Notes from the Annual Meeting (7/17/97):
(Please excuse the length of this posting)
As I mentioned in a previous posting, I attended the Annual Mtg in LA and came away very impressed by progress of Co. Along with Peter Ting I am one of the "settling dissidents." After the meeting, I am no longer constrained by the terms of the settlement, and can speak freely. Nevertheless, I can honestly say that I am more optimistic about the prospects for the company than at any time since prior to the Barron's article and I feel that my optimism was shared by most of the people I spoke with after the meeting.
1) The new board including CB and the resolution to increase authorized shares to 50M was approved.
2) Board members were introduced. I was particularly impressed with Charles Strang (emeritus chairman of Outboard Marine) and Gil Raker (Semiconductor Packaging). Both were appointed by settling dissidents and are savvy businessmen as well as shareholders who vow to be activists and turn CHTL from an entrepreneurial venture into a real co. with business plan, governance model, and creditability in the financial community.
3) CB hoped to announce final settlement with Stanson, but final agreement likely in "next week or two." Ending Stanson is key to rebuilding the "infrastructure" of company.
4) Joseph DeKama spoke extensively of new marketing plan. Seems very savvy. Knows all players in drug & department store arena. "Ethocyn is a unique product that transcends lines of distribution." Pledges to build on Stanson's current 10,000 doors" to 20,000. RiteAid (Thrifty Payless) and CVS soon. Drug stores are "nucleus," but plan to enter Dept. stores. Talks with Sears, Pennys, Target, and Sacs. High-end Dept. stores want unique presentation. Considering lowering price point of current product to $99.50 for 4 piece set, $59.50 for 3 piece. Would maintain margins. Problems with Stanson and past marketing-- stores would be reluctant to keep much inventory and would quickly sell out after ad blitz. This being remedied with shift from Stanson-- new displays, blister packaging in more prominent location in stores.
5) Polly Bergen spoke. Home Shopping Network very successful. 3000 units sold out in 1 day vs. expected 2 days. Invited back 1 1/2 weeks later- sold out 5700 in 1 day. Back with increased units next month. HSN wants unique packaging to differentiate from Drug Stores. Talk shows constantly considered but unpredictable. Discussions with several shows going on now that there is "less fear about company." 20/20 segment has been filmed and expected to air Aug. 8, but could change. Focus on new "safe sun" product line created by JoAnna Connell (Bay Watch stylist) and specifically "sunless" tanning agent. Expect to use "half-face contest" winners in 8 US and 3 Canadian markets, plus Pacific Rim.
6) New marketing blitz planned for Sept./Oct. Very impressive new TV ads previewed. Created by Matt Lester (agency?) who has won Clios and created well known ads for Coke, AT&T, and Taster's Choice. He talked about turning product into "desired brand," creating emotional attachment to product. To differentiate from products with similar claims, new ad campaign focuses on "Science vs. Fiction." Repositioning company: "The science of beautiful skin." Uses "rubber-band" graphics. All inclusive- all ages, men as well as women...More aggressive re scientific claims... Conscious of FDA, but within guidelines for cosmetics. (CB: FDA has already reviewed Ethocyn and no problem). Considering web-site. Need to educate consumer. Use of infomercials. Noted Dr. Murad has had 100M sales from infomercial.
7) Dept. Stores: very expensive floor space. Considering repackaging Essence and selling it as a as an anti wrinkling agent to be used in conjunction with high-end cosmetics to be sold from their floor space. Stores "want product but want exclusive look, new packaging."
8) Asia: master marketing agreement with Michilan. Sales doubling every month since kick-off in March. No re-order in 4th Q due to uncertainty over possible management shakeup. Now that CB and Board re-elected and "secret side agreement" terminated, Michilan will reorder.
9) Other products: (Cyoctol, Metcyclor) no testing. On hold . Was going to fund research with profits from Ethocyn, which clearly hasn't happened.
10) Finances: contrary to rumors- no immediate cash-flow problems. "Meeting minimal levels of financing". Much depends on Stanson termination to increase cash flow. Product still selling despite lack of advertising from re-orders & 800 line. Michilan reorder soon. Negotiating with Reg. S for "best terms." (Not mentioned- Some Reg. S investors supposedly filed suit to force conversion on 7/18). Yvette Lamprecht mentioned that break-even at 5M with advertising. In answer to question: the dumping of product into Pic-N-Save and MacFrugal was done by Stanson without consulting company when he thought dissidents would take over CHTL and kick CB out. 12,000 units sold out in a week @$39.50. (To me- along with HSN success- this proves there is huge underlying demand at the proper price point.)
11) Jan. McCormick (David Hasselhoff's manager) said that now that CB re-elected and turmoil has resolved, DH will now "go forward."
Summary: very positive in terms of plans for marketing, new Board, and business plan. CB seemed focused and very considerate of shareholder concerns. There was surprisingly no shareholder anger or major complaints exhibited. All questions were quite polite.
IMHO: major questions exist in terms of how this is going to be financed. This meeting and above changes should go long way in re-assuring financial community and paving way for company to get needed money. I am very hopeful that this (first) Annual Meeting marks the turning point we long-suffering shareholders have been waiting for.
Based on past, it makes sense to maintain healthy skepticism until the company delivers real sales and earnings. But I believe the time for unconstrained cynicism is past. CB is no longer running this company on her own. Look for progress on Reg. S, Stanson, and reorder from Michilan this quarter with hopeful domestic sales gain. The real gains should begin in the Dec. quarter with new ad blitz & new markets, and then into the future. Everything I heard at the Annual Meeting reconfirms my belief that this product has huge potential, and that we may yet realize the promises of 2 years ago.
Robert Binder |
