It’s been a while since I’ve posted anything about one of my favorite OTC company’s NBDR, so here’s my take on the recent SEC REG 1A. Before I get into the 1A, I’d like to talk about my top three reasons for following this ticker.
1) Disciplined Evolution: This company is simultaneously in a constant state of evolution and focused on retaining proven practices. Somehow this corporate team has found a way of turning the chaos of operating multiple verticals into a well organized and governed plan. The company evolves and grows at a steady and managed pace by making small trackable changes over time. An example of this can be seen in No Borders Naturals. The CBD Wellness market has only taken off in the last year and has been very profitable for many companies. NBDR’s approach to it has been slow and measured, they evolved into it not by going for the most significant impact possible, like many companies, but by analyzing the market potential, finding a nitch they could fill locally and then expanding outward from there. I have no doubts that if after the initial launch of the natural line they had seen a detrimental to the company, they would have ended then and there and written it off as a bad idea.
2) The Black Swan and Ati-Fragile: all companies have some degree of fragility. They can be impacted by internal and external factors that can cause a disproportionate effect on the entire business. Right now, we are watching the collapse of the vape industry due to the fragility of the human body and the nitch vertical, so many companies have inhabited. In the case of NBDR, we see a counter balance approach to fragility. There’s a reason Medident and Naturals were announced at relatively the same time. Here was a new market vertical, recently legalized by federal law primed for businesses willing to take a chance. This was a high risk, high reward situation, just what a new company could hope for, NBDR could have jumped in with both feet and prayed it all worked out, and at the first hiccup in supply or execution, been destroyed. Instead, they found an established company in a separate vertical with low risk and steady but low reward to counterbalance that new market risk. Since Medident is in a stable market (at least until we no longer need dentists), NBDR is able to focus on getting the most out of the CBD market with Naturals.
3) Driven by Data: businesses that collect and analyze data are more successful. They use the data to learn about themselves, their consumes, and their markets, then take what they learn and apply it to their goals. Have you seen how many pop-up stores Naturals has done? They’ve spent almost a year selling products and collecting data. They’ve gone to different segments of their market and have found what sells to each consumer group. I wouldn’t be surprised to find out that they adjusted the product line offered at each event based on the consumers in attendance. In addition to this, data is essential if you want to prove your products can and will sell in a commercial retail setting.
This brings to the real reason for reading this, the SEC REG 1A. There is a lot of information in there if you have the patience to read it. For me, after reading it, I’m left with one major question.
Why is it only necessary to pay for media commercials, if all shares are sold, there’s a $78k surplus, $800k in inventory, and can spend $800k in advertising?
I ask this based on the distribution of proceeds from the upcoming offering.
Based on the table taken from the offering documents, I’m making an assumption that the 10% funding represents the minimum necessary to continue operations. I also see the 50% funding column as the minimum essential required for company growth. I make this assumption primarily based on the compensation number offered. Only in the 10% and 50% funding columns do we see compensation amounts higher than inventory.
If we apply our knowledge of the company and subsidies combined with the table above, we can make some additional assumptions.
Looking at the numbers for research & development, website, testing & deployment, and inventory, we can assess where each subsidiary fits into the distribution of proceeds.
Since the three subsidies diverge so significantly in verticals, approach, and product, we can assess how they correspond to the balance sheet items. For instance, Medident Supplies is a distributor of manufacturer to consumer product lines for dental offices. Most research and development for this line would be done at the manufacturer end of the chain, meaning the $120k earmarked for research is most likely going to No Borders Labs or Naturals. Looking at website and website development, neither medident or naturals manage their website, which means all that is most likely going to Labs. I would lump in testing and deployment in with labs as well, the low dollar amount probably represents software over products, maybe an expansion of SaaS from labs over new product lines. This brings us to inventory. No Borders Labs, being digital, doesn’t have much in the way of stock. That would also go for Medident as well unless medident is keeping eight full dental suites on hand, which is unlikely given their model of distribution from manufacturer to consumer. However, it may cover display pieces for medident, considering they sell full suites for under $100k; why would they need 8 of them. Given all of that, I’d say most of the inventory would be bulk orders of Naturals products.
And that’s where the $50k for media commercials comes in. In my opinion, the $50k represents an expansion into a new market area for the Naturals line. Based on the company’s past performance and how they’ve carefully entered new verticals in the past, I strongly doubt that’s the direction they are going.
Because of how good the company is at play their cards so close to their chest, I am unable to speculate any further than this, but I would not be surprised to see some significant news come out after the funding round is closed.
We’ll have to wait and see what comes next.