Summary
- We discovered Glucose Health, Inc. back in April of 2017 when the shares were fetching between $0.07 and $0.10.
- In January of 2021, GLUC shares reached a high of almost $9.00 after reporting strong sales taking place at giant internet retailer Amazon.
- Since then, the shares have faltered badly as supply chain issues due to COVID-19 negatively impacted inventory levels at several retailers.
- While the company has no debt, a strong current ratio of over 500-to-1, and a very favorable capital structure, additional growth requires that the company raise capital.
- The recent S-1 filing reveals some very interesting information about the strategic plan for the company, which, if successful, could re-ignite the stock price to its former growth trajectory.
Meeting The Challenge Of Micro-Cap Investing
Micro-cap investing has many challenges, not the least of which is finding small companies that have a unique combination of a business enterprise within an existing global mega-trend, capable and competent management, and the ability to raise capital on favorable terms.
In our opinion, Glucose Health, Inc. ( OTCPK:GLUC ) is one of those unique micro-cap companies. We have been an equity investor in both the common and preferred shares since discovering this little diamond in the rough in early 2017 and remain very positive on the company's prospects.
In fact, we have become even more enamored with the stock at current levels of between $0.50 and $1.00. There are a number of catalysts that we are paying close attention to, including an underwriting to raise additional capital, two consecutive quarters of record revenues and new signs of profitability.
We have no doubt that the vicissitudes of the stock price have caused concern among many investors, but, as frustrating as that might be, we continue to believe that with the proper financing structure, to bring in additional capital, this company can easily regain its past prominence, within our micro-cap portfolios.
For those investors who may be reading about Glucose Health for the very first time, we offer the following background information to put the bigger picture into focus.
Capitalizing On The Global Macro-Trend of Obesity
Our micro-cap ideas typically begin with identifying a global macro-trend with a very long runway in front of it.
This was the genesis of how we discovered our very first micro-cap idea which has performed spectacularly. We began writing about Celsius Holdings, Inc. ( CELH ) in January of 2015 when the shares were selling near the fifty cent ($0.50) mark.
Fast forward seven years to November of 2021, when shares of CELH reached a price level of just over $110.00 share. That equates to a compound annual growth rate of 120.72% per year, or a cumulative return of 21,511.76% for the period from January 2015 to November 2021.
We would caution readers not to use the above numbers as an expectation for achieving similar results regarding any of our other micro-cap ideas. A common statement that you will encounter among many investments, which are professionally managed, clearly states that "Past performance is no guarantee of future results."
We urge readers to heed this warning when making investment decisions, in general, but particularly when it comes to micro-cap investing.
As we always like to emphasize in our articles, and in our disclosures and disclaimers which appear at the end of each article:
Micro-cap stocks carry additional risks beyond those of higher classes of securities including, but not limited to trading outside of a listed exchange, potential liquidity issues, dealing with penny-stock rules, lack of margin eligibility, a possible absence of transparency regarding BBBO quotes, a limited number of market Makers willing to provide depth to the order book, potential issues regarding financing activities, inadequate capital to execute on the company’s business plan, going concern caveats, and the potential inability to compete with larger companies due to limited financial and personnel resources. Please invest responsibly. We encourage individuals to only invest what they can afford to lose, up to a maximum of 100% of their investment.
Celsius took on two giants in the energy drink market: Monster and Red Bull.
Most people dismissed their effort to capture a meaningful share of this multi-billion-dollar beverage category as being futile and had the company dead and buried long before they even got out of the starting gate.
As Mark Twain once said, "The reports of my death have been greatly exaggerated."
So much for all the naysayers. There were many that we had to contend with over the years of trying to defend our thesis for why this little company would ultimately change the energy drink category.
In the end, we were proven correct about CELH and we believe that GLUC will likewise surprise many doubters in the coming years.
It appears that from the precipitous decline in the stock price of Glucose Health over the past 18 months, many investors have written the company off as having any chance of success against the two dominant players in the diabetic beverage industry; Abbott Labs (ABT) and Nestle (NSRGF) (NSRGY).
Honestly, it's not very hard to see why there was a loss of confidence among GLUC investors.
The Effect Of Amazon Stock-Outs & Supply Chain Management Brought On By COVID-19
The effects of COVID-19 on supply chain management had a significant impact on CEO Murray Fleming's plans to produce enough product to meet the growing demand from Internet retailer Amazon.
Nowhere was that growing demand more evident than in May and June of 2021, when Glucodown® sales grew year-over-year at levels exceeding 1,000%, compared to 2020.
At that time, Amazon received the two largest deliveries of Glucodown® products in the short history of Glucose Health, Inc.
Almost immediately, sales of Glucodown® took off with the additional inventory on Amazon. May of 2021 saw a monthly increase of 1,048% from the prior period in May of 2020. The month of June in 2021 saw similar results, with an increase of 1,284% year-over-year from the same month in 2020.
Sales were beginning to ramp up nicely until inventory issues began to appear once again as supply chains became stressed, resulting in another depletion of raw materials to manufacture Glucodown®.
We do not believe that these two months were simply outliers. CEO Murray Fleming had developed a coordinated advertising program which drove consumers to the Amazon website.
The awareness created by this marketing program was extremely effective and were it not for Amazon's difficulty in obtaining additional Glucodown® inventory, we believe that sales would have continued on their former trajectory.
Raising Capital Should Provide Multiple Benefits
The capital raise which Glucose Health, Inc. is looking to engage in, will enable CEO Murray Fleming to take advantage of two market forces, volume pricing and stockpiling raw materials for future inventory production.
Glucose Health, Inc. has commissioned E.F. Hutton to underwrite the offering .
What we find most interesting is the fact that not only will this offering provide working capital for the company, but it will also provide the company with the ability to become a fully-reporting SEC company posting audited financial statements (10-Q's and 10-K's), but the shares will also move over to the NASDAQ Capital Markets, where it will trade under its current symbol GLUC.
To achieve these milestones, the company will be required to effect a reverse split, and here is where things start to get interesting.
In all our years of micro-cap investing, we have rarely, if ever, seen an OTC Pink Sheets company with the type of capital structure that GLUC sports.
The company has a bullet-proof balance sheet, NO DEBT, a very small number of outstanding shares and a miniscule public float
Add to this the fact that the last two quarters have seen the largest revenue numbers in the company's history, while showing a modest profit in Q3 2022.
GLUC Share Price & Potential Impact On A Reverse Split
One of the factors that is unique to the upcoming GLUC underwriting is that shareholders are able to somewhat determine what the potential impact of a reverse split will mean to the future capitalization of the company.
In most cases companies engage in a reverse split to shrink the number of outstanding shares. Typically, this happens as excessive dilution, over time, increases the outstanding share count.
There are two things to note here:
1. The number of potential outstanding shares for GLUC has actually decreased over time, as CEO Murray Fleming has purposefully retired convertible debt that would have resulted in the future issuance of additional shares upon the conversion from this convertible debt to common equity.
2. Because the existing number of outstanding shares, along with the public float is so small, any buying of GLUC shares in the open market could easily impact the outcome of a reverse split.
We offer the following illustration to explain:
As we indicated earlier, the total number of outstanding shares of GLUC is approximately 16.7 million. Of that number, roughly 7.9 million are restricted shares held by insiders, officers, and affiliates.
The shares are very thinly traded, with daily volume of approximately 16,516 shares changing hands over each of the past 90 days. The Level 2 data also reveals that there is typically limited size on both the bid and the ask.
What all of this means, is that it would not require a great deal of either buying of selling to move the stock up or down significantly. Just take a look at the chart below, which shows the impact on the share price from the release of Q3 financial results which were posted on October 24, 2022.
The share price requirement to become listed on NASDAQ is $5.00. To achieve that bogey, the company would have to act to initiate a reverse split.
At a $0.50 cent price that would translate into a 1-for-10 ratio of new shares to current shares to get to the five-dollar price level. At a price of $1.00 per share, it would require a 1-for-5 reverse split ($5.00 divided by $1.00 =5).
If somehow the share price reached $2.50, it would only require a 1-for-2 reverse split ratio, and, of course, at a price of $5 in the open market, no reverse split would be required.
Let's assume that Shareholder "A" owns 100,000 shares of GLUC. If the shares are selling at $1.00, his/her investment is worth $100,000. If the shares are fetching only $0.50 cents in the open market, their total value would be only $50,000.
Remember, that a reverse split does not change the overall value of a share position.
Using the prior example of 100,000 shares selling at $0.50 cents, we get a total value of $50,000. If the shares were reversed to reflect a 1-for-10 split, Shareholder "A" would now own 10,000 shares at a price of $5.00 for the same value of $50,000 after the reverse split takes effect.
If the shares were to rise to a price of $1.00, our shareholder would have a position valued at $100,000 (100,000 shares x $1.00). A 1-for-5 reverse split would take the share price from $1.00 to $5.00.
After the reverse split takes place, our shareholder would own 1/5th as many shares, or 20,000 shares, but they would be worth five times as much ($5.00 instead of $1.00). Again, to reiterate, the overall value of the position does not change.
So now, let's compare the position of Shareholder "A" with a much smaller reverse split, because of the stock price rising in the open market, prior to the reverse split taking effect.
Here is where things are going to get a bit sticky, by virtue of a couple of assumptions that we are going to make.
1. The total amount of capital raised by the E.F. Hutton underwriting adds $10 million to the balance sheet.
2. This additional capital provides a pathway, not only towards significantly increasing future revenues by virtue of having the ability to produce additional inventory for Amazon and other distribution partners, but also as a result of new product developments, as outlined in the S-1 registration statement.
3. The share price slowly increases between the next 2-3 years as revenues continue to show meaningful year-over-year growth.
First, we don't believe that any current GLUC shareholder wants to see a 1-for-10, or even a 1-for-5 reverse split. We know that we certainly don't.
As we have already pointed out, while the total value of a shareholder’s position will not change with a reverse split, there are fewer shares that could benefit from a rising share price over time with a larger reverse split ratio.
Using this supposition, the question for existing shareholders then becomes:
"Is it worth buying additional shares now before the reverse split takes place to help increase the market price of the shares, which could potentially have the effect of minimizing the impact of a larger reverse split on my existing share count?
In other words, if you are a believer that in the long run CEO Murray Fleming will be able to add significantly to the enterprise value of Glucose Health, Inc., then adding to an existing share position at current price levels could provide shareholders with a much larger position to capitalize on that future growth potential.
Using our previous example, simply getting the share price to $1.00 vs. $0.50 would give an existing shareholder twice as many shares for potential future revenue growth and share price appreciation. Obviously, at $2.50 a share the numbers would look even better.
Most companies that engage in a reverse split do so because the number of shares outstanding have grown to such a large number that the only way to reduce the share count is by doing a reverse split.
Under these circumstances, the impact of open market share purchases, with the intention of raising the share price to a higher level, thereby reducing the size of a reverse split, is almost impossible to achieve.
This is primarily a function of the share count being so large, to begin with, (sometimes, a billion shares or more) that the impact of additional share purchases, in the open market, becomes insignificant and as a result diminishes any potential impact on the share price.
With Glucose Health, Inc., by virtue of the extremely low number of outstanding shares and an even smaller public float, resulting in a thinly traded market, open market purchases are more likely to move the stock price in a positive direction.
An average of 16,516 shares, traded daily over the past 90 days, shows just how thin the market is for GLUC shares.
This gives existing shareholders a certain amount of control in determining what the final reverse split ratio could be.
Some shareholders may not mind purchasing a few thousand shares in the open market, if it means that the amount of the reverse split will be smaller, thereby giving them more shares on a post-split basis.
For example, some investors may feel that the extra shares that they would have after any reverse split may be worth making an additional investment in GLUC.
That decision is up to each individual shareholder and want to emphasize that we are, in no way, attempting to influence the stock price by pointing out the mathematical differences given various scenarios that could unfold.
The numbers are the numbers, and they simply communicate the story of what could happen depending on what the final price levels of GLUC shares are prior to enacting a reverse split.
The main point that we are attempting to make is that for most reverse splits that take place, it is unusually rare that they do so with such a diminutive level of outstanding shares, as well as the tiny public float, which GLUC enjoys.
It's All About The Macro-Trend Dynamics
The global macro-trend of obesity that we recognized early created a unique opportunity not only for Glucose Health, Inc., as it did for Celsius Holdings, Inc.
For CELH, the opportunity came with the development of a healthy alternative to traditional energy drinks by capitalizing the changing consumer preference for more functional beverage choices.
Like Celsius, Glucose Health has also hitched its wagon to providing an alternative functional beverage option to more traditional diabetic shakes, such as Glucerna and Boost, that currently dominant the market.
There are a lot of similarities that we see in both the scope and nature of these two companies, beginning with the fact that they both are taking on the highly entrenched leaders of a particular category within an established industry.
Summary & Conclusion
When we first discovered Glucose Health Inc., selling for under $0.10 cents in April of 2017 , we quickly made the comparison to Celsius Holdings, Inc.
Both companies were taking on well-established and entrenched industry leaders with years of experience, a war chest of capital and resources that dwarfed the competition.
The initial response from many investors was about what we had expected.
We were inundated with criticism and denounced as penny stock pumpers especially from stock message boards and other social media outlets.
In the end, however, we were vindicated.
Celsius went from a price of less than $0.50 to over $110.00 in roughly 6 years, while Glucose Health saw its share price rise from under $0.10 cents to reach a high just shy of $9.00 in less than 4 years.
Since then, however, Glucose Health, Inc. saw its shares retrace almost all the gain achieved during that period from 2017 to 2021.
Over that time, we, along with many other shareholders, saw the impact that COVID-19 had on supply chains around the world and how that affected GLUC.
The title of this article is " Glucose Health, Inc: Why We See A Major Turnaround Coming."
Our thesis is predicated on the fact that supply chain problems have, for the most part, been mitigated.
Amazon is now fully stocked with all eight flavors of Glucodown® tea mixes and enhanced water products, and we look for the company to return to its former glory, when strong sales gave us an insightful indication into just how much Glucodown® diabetic beverage products were resonating with today's consumer.
We used this "Amazon Indicator," over the course of many years, to help us determine the popularity of Celsius' functional beverages and it gave it us the confidence to forecast that one day big beverage would come knocking on the door of Celsius corporate offices to strike a deal.
That day took place recently, in August, when PepsiCo made a $550 million investment in Celsius Holdings, Inc. for a minority equity stake of 8.5%.
This was something that we correctly anticipated would eventually happen as far back as 2015 and 2018 .
We expect that our enthusiasm for Glucose Health, Inc. will once again attract the negative nellies and naysayers that have criticized us in the past for our sanguine views on the speculative, high risk, micro-cap opportunities that appear in many of our Seeking Alpha articles and blog writings.
While we cannot say, with any degree of certainty, that we will be proven correct on Glucose Health, as we were with Celsius Holdings, what we do know is that our conviction on GLUC has never been stronger.
Given that the stock has fallen over 90% from its former highs in 2021, has posted record revenues for the last two quarters, has shown that it can operate profitably, has NO DEBT, has a current ratio of over 500-to-1 and virtually no liabilities we view the shares as being extremely attractive at current price levels.
When we add to that a number of positive developments pertaining to its capital structure, a pending capital raise being led by E.F. Hutton, becoming a fully reporting SEC company by filing Q's and K's in the future, uplisting to the NASDAQ Capital Markets exchange and increasing its cash position on the balance sheet from the anticipated offering, we find the common stock worthy of very strong consideration for the speculative portion of an investment portfolio.
We expect to hear an update from CEO Murray Fleming in the coming days and will weigh in if we should note anything worthy of a follow up discussion.
Until then be well and stay safe.
For further details see:
Glucose Health, Inc.: Why We See A Major Turnaround Coming