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Infomercial Launch at The Brainy Brands Company, Inc. (TBBC.OB)
www.brainybaby.com
With parents worried about state and local cutbacks of vitally needed pre-kindergarten programs, The Brainy Brands Company, Inc. is launching a powerful new infomercial with award-winning educational products to awaken the brainy babies in millions of infants, toddlers and children up to 5. On projected three year sales of $59 million possible earnings per share of $0.33 and a theoretical P/E of less than four!
New CEO John Benfield directs Brainy Brand's first integrated marketing plan with new seed capital, a direct selling to specialty store sales drive and new products including a huggable cuddly plush teddy bear. An experienced team of Brainy Baby product creators with 77 awards makes its move for increased market share and a national shift to more substantial media viewing by preschool children.
Recent Price: $1.27 Balance Sheet September 30, 2010
Bid /Ask Prices: $1.23-1.27 Total Assets: $1 million
Market Capitalization : $41.5 million Long-Term Debt: NA
Shares Outstanding: 32.7 million Shareholders' Equity: $457,658
Float Outstanding 12.5 million Book Value per Share: $0.01
By Robert J. Flaherty and Arnaldo Arroyo
Buy Recommendation
For this issue, our BUY report on The Brainy Brands Company, Inc. features an exciting creative group which pioneered the Brainy Baby products and has long claimed to have the best educational media products for toddlers and children up to five. But a few rivals have grown bigger and made more money. So with a beefed up marketing strategy, new seed capital and high hopes, the team has gone public by backing into a shell and now has just started trading as The Brainy Brands Company, Inc. (TBBC.OB)
With its first integrated marketing strategy in history and a new marketing oriented CEO, Brainy Brands is poised to make its move. In mid June TBBC is launching a powerful potentially company-making infomercial. Results will quickly show if it can dramatically expand its market share of the toddler educational market and awaken the brainy baby in millions. Their ambitious goal is to improve the substance of what preschoolers are watching with a new improved package of products called "The Learning for a Lifetime System" because "you are your child's first and best teacher." This company sponsored report is the first on The Brainy Brands Company, Inc. anywhere on this important effort. We are catching TBBC at a thrilling moment!
The future is unknowable and no one can be sure exactly what will happen. Sales soared from zero to an estimated $180 million over 18 to 24 months after an infomercial release at rival Your Baby Can Read. Using its own its historical assumptions of its brick and mortar store sales efforts, cost structures, cost of adverting and distribution, cost of manufacture Brainy's management has created a revenue model for the next three non calendar years of what could reasonably happen. If results, which naturally will be much higher or lower, go according to the revenue model plan, revenues could roughly rise from under $1 million to $9 million for year one, $29 million for year two and $59 million for year three.
Profit margins should be very healthy. Except for variable costs of materials which particularly with the DVD products are extremely low, to the extent that the direct infomercial TV campaign expands, the scalability of costs will remain modest. Staffing will only have to be increased modestly to achieve the annual goals. If anything like $59 million in revenues is achieved, earnings per share would be in the range of $0.33. On a recent price of $1.27 it would be a theoretical P/E ratio of less than 4 and make Brainy Brands a real bargain. Just theorizing, if Brainy Brands commanded at a P/E of only 10 the stock would soar to around $3.30 and at a P/E of 20 about $6.60 for gains for early bird investors of 160% to 420%. At P/E 30, (dare we dream to think that high? Oh, let's have some fun!) the gain would be almost 700%.
If Brainy Brands is that successful, TBBC could get acquired very quickly, just as Baby Einstein was snapped up by Disney. Brainy Brands would fit nicely with Disney or would make an educational toddler entry base for acquisition -minded toy giants Mattel and Hasbro. Clearly the upside is very promising.
But first things first. "Now your brand new infomercial is either going to work or not," said Editor Bob Flaherty to Brainy CEO John Benfield. "If its works, Brainy Brands will be a homerun. I guess the only way you find out is you do it. Right?"
"Yes, sir, Benfield replied.
All aboard! The goal of a Flaherty Special Situation is a gain of 50% to 100% over two years. If management executes its strategic plans, we believe patient investors can achieve a gain of 250% and probably much more if revenues rise dramatically as anticipated. Read on and see if you agree.
History: Because suitable preschool educational DVDs did not exist for his own toddlers, in l995 founder and chief creative officer Dennis Fedoruk used his 15 years of experience filming industrial training videos films and TV commercials to create his own to awaken the brainy baby in his own children to help them learn. After friends and family began asking for copies of the early childhood educational videos he had developed, he formed Small Fry productions which produced the successful Baby's First Impressions series in 1995 out of which grew the Brainy Baby Company in 2000.
"Brainy Baby grew basically as a result of two things-word-of-mouth and direct-to-consumer," says Fedoruk. "We have a large loyal base that continues to buy from us and refers other new parents to us, and the specialty stores, which are absolutely instrumental in sustaining our growth."
Management recently secured sufficient financing to jump start its operations and to cover the costs of its soon-to-be-released-in-mid-June infomercial, which will introduce to multimillions of viewers a series of brand new learning tools for infants, toddlers and preschoolers. Supporting that effort is a recently formed national direct sales effort to sell to brick and mortar specialty stores.
Now, Brainy Brands is a very small company, but it has a globally recognized brand. Its line of multi-language products is licensed in 70 countries and has distribution channels in Asia (including China) and Europe. Its DVDs also are seen via broadcast in more than 110 other countries. Over the last six years the team has generated over $20 million in sales from about six million units in books, DVDs all aimed at awakening the brainy baby founder Fedoruk believes is within every child.
The burning desire to offer a positive more educational alternative to the cartoons or the constant bombardment of explosions of action attacking the senses of toddlers on TV inspired the team to win 77 awards for the family of Brainy Baby products from some of the best known guardians of our children such as Parenting Magazine. Importantly, this newly public enterprise has real proven products. Also its educational products with substance come at an important moment in America. Parents and grandparents are worried by the state and local cutbacks of vitally needed pre kindergarten programs. Here is a company with products to fill the gap by offering a manual and more home involvement opportunities for parents who should (but always are not) a children's first and most important teacher.
Over the years other rivals became much larger. Reacting, Brainy's team raised capital, went public by backing into a shell and became The Brainy Brands Company, Inc. Under a new marketing savvy CEO John Benfield, the team is executing the first integrated strategic marketing plan in its history. Key pieces are its new infomercial, also the creation of a direct selling effort to brick and mortar specialty stores and an ambitious new Brainy Brands licensing strategy.
Brainy has a loyal base of consumers that love the product. Many children used in early testimonials are now graduating from high school and some are giving new testimonials about being good students with great grades. "It is just a loved product which has been out there," says founder Dennis Fedoruk. "We never had the marketing dollars until now and with the infomercial it is a whole new ball game!"
Planting the seeds for The Learning for a Lifetime System
In a world where everything seems to be electronic and you either have to plug it in or install batteries to operate it, parents are continuing to spend significant amounts of money to buy quality educational tools to help their child develop from a very early age the skills necessary to succeed in today's technological world. What's also significant is the fact that grandparents in the U.S. spend billions of dollars annually on their grandchildren and the spending starts early.
Indeed, the number of DVD titles, computer games, electronic toys, animated characters and television programs, which provide preschoolers with educational content, are growing at an unprecedented rate. The preschool market is expected to continue to grow through 2025 and beyond, as more than 4.3 million new babies are born in the U.S. each year. Viewed as an investment or necessity by many parents and grandparents, child brain development products possess the unique characteristics of being recession-resistant. What's more, the trends toward fewer children per household and growth in disposable income will lead to more money being spent on products which parents believe can accelerate the learning potential of their children. So will the frightening recent cutbacks in vitally needed preschool programs by states and localities across the nation.
"We're dealing in education, and unless we have a zero population growth or stop teaching the letters of the alphabet, you're always going to want the best for your child and you're always going to want to educate them," says Dennis Fedoruk, Brainy Brand's founder, chairman, president and chief creative officer. "That's the recession-resistant part of this product line."
Ranked as one of the elite award-winning companies in the preschool educational market niche, Brain Baby has begun to unveil a strategic plan that promises to boost sales and increase its global market share. The company develops, markets, licenses, and sells more than 100 products for children ages 9 months to 5 years, including DVD's, books, toys and games with a focus on making education fun. In mid June , the company is slated to launch a direct-to-consumer infomercial that will introduce its brand new "The Learning for a Lifetime System" of products. The rollout is a large scale (22 markets) two week test which management anticipates will give the results to do the larger rollout, expanding the program exponentially. With successful results to show investors, further funding for Brainy Brands should come easily.
Importantly, for the first time in the company's history, Brainy Brands has formed a national direct sales effort to sell to the brick and mortar specialty stores and to the big box channels. Supporting its marketing efforts is a 2011 product catalog showing very reasonable price points and a globally recognized brand.
In addition to the mid June infomercial launch , the direct brick and mortar store selling push is set to go. After kick off meetings with national distributors, successful sales reps already have selling materials. Samples and lead inventory are on hand. This brand new effort will starting gradually in June build respectably into the yearend holidays.
There is a licensing opportunity to expand nationally and internationally. In June Brainy Brands will start with its first time showing at the Licensing International Expo in Las Vegas, introducing the new branding and all our Brainy's new characters. That explains why the company will also be adding a character component to the covers of its DVDs and to the content of its books. The character component will enhance the potential of the existing products in the licensing arena. But it does not represent a change in its business motto of using live objects and live action which children can relate to in their homes as the best way to teach them."Our mantra from the beginning of the company is still to keep the integrity of the teaching element and the new recent university study," says Benfield.
From its first beginning, Brainy Baby DVDs feature real children and household items rather than animated cartoon characters and stylized objects to teach because it believes toddlers learn best from real people. It also sets Brainy off from most other competitors.
As if management didn't have enough change on its plate, Brainy Brands has a letter of intent to acquire Wumbler Patch Kids which are a complementary effort. Here animated characters deal with real life situations young children encounter, some with ethical choices to make or difficult situations to deal with. If the acquisition is consummated, it could lead to new relationship with a major retailer and also opportunities in children's broadcasting. Wumbler Patch Kids' niche is dealing with characters which teach moral values, something TV for children is sadly lacking.
Scalability Means Healthy Profits
Brainy Brands' business model is actually a marketing operation with basic logistics and in-house created content. It contracts manufacturers to mass produce its line of products and then sells the products to distributors, retailers, and directly to consumers through its website. Because of the way the business model is structured, the company will not require more than a handful of extra people to manage a significant increase in sales. So that means soaring sales should produce soaring profits, but nowhere near the same percentage increases in costs.
Having its first strategic integrated marketing plan is sure to make the enterprise stronger in the future. "If you look at our product line, our catalog and our store facings, we have a real strong branded position and a very clean and unblemished reputation among all the education watchdog groups, preschool groups and teacher groups," says CEO Benfield.
"We're at the high quality end of the space, so what we've done in the last year is taken a leap to really look like a branded broad line and we've expanded beyond just DVDs. By expanding our line and diversifying a bit with an overall look, no matter what you look at you come away with a Brainy Brands perception. That's going to make the difference for us over time. We set a standard and we're prepared to step up and communicate it. The rest of the industry is too fragmented, small or on the wrong page for that message to come through.
"We're already in the top three and we really think we have the wherewithal to just break it wide open," Benfield continues. "It's not like we're way back in the pack and hoping to be discovered. On an awareness basis, we're as well known as Baby Einstein and Baby Genius."
In anticipation of its infomercial launch, Brainy Brands is currently in the process of building its online direct-to-consumer business. Two brand new products were recently introduced through its online operation and, without any marketing effort, the company sold a couple of hundred in just the first two days. Among the countries in which customers purchased the new products are Australia, Great Britain and Russia. "In year one or two, we will probably not exceed 10% to 15% of sales through online, but that's a significant number to the extent we grow the entire business," says Benfield.
In addition to its DVDs, books and flashcards, the company will be introducing a new line of wood puzzles, toys and games. One entry is "Animal Bubbles App." This educational game for toddlers 2 to 4 is based on the popular Brainy Baby Animal Flashcards and Brainy Baby Animals DVDs. By touching the correct animal on the screen, that animal's bubble will "pop" followed by rewarding verbal praise. Over 80 questions keep the game lively and entertaining for hours.
An ingenious cuddly plush Teddy Bear promises to be a hit with both parents and children. Another exciting product still under wraps is a potential game changer to compete for a toddler's affection with today's beloved cartoon characters like the purple Barney, Big Bird or Dora the Explorer.
Brainy Brands will also be bundling its best products with an emphasis on more parent/child engagement. In these stressed times of single parents or workaholic caregivers who let TV be a parent by default, the bundled product will be called "Learning for a Lifetime System." It will include four academic units including reading and math, an enrichment unit (art and music) and a manual of activities for parents and children to work together.
The system will start with a trial and if customers are satisfied roll out with a continuous stream of products and a system sales price of about $195. 95. If Brainy Brands is successful in selling at least one million systems, revenues will be $200 million.
Underscoring Brainy Baby's teaching philosophy is a study that was published in the November 2010 issue of the Journal of Children and Media which showed that the company's educational content reinforces lasting knowledge through its time tested teach and repeat methodology. The peer-reviewed study, entitled "A U.S. Study of Transfer of Learning from Video to Books in Toddlers," demonstrated that children between the ages of 18 and 33 months were better able to identify a unique shape in a book after repeatedly viewing a 10-minute Brainy Baby video. The different results between those viewing the Brainy Baby video and the have-nots are spectacular.
Brainy Baby's reality-based, multi-language product line makes learning fun
In our multi cultural America being bi lingual can be a help and learning new languages appears to be easiest when we are youngest. Brainy Brands develops, markets, licenses, and sells products for children ages 9 months to 5 years, including DVD's, CD's, books, toys, games, puzzles and flash cards with a focus on making education fun. Its products are designed to be stimulating, entertaining and engaging for even the youngest of children. Above all, in this world where the individual is increasingly isolated, the products are meant to be shared between parent and child.
Brainy Baby's DVDs are comprehensive audio/visual programs that introduce logical and creative concepts to the youngest viewers and basics like ABC's, animals and art to preschoolers. The Bilingual Baby series expose young children to different languages like Spanish, French, Greek, German, Italian, Japanese, Russian, Portuguese, Dutch, Swedish and Hebrew. Complimentary products such as books, flashcards and toys are designed to reinforce the concepts introduced in the DVD series.
Brainy Baby's DVDs have won 77 awards including Dr. Toy's Top 100 Best Children's Product, the Dove Foundation's Seal of Approval and Parenting Magazine's Top Videos of the Year, among many other awards.
Viewed in millions of homes both domestically and internationally, Brainy Brands' programs are broadcast in all major U.S. markets. They are the most commonly requested "baby space" content on video on demand. In addition, its DVD's are seen via broadcast in more than 110 other countries.
A creative management team with many years of experience in marketing and audio/visual product development
Dennis Fedoruk, 57, Founder, Chairman, President and Chief Creative Officer, has an extensive background and education in film and cinematography. In his previous company he had created industrial training videos, television commercials and corporate communication media for more than 15 years for such companies as Coca-Cola and Delta Airlines. This enabled his team to produce the 77 award- winning family of Brainy Baby products. The videos he produced in 1995 to awaken the brainy baby in his own children and help them learn were the company's first products. Constant request from friends and family for copies of the early childhood educational videos he had developed for his own toddlers created demand for the product. He quickly recognized an opportunity to fill a need with his creations and launched what has become Brainy Brands in1995.
John Benfield, 60, Chief Executive Officer since September 2010, has more than 30 years of experience in marketing and management. Benfield's career began with the Colgate-Palmolive Company in 1975 where his experience included 3 years in Field Sales and Key Account Management, and 11 years in various brand management and general marketing responsibilities including Category Marketing Manager of Heavy Duty Detergents and Chairman of the Worldwide Heavy Duty Detergent Cost Reduction Task force. When he left Colgate in 1989 he was the Director of New Business for Colgate U.S.
From Colgate, he joined CoActive Marketing Group's privately held predecessor company, R.G. Meadows, Inc., a Top 3 U.S. Promotional Radio and Marketing Firm in 1989 as Executive Vice President of Operations. In 1990 he became Chief Operating Officer. He was named President in 1992 and led the company through an LBO in March of 1995 and brought it public (Nasdaq: CMKG) as its President, Chief Executive Officer and Director in September of 1995. In October of 1996, Benfield was named as Coactive Marketing Group, Inc. Chairman of the Board and remained until 2006. After leaving CoActive Marketing Group in 2006, he joined Technology start up, Next Jump, Inc. In 2008, Benfield cofounded Wall & Madison LLC. He received his BS from the State University of New York and an MBA in Marketing & Business Administration from Adelphi University.
Benfield was instrumental in converting Meadows from a $5 million niche agency into a $100 million business with offices around the country. That experience makes him the perfect person to be at the helm of newly public Brainy Brands as its implements the ambitious first integrated marketing expansion plan in its history.
Ronda Bush, Vice President and Chief Operating Officer, is general operations and finance manager and has been with Brainy Baby for more than 10 years. Bush's extensive hands on involvement in operations from its inception, her knowledge of the intricate details and complexities of the company's 100 stock keeping units (SKUs) and 30 international distributors, uniquely qualified her to be COO. Previously, Bush had her own company Fiscal Integrity where she provided accounting services for a number of small companies.
Jerry Bush, Senior Vice President/Licensing, International and Broadcast, manages both domestic and international licensing, reseller, distribution channels, duplication and broadcast licensing, crafts and negotiates licensing and strategic partner contracts, business plan development and strategic planning for the company and partner relationships. His background includes 25 years of executive sales positions in information systems and capital equipment producing over $100 million in revenue with an array of clinical, financial, laboratory, radiology, computerized patient record and hospital information systems. He sold into healthcare's largest integrated delivery networks as well as CAD/CAM systems into aerospace and architecture in the early 80's for the industry's leading solution providers. With his background in design and manufacturing, Bush was awarded patents for products he developed, one of which is directly related to the infant market.
Carson B. Ashworth, Vice President, National Sales-mass, chain, specialty has over 35 years experience as a sales management professional, including the recruitment, training and organization of national sales teams. He developed a nationwide mall kiosk program for Healthrider Fitness Company, opening 275 kiosk's, increasing sales from $5 million to over $275 million in three-and-a-half years. Ashworth also hired and trained 20 regional managers and developed a kiosk retail sales organization of over 1,200 managers, assistant managers, and sales associates. He was the top producing senior loan officer with a national mortgage company for 10 years managing 25 loan officers and generating in excess of $7.5 million in personal loan origination per month, plus $37.5 million per month from the loan officers' production.
Michele Mooney, Director of Marketing, and plays an integral role in product development, packaging and overall marketing communications for Brainy Baby Brands. With a Bachelor's degree in Business with emphasis on marketing coupled with 10 years of concentrated marketing experience, Mooney has developed a well-diversified skill set including corporate communications, tradeshows, online media, print collateral and other areas that support the various sales channels. She has applied these skills to industries such as building products manufacturing, satellite communications and the toy industry. As the Marketing Director of Oldcastle, a multi-billion dollar building products conglomerate, Mooney managed a marketing budget in excess of $1 million and leveraging economies of scale across all divisions to streamline and closely monitor the presence of the brand in the marketplace. As Creative Director of Echostar Data Networks, a subsidiary of the Dish Network brand, her role was developing and designing the graphical user interface for some of their proprietary B2B elearning platforms.
As the mother of a three year old toddler, she maintains a keen eye for children's products, especially the opportunities and challenges facing today's parents and children. Her little boy often participates by testing Brainy Baby products, giving feedback and even doing modeling for some of the brand's lifestyle shots.
Finance
As an early stage development company, The Brainy Brands Company should start to generate significant revenues as soon as its mid June Infomercial starts. That is because most online customers will use credit cards.
Last Nov. management raised $3 million which carried them into spring. In May Brainy raised half of another needed $1.5 million and expects, after the infomercial launch is successful, to raise the rest. This should carry the company through the August /September period. Sales momentum from the holiday ordering period, the new infomercial, orders being taken for brick and mortar specialty stores and kiosks should get the enterprise into next year. By then, the company should be able to generate enough revenue to finance itself from operations.
Nothing in the future is ever certain but management has created a reasonable revenue model scenario to get Brainy Brands up and running as a successful enterprise.
Brainy's management has created a revenue model for the next three non calendar years of what could reasonably happen. If results, which could be much higher or lower, go according to the revenue model plan, revenues could roughly rise from under $1 million to $9 million for year one, $29 million for year two and $59 million for year three.
Profit margins should be very healthy. Except for variable costs of materials which particularly with the DVD products are extremely low, to the extent that the direct infomercial TV campaign expands, the scalability of costs will remain modest. Staffing will only have to be increased modestly to achieve the goals. If anything like $59 million in revenues is achieved, earnings per share would be in the range of $0.33.
Until May 10th when the stock started trading on the OTC Bulletin Board with over 3.8 million shares changing hands, the company was truly undiscovered.
Competition
The preschool education and entertainment products category continues to attract new entrants as well as new innovative products, and competition is significant. Among the leading factors that a company must possess in order to be competitive in the preschool market are performance, unique features, quality, brand recognition and learning content.
The children's books, toys, games, etc. toy business is over $60 billion and far larger than most would imagine with giants like Disney, Hasbro and Mattel. The baby DVD niche where Brainy Baby started is over $1.4 billion all by itself. In the educational early childhood DVDs, books, games and puzzles in which Brainy Brands competes, Sesame Street, Your Baby Can Read and Baby Einstein dominate the market. Among many other players are Baby Genius, LeapFrog and eebee. Competitors who also might someday be acquirers include toy giants Disney, Hasbro and Mattel.
Risks
Brainy Brands is banking on its upcoming infomercial to ignite significant explosive growth. However, if the TV campaign fails to produce the expected results, Brainy Brands widely recognized brand name will continue to generate sales, but at much slower pace than anticipated. All the theoretical spectacular gains are all "on the come."
Conversely, if the infomercial is wildly successful, Brainy Brands will face a high class problem further down the road. The American Academy of Pediatrics recommends no screen time for children under the age of 2. So does the White House Task Force on Childhood Obesity. In reality children will still watch a lot of TV which is widely known everywhere as "an electronic babysitter." The founder of Brainy Baby believes (and we agree) it is better preschool children view on their screen time, whether it is on computers, TV or iPhone, the healthy educational material his award winning team has created over 15 years than watch noisy cartoons with wild colors or explosions to stimulate the visual senses or even worse in many cases adult programs with sex and violence.
Critics who want a commercial free childhood are sure to disagree. On Brainy Baby's side is that drastic cutbacks in vitally needed state and local pre kindergarten programs is frightening many parents who now may be more receptive to more personal home involvement in educating their pre kindergarten children. Another big plus on Brainy Baby's side is that much of what children experienced in the old world is shifting on the electronic world. A generation ago toddlers were given blocks with ABCs or 123s on them or puzzles with various shapes to learn how to differentiate circles from squares, etc. Now these old standbys are part of what Brainy Brands presents as the package of products making up its new The Learning for a Lifetime System.
Naturally every investor reader should understand that The Brainy Brands Company is a very speculative early stage development enterprise with the potential to generate rich rewards but suitable only those prepared to lose their entire investment.
CONTACT INFORMATION
The Brainy Brands Company, Inc.
460 Brogdon Road, Suite 400
Suwanee, GA 30024
Phone: 678- 762-1100 X 380
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