intrinsic value, we would also like for the board to consider undertaking a strategic review of the operations of our Gourmet Foods division, giving due consideration to the possibility of spinning off a minority stake in a Reg A+ IPO to unlock the shareholder value that has been created there and allow Your Inspiration at Home (hereinafter “YIAH”) to be valued based on its growth and prospects as a standalone. We believe that such an offering would be well received by investors generally, given the valuations accorded to similar companies that have achieved growth at the rates YIAH has delivered the last two years and also in light of the fact that it would be the first pure play in the gourmet food kit space.

Company               2013          2014         2015 2     Yr Growth Rate
Hello Fresh           $19.2         $77.0       $290.0 1       1510%
YIAH                        $1.5           $8.4         $22.5              1520%

Though relatively new, we believe the Reg A+ crowdfunded offering process is ideally suited for a company like YIAH for the following reasons:

1) YIAH/MSK has a built in base of potential YIAH shareholders who would likely buy a very significant percentage of the shares offered and hold the shares long term based on their personal connection to the company’s products and services. This highlights one of the best reasons for a Reg A+ approach vs. selling those shares through a brokerage firm whose prime customers will just flip it soon after the offering is that we let the people who believe in the company and use its products get the benefit of the “IPO Pop” or increase in price that will likely occur when the stock begins trading. This rewards those early adopters for the role they will play in the company’s growth, builds greater affinity for the brand and has the potential to create many new “brand evangelists”.

2) New Sales Rep Incentive – while we are raising capital for a US roll-out, the ability to offer shares in an upcoming IPO would be unprecedented in the space and given the enthusiasm of consumers and venture capitalists for Blue Apron, Plated, Fresh Express and other companies in the space, the ability to own a piece of the first pure play stock in the gourmet food kit business might be enough of an incentive to bring in many new sales reps for YIAH.

3) New Customer Incentive – while we are raising capital for a US rollout, the ability to offer shares in a hot IPO to all customers who sign up as of x date would be a very unique incentive. Blue Apron, Hello Fresh , Plated, et al are all really cool services, but you can’t own stock in them. Why not join one that lets you own a stake in the company when you use their service?

To be crystal clear, we believe a significant percentage of the initial shares offered should be first made available to YIAH reps and customers, followed by the 70,000 JRJR Networks reps from other owned companies and then existing JRJR shareholders. We also think that shares allotted for sales reps and customers that are not taken by them should then be offered to JRJR shareholders before allowing those shares to be made available to investors generally.

We have been watching with great interest as one of the first companies (ELIO Motors – OTC: ELIO) to make use of the Reg A+ rules for an IPO began trading for the first time over the last few weeks. After raising $17m by offering their customers, employees and small investors (6600 people bought shares in the IPO) the opportunity to buy shares at $12, the shares began trading February 19 in the teens and in the days that followed saw its shares soar to levels that value the company at well over $1 billion. The stock has since settled in to a trading range that is slightly lower, but still values those shares at more than double the IPO price the initial investors paid for their shares. We note that an offering of YIAH at a 2-3x revenue IPO valuation represents a significant discount to what the venture capitalists have been paying to take down stakes in Blue Apron, Fresh Express and Plated where the most recent valuations have ranged from 5-10x revenue.

We believe the Reg A+ process is uniquely well suited for a direct sales company and in particular one that has such a significant social component to it in a very hot space. The demand for shares in the first gourmet meal kit pure play would likely boost the revenue of the underlying business as the exposure in the financial and mainstream media would also do much to drive customer and sales rep additions. The potential for post offering upside in the share price will give even more incentive to the sales reps and potentially attract more customers to YIAH. The Reg A+ process appears to be the most efficient way to raise capital, with much lower fees than a traditional offering and it taps into an existing source of capital that is eager to invest and use their own resources to help the company succeed vs. very high fees and a new base of owners who might be quick to dump the stock or in some cases even make bets against the company. Additionally, the “Testing The Waters process” allows us to gauge the demand for an offering by soliciting indications of interest before committing to proceed with the offering.

In summary, we believe a Reg A+ IPO for a 25-33% stake in YIAH to raise $15m or more to fund the launch of YIAH in the US and for JRJR to acquire other incubation opportunities should be given due consideration. And while it might make sense for JRJR to retain the full stake in YIAH that is not sold, we think the company should also give due consideration to distributing up to 33% of the new YIAH shares to existing shareholders. Either way, we believe a Reg A+ IPO for YIAH could galvanize the customer base, generate significant new exposure that could drive customer additions and do much to unlock the existing shareholder value there and scale it to new heights.

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Entry filed under: micro cap, short squeeze, small cap, small cap stocks, Uncategorized. Tags: , , , , , , , , , , , , , , , , , .

JRJR Update – 23% of Float Owned & Record Traffic Day Groove Update – JRJR Holdings at 26% of Float

2 Comments Add your own

  • 1. dolandennis  |  March 9, 2016 at 6:47 pm

    I have followed your writings on CVSL now JRJR and your fundamental analysis is certainly interesting. However, your technical analysis and suggestion there was a “large” naked short appears to be have way off. If such a short did exist the share price given the float would be significantly higher.

    Sent from my iPad

    >

    Reply
  • 2. Peter  |  March 9, 2016 at 8:01 pm

    (1) Why make the Q4 sequential revenue increase sound like a big deal, when it’s all attributable to buying another company? (2) It seems to me that if there was a 2M short position that needed to be closed because of the name and CUSIP change, then there would be much more volume than there has been. Is the whole thing just a red herring? (3) The above notwithstanding, the stock is dirt cheap. Thanks for bringing it to my attention. Bought a bunch in the last couple of months.

    Reply

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