Hi Clement,
thanks for your explanation. It would be interesting if it
were possible to dig out the most recent balance sheet to
have a clearer picture of what is happening. Did you call
the company to inquire about this question? However, I found
out that the informercial, last Q, represented about 25% of
their marketing expenses. So the amount is not extremely
large... over what was spent last year, unless, of course, they've
increased their other marketing channels in an unusually large
and rapid way.
I called BFX. Here's what I learned...
first, you had concerns with respect to the way they
book their revenues if a sale is made on credit. BFX
recognizes the full revenue on the date of the sale. However,
they have a non-recourse agreement with a big financial
company (10 billion company) that essentially takes on
from there. BFX is paid, I think, 98.5% of the sale from the
lending institution which then must get the money from the
purchasor. If the purchasor defaults, BFX is safe as the bad debt
falls on the shoulders of the lending institution. There
is therefore nothing to worry about, I believe, from that point
of view. BFX is covered.
Subassembly of BFX products are made in Washington. Pro is
made in the US, motivator parts are made in Taiwan. Currency
fluctuations not expected to have an impact om results.
Rod Rice told me BFX was comfortable with 9cts per share this
quarter. Christmas Q not necessarily their best as they don't
do much advertising during the last 2 weeks of the year (it takes
several days to ship a training machine). Also, most of their
unit sales are larger than 500$. 9cts per share
would represent another excellent quarter! And they do expect
to start the new year with an advertising bang... They
don't expect to see any seasonality for another 2 years
as they're Q over Q growth appears to be very strong. They view
their company as a direct marketing company -not necessarily
an exercise machine company-- and therefore are looking for
new products to start selling in this manner. They feel they
have developed expertise in this method of selling goods and
plan to use their experience to grow the company. The insole
product is more or less dead. They're still selling a few, but
not much. They want to focus on products with tag prices
above a few hundred dollars. THey may acquire a small company
with their cash if the price is right. They're also hoping
very much to move to Nasdaq! I believe they think the share
price of BFX is NOT fairly valued at 3$ given the numbers they
have been putting up. Rod Rice seemed pretty convinced that
the share price would continue appreciating... but hey! he
might be a little biased. Still good to hear positive management.
After all, they've delivered several great Q's in a row.
They have just added new 18000 square feet capacity to their
manufacturing capability! and increased significantly their
number of stations to 45 (I guess this represents the number
of receptionists answering the phone when informercials are
running)... So this company is on the expansion track for now.
Finally, a trip to Toronto by Rice and the CEO greatly increased
the visibility of the company to the financial industry
(this explains our rise from 1 to 3$ to some extent). They're
happy of having seen the trading volume increase, although they
would like this to improve significantly more. Maybe moving
to Nasdaq will do the job!
Well, Clement, I hope you quizz Rice about your concern.
He's surprisingly accessible. Got through to him on my first
try! I do believe that at current levels, BFX represents an
excellent investment with excellent potential.
regards,
Trilobyte
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