Entries by Michael Bigger (148)


Investment Thesis: Crocs and its Inconsistencies

No! This post is not about my Crocs Investment Thesis. The company published a 114 pages Presentation on September 30 containing almost everything you need to know about Crocs ($CROX). Like the classic clog, some people will like $CROX as an investment, others will hate it, and most will remain neutral. I included the presentation at the bottom of this post.

This post is about the inconsistencies I uncovered after attending the Crocs Investor Day. On September 30, $CROX guided Q3 revenues lower by $10MM due to the impact of $4MM in foreign exchange (FX) erosion and $6MM of shipment holds in China.

The company also announced that it bought back $30MM of stock in Q3 compared to $23MM in Q2. Isn't this a bit aggressive considering management had visibility into a reduced performance throughout the quarter? The FX and China issues didn't arise the morning of the Investor Day.

On August 5th, Greg Ribatt, Crocs' CEO, bought $150,000 of stock, increasing his position to 701,087 shares and on August 24th, Andrew Reese, President and COO, purchased $44,000 of stock, increasing his position to 504,523 shares. Ribatt and Reese have been aggressive buyers throughout the year.

It will be a worthwhile pursuit to monitor the stock purchase activities during Q4. Unfortunately, investors will have visibility into repurchase activities only well into 2016. Management might hold back purchasing stock for their own accounts and let the company take advantage of much lower stock prices following the reduced guidance without alerting the market with Insider Form 4 filings. 

Of Interest: Crocs Investor Day - Spring Summer 2016

Michael Bigger. Follow me on Twitter and StockTwits. I own a large position in Crocs since 2009. Take my opinions about the company with a grain of salt.


Crocs 2015 Investor Day Presentation



Crocs Investor Day - Spring Summer 16 Line 

I attended the Crocs Investor Day held in Boston on September 30, 2015. Here are some images of some of the products that will be introduced by Crocs for Spring Summer 2016.

The stock sold off hard on the announcement that the company reduced revenue guidance for Q4 because of FX headwinds and the hold back of $6MM in orders to some suppliers in China.

According to Piper Jaffray, the stock is now dead money in the short run. As far as we are concerned, we believe in the long term potential of the Crocs brand and we are staying put.

Michael Bigger. Follow me on Twitter and StockTwits.










One of our Readers Rants about COSI (Unedited)

Rant of the Day 
I admire RJ's enthusiasm and passion and would much like him to succeed in a turnaround for Cosi but whether or not they survive is dependent on creating a simple, streamlined and fantastic menu with amazing food. It's not about the store refreshes. Foodies are attracted to great food. If Cosi has the courage to focus and clip the menu by another 50% as well as the culinary ability to create one or two additional phenomenal, home run selling items, the company turns around.  If not, it doesn't.  AUVs will change only if the menu changes drastically and new customers arrive and repeat.
This roll out push for coffee and new Beets Bowls? Seriously, that's the reboot?  Reality check: No one gives a rat's ass about Beets Bowls...the masses certainly don't.  Beets to the average customer are a turnoff.  Beets is a word they'd rather not hear.  
To create amazing food you have to spend the money for the vision. Cosi needs to hire a top tier creative chef from fine dining. Grant them stock to create incredible and addictive food. Chipotle hired Nate Appleman a few years back. It was a great hire.
The Cosi message as it is today: "We're a cafeteria!! We sell everything!"  Salads! Soups! Pizza! Bowls! Coffee! Mac and Cheese! Sandwiches! Chili!  Kitchen Sink! Look at our enormous menu!  We magically do everything amazingly well!"  Great except the menu is so huge any one item gets lost in marketing, so the experience is customer potluck and most of it is mediocre and it all takes away from Cosi being able to establish an identity. Now take another step and imagine being a Cosi employee behind the counter trying to navigate that gigantic logistical menu/employee nightmare. Would that be fun to work with everyday?  Paid minimally to prepare and stay on top of 100 different food item combinations? 
Cosi has an identity problem with its (stuck in the 80s) all over the place menu. Too much of it either looks or tastes like cafeteria food or both.  And Cosi has a brand appeal issue.  First thing out of the gate, everyday, Cosi sells a breakfast sandwich which they call a "Squagel". It's a Cosi brand name and the name is a joke. Does Cosi believe 'happening' millennials or anyone else alive in New York City or Chicago or paid Cosi employees want to say the word "Squagel", read it, hear it or even have it anywhere near in their brains every morning?  "Squagel" is a moronic, made up word with an imaginably poor Q Score and is a failed cutesy attempt at 1980s faux branding. It serves no purpose in 2015. And ANYTIME you walk into ANY Cosi you see the "Squagel" on the menu.  Shoot me now or Kill the "Squagel" name yesterday, it's incredibly unappealing.  But outside of that... Hey, great breakfast sandwich!
Cosi needs five go-to dishes that people customers think about and crave while they're not at Cosi. Focus, market and build around the top 20% of sales and drop the bottom 80%.  Get rid of everything that doesn't have the possibility to be a top five item seller.  
Start with the ovens. They are a great and highly underutilized asset. It is a no-brainer for Cosi to utilize their beautiful, focal point COSI OVENS to actually PREPARE the food and bake other things besides that ONE decades old concept bread. Cosi chefs currently look bored and half the time as just standing around. Give them foods to create. Currently, even when a customer asks for a TBM (great but this too could have a better name) sandwich to be heated up, the helper tosses it into a backroom aluminum oven...Really?  Why?  Where is the ceremony in that? Where is the pride? Where is the fun?  Cosi has gorgeous fire ovens. Why let them sit there? USE THEM. Bake other things. Try out different breads.
It's about THE FOOD and it's about THE STAFF.  That's coming from someone who travels for work and eats all over the country ...expensive restaurants and amazing hole in the wall dives. A little homework for RJ: Travel and see who's doing it amazingly well: go spend an hour at Chipotle's new Pizzeria Locale in Kansas City, sit at the counter and watch the chefs at Curate in Asheville, sit at the bar and watch the oven magic done at Mozza in Los Angeles.  Eat from those kitchens. Witness the branding at those places. Watch, learn and borrow from the best. Look at the menus. Look at what the employees are wearing, listen to how the customers are being treated. For RJ, time spent doing this would reward him a thousand-fold.
Once again, the answer is streamline, deliver hospitality, hire a tier one chef from fine dining and create great food. Give the customers a simple list to choose from, remember, talk about and crave. At the same time, make the employees' job easier and Cosi a better place to work at. That's it.
Chipotle gets this.  KISS.  Keep it simple, Stupid.  They are concentrating on what works.  They make it easy for their customers and their employees.  Simple, clean, brilliant. And they have gigantic loyalty. They are doing the same thing with their Asian and pizza concepts they're launching. They're currently opening 200 stores per year. What they are doing is working.
Steve Ells, the CEO of Chipotle, said something great on their last quarterly conference call, "Our clients know what we serve, we keep it simple, there is no need to add items to the menu just to add items to the menu. New items are also a hassle for our employees."  
The latest Chipotle quarterly conference call is worth a listen for anyone interested in restaurants.  RJ should listen to it as well. It's all delivering great food, hospitality, incredible employee morale and keeping it simple:
PS - Tossing the customer carrots in a little white plastic baggie with black letters? Sure, it's healthy but everything about that makes the customer feel like they're back in grade school opening mommy's bag lunch.  It's not professional and comes across as amateur.
PPS - Michael, take a look at this picture of yours from Twitter- it's the panel wall at the Cosi in Plainview. All those framed photos are a metaphor for Cosi's current clutter problem and it's disservice to  employees.  Look at that wall!  Think about it....Who is going to keep that glass and those frames clean, smudge and dust free everyday?  This is an employee headache. Poor design concept. And name one great restaurant that has photos of their food on their wall. Hate food photos.

COSI’s Investment Thesis Unfolding at a Slower Pace

Two weeks ago COSI reported earnings for 2Q 2015. We remain bullish on the turnaround story, and we have been adding to our long position at current prices. But...

Our thesis, which we started building about a year ago, hinges on the ability of the current CEO and former franchisee RJ Dourney to turn around the aging stores and make the company profitable again. You can read our latest, detailed thesis here. With each earnings report, we get information to assess the progress relative to our targets. Key takeaways are as follows: 

  • Revenues are increasing slowly at existing stores, and costs are showing signs of improvements.

  • The store refresh has begun, with 6 stores complete to date. Another 10-20 are targeted for 2H15, with the balance (55 total stores) scheduled by end of 1Q16.

  • Cash may not be sufficient to guarantee management’s claim that no additional capital is needed in the next 12 months.

  • Management remains positive on the results and the progress to date. 

In the 2Q earnings report and conference call, there were a few key points: 

First, top-line revenues were $24mm, a 20% increase over the prior year period ($20mm). The increase represents $5.3mm contribution from Hearthstone, offset by a $1.7mm decrease in revenues from stores closed since last year, plus an increase in revenues from existing stores of about $0.7mm. Revenues are increasing at existing stores, although the pace is not as rapid as we wanted to see. 

Second, COSI recognized positive cash flow at the store level system-wide. Specifically, stores made an average profit of 1.6% of revenues. Diving deeper, here is a breakdown of costs in 2Q 2015 compared to both 2Q 2014 -also positive cash flow without Hearthstone- and sequentially to 1Q 2015 -a dismal performance. We were expecting a much bigger improvement. 


COSI 2Q 2014



COSI 1Q 2015



COSI 2Q 2015










Food Costs



























Gross Profit









  • We note an increase in food costs as a % of revenues relative to last year. We think this represents an increase in the quality of the food, which we hope will translate to customer loyalty and better pricing power down the road. 

  • We see a fairly significant decrease in labor costs, which the team tells us is due partially to an increase in labor efficiency and partially to a decrease in the cost of medical benefits. Our stated target is 30% of revenues, so there is still plenty of room for improvement. We expect this number to decline as labor efficiencies work their way through the system, although we note the potential for risk in this area if New York passes a minimum wage increase. 

  • Headline occupancy costs are slightly higher, although we are told there was a 1.5% decrease in direct occupancy costs, offset by a larger increase in “other” costs lumped in this bucket (including credit card fees and equipment for the coffee program). Our target here is 20%, but we expect much of the improvement to come from spreading these fixed costs over a larger revenue base. 

Turning now to progress on the refresh. 6 stores have been refreshed to date. On the call, RJ explicitly said he is seeing a 10% increase in sales already in those locations, with 40% flow through at a cost of $20k to $150k per store. The plan is to complete another 10 to 20 units by year end, with all stores slated for refresh done by March ‘16. 

There are a lot of moving parts making the forecasting of financials (already always hard to do) even harder. We have Hearthstone impacting total revenue, store count changing, refreshed stores impacting growth, and “non-refresh” organic growth. Since we want to be able to measure progress on a baseline when the 3Q report comes out, we developed the following baseline 3Q numbers:



$mm or %

2014 3Q Revenue, actual:


+ Hearthstone


- Closed Stores


Base Comparison Revenue




% of stores refreshed (6/78):


Growth on Refresh:


Expected Refresh Growth:




Organic Growth:


Expected Organic Growth:




Total Growth:


Total Revenue:





Target 3Q 2015









Food Costs (fixed in %)




Labor (fixed in %)




Occupancy (fixed in $)








Gross Profit





Essentially, we are looking for COSI to be flat to marginally profitable on a four wall basis in the third quarter.

Finally, we turn to liquidity. Key takeaway is that the cash position is good at $13.9mm, but it may not be sufficient. 

  • $13.9mm as of June 30 plus $5 million in restricted cash.

  • $8.4mm cash burn, 3 quarters at current cash burn rates, until end of March which is when RJ said the refresh would be done

  • $3.7mm to refresh all the remaining 49 stores (55 total - 6 done) at $20k to $150k, $75k average

  • That leaves a budget of just $1.8mm for a marketing campaign and or slippage in those forecasts. Without including restricted cash, it is tight. Which means that unless the refresh is sufficient to drive growth of 10% or more they may need to raise capital.

Management remains extremely positive on the outlook for sales and the results of the refresh. I have yet to meet (thankfully) the management team with a negative attitude, but we are cognizant that RJ and team have access to the numbers for the first month and a half of Q3. At this point, we have confidence that the right team is in place. But that being said, here is a timeline of management’s expectations over the last year and a half and the reality:

Cosi’s Statements

  • Spring 2014: “We know how to fix it, we know what needs to be done.”

  • Spring 2015: “Will be cash flow positive by Q4 2015”

  • Spring 2015: “We will implement new streamlined menu Boards”

  • Spring 2015: “New York City refreshes will be completed by second week of July”

  • Summer 2015: “We will not need to raise capital in the next 12 months.”



  • Q2 earnings should have shown improvement at the unit level without the refreshes and without the Hearthstone contribution based on “We know how to fix it”.

  • On the Q2 Call, it became obvious that Cosi won’t be cashflow positive in Q4.

  • New Menu Boards were introduced in May and June but the were overcrowded and very hard to read. New menu boards have arrived on August 18 and they look much better. Finally!

  • We toured the NYC locations during the second week of July and we were disappointed with the refresh cadence in NYC.

  • There is no certainty and we doubt that the performance improvement will be sufficient to cover the cash needed up to the first half of 2016.

While disappointed, we know that this is the nature of a turnaround. It takes time and it is usually much slower than what is represented by management. It is just the way it is. We are happy to participate in the early part of a turnaround because we view our role as an agent for change and welcome our participation in catalyzing the situation. Early participation gives us a front row seat for learning about how management thinks at time zero which is essential to benchmark progress against our thesis.

Now, the ball is clearly in the management team’s court and they must execute. We need to see propagation of the Hearthstone metrics through the entire system in addition to the benefit of the refreshes. It is that simple.

P.S. We welcome COSI's Directors and management recent stock purchases.

Jennifer Galperin. Follow me on Twitter and Stocktwits.

Michael Bigger. Follow me on Twitter and StockTwits


ProMIS Neurosciences, Inc.

 "Harnessing the power of precision medicine to conquer Alzheimer's disease"


This post was written by Michael Bigger in collaboration with Dr. Greg Kenausis. Kenausis' contribution is highlighted by using italics. 














Ticker: PMN.TO

Stock Price (Private Placement): $.03 CDN

Market Cap: $3.54MM

Enterprise Value: $2MM

Debt: None.

NOLs: $28.5MM

Share Count: 153MM

$ symbol is used for USD unless CDN is stated.


ProMISTM Neurosciences, Inc. (PMN, Toronto Stock Exchange), is a development stage biotech company that discovers and develops precision medicine solutions for early detection and effective treatment of neurodegenerative diseases, in particular Alzheimer’s disease (AD) and amyotrophic lateral sclerosis (ALS). A precision medicine solution includes both a drug and a diagnostic to select patients most likely to respond. The market size for drugs to treat Alzheimer’s alone has been estimated at up to $20 billion per year.

The pre-money valuation of the capital infusion into ProMISTM was executed at levels that could result in returns of up to 10 times or even greater given the company's strategic technology and intellectual property. Never in my life have I seen a situation with such enormous potential and catalysts already at work to realize the potential trade at such low valuation.

In the USA, most tech start-ups get funded at valuations much greater than $2MM pre-money for an idea and a team. ProMISTM at a valuation of $1.6MM pre-money not only has a real intellectual property (IP) meeting a real need in the developed world but also a new management team with the experience and knowledge to take the company with its intellectual portfolio to a commercially viable product.

The Science and Intellectual Property (Source: Company and Dr. Kenausis)

The Company’s scientific foundation is centered on the growing knowledge base relating to diseases characterized by the presence of abnormal, misfolded proteins. Numerous diseases exhibit protein misfolding, among them certain cancers, and several neurodegenerative diseases, such as Alzheimer's disease, amyotrophic lateral sclerosis (ALS) and Parkinson’s disease (PD).

Recent published evidence indicates that for a given misfolded protein there exist multiple prion-like strains, each strain representing a specific target against which therapeutics can be developed. Accordingly, as its primary objective, the Company will focus on the discovery and development of precision therapeutics supported by companion diagnostics directed against the several strains of beta-amyloid (Aβ) in Alzheimer’s.

Historically, Alzheimer’s disease (AD) has been a frustratingly stubborn pathology for modern medicine to tackle. It is already a huge market and demographic trends indicate strong growth ahead for that market. To date, no genuinely effective therapies have been developed. The difficulties start with merely diagnosing that a patient has the disease. Until not too long ago, it was necessary to conduct a post mortem histological examination of brain tissue to confirm for certain whether a patient had AD. Of late, some progress has been made on this front, but physicians still need to conduct an array of evaluations, many of which are inevitably prone to reporting, analysis and interpretation error (e.g. family history, cognitive testing, etc.). Some advances have also been made recently involving the use of MRI and PET for AD diagnosis, but these techniques remain developmental and early-stage. The point is that diagnosing the presence and type of AD remains indirect and tricky.

In AD patients, certain proteins found in brain cells (i.e. beta amyloid and tau proteins) form unusual aggregates, and they have long been known as symptoms and potentially agents of AD. The presence of these malfunctioning proteins is an indicator of AD and would therefore be a useful target for a diagnostic application as well as for therapeutic applications. 

Why is a diagnostic of AD so important for developing successful therapies? 

For one thing, without effective diagnostics of AD, it obviously becomes very difficult to prove any novel treatment approach because ill-defined clinical study patient populations will invariably obfuscate any effect that a therapy may or may not have. Furthermore, AD may turn out to consist of an array of different types of the disease, like cancer, with each type responding optimally to different therapies. In any case, the development of a successful diagnostic would likely greatly facilitate the development an optimal target for potential therapies. 

The pharma industry has been attempting to target these errant proteins in hopes of stopping the disease progression or even reversing it. Big pharmaceutical companies like Roche, Pfizer, Eli Lilly and Johnson and Johnson did their best to come up with treatments based on an immunotherapy approach. That is, they developed antibodies or antibody-like molecules that, once administered, would help to destroy and clear these errant proteins. Until late last year, all clinical trials failed. However, at the end of last year, Biogen finally showed that such a therapeutic approach can produce a sizable benefit to AD patients. 

A gold rush is now underway to develop the most effective antibodies that would target these errant proteins, particularly beta amyloid. This is where ProMISTM Neurosciences with its proprietary ProMISTM technology has a big opportunity. ProMISTM is a statistical thermodynamic algorithm that predicts how proteins degenerate into their diseased (misfolded) forms and thereby provides a model of all the potential target regions of the protein (i.e. epitopes) against which an antibody can be designed and produced. This approach would allow to develop a specific therapeutic antibody and its related companion diagnostic, i.e. a precision medicine solution. 

The ProMISTM technology works and has been validated previously on many cancer types and neurodegenerative diseases such as Creutzfeldt-Jakob disease. Of course, ProMISTM is not the only method of identifying epitopes, and the race to find such AD epitopes is very competitive and includes many pharma companies with formidable resources at their disposal. ProMISTM does however appear to have the advantage of being a theoretical and rational approach to epitope identification while almost all other approaches are more trial-and-error/hit-or-miss. 

Based primarily on the research discoveries in Dr. Cashman’s lab, the Company has exclusive access to critical IP and proprietary know-how in the field. The Company’s patent estate consists of eight patent families issued or pending. ProMISTM utilizes its computational discovery platform, ProMIS, to predict novel targets known as Disease Specific Epitopes (DSEs) on the molecular surface of misfolded proteins. ProMISTM owns the exclusive rights to the Genus patent relating to misfolded SOD1 in ALS, and currently has a preclinical monoclonal antibody therapeutic directed against this target. 

In addition, Dr. Cashman’s lab just received a $1MM CDN grant for new discoveries which could augment the value of ProMISTM intellectual property portfolio without diluting shareholders. 

History, Re-Launch, New Strategic Direction (Source: management) 

ProMISTM was an unfocused company under the tutelage of the last CEO. While building a very valuable portfolio of intellectual property since becoming public in 2008, the company ran out of cash in 2015. 

In July 2015, a new management team came on board, the company successfully raised US $2.0MM, and the Board was reconstituted. 

The three-member senior management team includes Dr. Neil Cashman, the Company’s current Chief Scientific Officer. In addition, two pharmaceutical industry veterans and biotech entrepreneurs, with over 60 years’ cumulative experience in key aspects of drug development and commercialization have joined the team: Eugene Williams as Executive Chairman and Dr. Elliot Goldstein as Chief Executive Officer. 

I had several discussions with the management team and I am very impressed by their candor and their vision for ProMISTM. I furthermore take confidence in the commitment of the Board to represent what is best for shareholders based on the relationship formed through previous experience in similar situations with Director Johannes Minho Roth. 

The Investment Case 

The near term investment case for ProMISTM really relies on the company successfully securing the rights to AD epitopes that it discovers. With such IP, the company or just its epitope related IP would likely be a very desirable and strategically important acquisition target of many big pharma companies. Ideally, a bidding war would erupt driving the valuation to levels orders of magnitude greater than where it stands today. The time frame for this to develop would likely be in the range of one to three years if all goes well. 


ProMISTM is an early stage biotech company. The risk that the company doesn't deliver on its opportunity is highly elevated. The stock could very well trade to zero. 

The company will require a significant amount of capital to cross the finish line. The ProMIS team must achieve significant accomplishments along the way and management must communicate its vision in a narrative that keeps investors excited about the opportunity for further investment. 

Michael Bigger. Follow me on Twitter and StockTwits.

Disclaimer: Bigger Capital and related entities are long 14.3MM shares of PMN. ProMIS is in a re-launch mode and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. Take our opinions with a grain of salt. If you find yourself relying on our views to make an investment decision it means you definitely did not do your homework about this situation. Please do not rely on our views, instead use the information as a jumping off point to begin your own independent due diligence. 


Amorfix investor acquires 12.27 million company shares

2015-07-07 19:18 ET - News Release

Mr. Michael Bigger reports


Michael Bigger has acquired, through a private placement offering with Amorfix Life Sciences Ltd., beneficial ownership, control and direction over 6,136,250 common shares of Amorfix and control and direction over an additional 6,136,250 common shares of Amorfix, at a price of three cents per acquired share, representing approximately 10.3 per cent of the issued and outstanding common shares, on a partially diluted basis, of Amorfix.

After giving effect to the private placement transaction, Mr. Bigger beneficially owns, controls or directs, directly and indirectly, 12,272,500 common shares of Amorfix, representing approximately 10.3 per cent of the issued and outstanding common shares, on a partially diluted basis, of Amorfix.

The acquired shares were acquired for investment purposes. Mr. Bigger may dispose of his holdings or acquire ownership of, or control or direction over, additional securities of Amorfix, depending on market conditions and in compliance with applicable law. The acquired shares were acquired pursuant to Section 2.3 of National Instrument 45-106 (prospectus exemptions) as the subscribers satisfy the definition of accredited investors under securities legislation.

The issuance of this news release is not an admission that an entity named in this news release owns or controls any described securities or is a joint actor with another named entity. A report with respect to the acquisition of the acquired shares will be electronically filed and will be available for viewing through the Internet at the Canadian System for Electronic Document Analysis and Retrieval.



COSI Conference Call Notes 5/14/2015

Some notes from the call: 

  • Refreshes will be completed by 2016 Q1.
  • 3 components to refreshes: Physical, efficiencies, Hearthstone leverage.
  • Early indication...double digit comp growth after a full refresh.
  • Hearthstone merger will contribute $2.4mm in incremental cash flow to COSI in 2015.
  • They will remodel 55 of the 64 stores.
  • Cash flow + target in Q4 2014 intact.
  • Fully diluted # shares 47.805399mm shares.
  • No more capital raise needed.
  • Menu refresh should be complete by end of May. 
  • Menu count should drop by 25%.
  • From that base they will experiment with new additions and substractions.
  • New entrants into fast casual space not causing real concerns because fast casual is such a small piece of the overall pie however it makes acquiring real estate much harder.
  • Both traffic and average check size increased in the first quarter.
  • All three cost categories (food, labor, and occupancy) went up in the first quarter.  This is disappointing.  We have written about the need to cut labor and occupancy costs, and we are looking for signs that these costs are turning.  RJ indicated that this is happening in Q2.
  • RJ is getting things in place that have been long neglected: Management team, technology.

Of interest: Cosi Investment Thesis

Jennifer Galperin. Follow me on Twitter and Stocktwits.

Michael Bigger. Follow me on Twitter and StockTwits


Updated Investment Thesis: Cosi

This post was amended on May 5th, 2015 to correct a mistake we made about the level of Hearthstone indebtness on the acquisition date. We increased the amount of debt by about $6 million. 

Price: $2.72 (4/14/2015)

Enterprise Value: $107mm

Debt: $12.6mm

Cash: $29.3mm calculated as:

  • $21.6mm on the balance sheet as of 12/29/14

  • + $10.8mm ($15.5mm Cash Proceeds from Secondary, less $4.7mm Debt Paydown)

  • - $3 mm burned in Q1

Shares Outstanding: 47.8mm


cosi chart 4 15 2015.gif



  • We project a goal of $14.5mm in annualized EBITDA in the medium term based on improved revenues and gross margins.  

  • We believe COSI has medium-term upside to $4.30.  The stock price could get to $6.27 using metrics closer to the Hearthstone metrics for the overall system.  



COSI Restaurants is a brand that resonates with many busy office workers in cities like New York and Boston.  The food is good, the bread is fresh, and it smells fantastic.  But management has struggled to grow the company profitably, and the stock has declined dramatically since its peak of about $45 in 2006.  We have been following the company for quite a while, looking for an opportunity when a turnaround might be imminent.  

We first started blogging about COSI in June of last year, shortly after RJ Dourney took over as CEO in March of 2014. It took no time to convince ourselves we were on to something and we started buying the stock at about $1.10 and have since increased our position at much higher prices.

RJ is a veteran of the restaurant industry with experience growing Applebees and Chili’s, and turning around Au Bon Pain.  Dourney began his relationship with COSI in 2005 as a franchisee and quickly developed a formula for operating his restaurants successfully.  His company, Hearthstone, grew from 5 to 13 profitable locations in and around Boston by 2014. This is quite an accomplishment since the parent company has accumulated more than $300mm in net negative earnings over its lifetime.  So when Dourney took the reins at COSI, we knew we needed to meet him.  After literally stumbling and breaking my leg, I finally organized the trip in August 2014, the day after Janus bought 20% of the company.  We think RJ is the right leader to turnaround the fortunes of COSI at the corporate level and turn it into the next PNRA or CMG.  With Janus on the shareholder list, our conviction got even stronger.


Cosi operates in the fast casual dining market. This is a great space for two reasons.  First, fast casual is a growing area filling the void between low-quality fast food and higher quality restaurants that require a full hour for lunch.  At Cosi (and competitors Panera and Chipolte, to name a few), customers can get a delicious lunch in just a few minutes. Second, Americans are moving toward high-quality, healthy food. Cosi makes all its bread in-store, which means the bread contains simple ingredients and tastes fresh.  Most people could eat at Cosi almost 5 days a week due to the large variety of healthy menu options.  Check out this video to see what we mean: youtu.be/-A0eG0s2x9Q.  

So, we establish that Cosi has a great brand with an experienced, motivated management team in place and a business model that is proven in Boston.  The task ahead is to implement the model system-wide and, once the company is profitable, to gain operational leverage by expanding the number of restaurants.  

Financials - Updated as of 12/29/2014 - 10K Filing

COSI has 64 company-owned locations (58%) and 47 franchises locations, for a total of 111 restaurants.  Here is a breakdown of revenues and costs for the company-owned stores:


Cosi 2014

Cosi 2013

Cosi 2012


% of revenues


% of revenues


% of revenues





Food Costs





















Gross Profit








A few things are interesting about the numbers, and in particular the trends.  To state the obvious, revenues have been declining.  In our view, this is merely a statement of the problem.  Poor management and limited capital investment have led to significant deterioration of the culture, physical stores and brand image.  

In addition, COSI has steadily been closing stores.  COSI began 2012 with 80 company-owned stores.  By the beginning of 2013, that was 75 stores, and by the beginning of 2014 just 70 stores.  At the end of 2014 there were only 64 company-owned stores, or 80% of the January 2012 store count.  So a 21% decrease in company-owned store revenue is not surprising given the 20% decrease in store count.  But we think there is a ton of potential to increase improve the culture at the employee level, refresh the stores, and restore what is truly a great brand.   

When Dourney took over Au Bon pain in 2000 the AUV was $1.1mm and 5 years later it reached $1.7million. In our previous post, we discussed how each of RJ’s Boston franchise stores are generating about $1.75mm in AUV.  Currently the company-owned stores are generating about $1.2mm in AUV.  If he and his team can successfully implement the Hearthstone formula system-wide, even at $1.6mm AUV * 64 company-owned restaurants =  $102mm in top-line revenues.  We don’t expect this to happen overnight, but with patience we expect current Cosi restaurants to reach this goal.  Add to that the 15 Hearthstone restaurants, of which 13 are standalone locations (2 are kiosks) at current $1.75mm AUV per standalone location for a contribution of $23mm to top-line.  So total potential of $125mm revenue from company stores system-wide. Moving over to the costs, we see an increase in all 3 cost categories as a percentage of sales from 2012 to 2014.  Food Costs, Labor Costs, and Occupancy cost (in %) all increased during the time period.  In order to be profitable, these costs will need to decrease as a percent of revenues.  Now, 2014 really was a transitional year for COSI.  RJ Dourney made a lot of changes to the team, culture, and systems.  Change is never without friction, so we expect costs to go up temporarily as part of the transition.  Based on RJ’s comments in presentations and earnings calls, it seems he feels much better positioned in early 2015 for success.  So we will be very focused on the cost components to see if we start to see an inflection point where they start to move down.  

In our previous post, we discussed our medium- to long-term targets for each of these cost categories in percentage terms and our reasoning behind those targets.  We think food costs should come down slightly to 25% of revenues, labor costs can come down significantly to 30%, and occupancy costs can also come down significantly to 25%.  

So the goal is set at $125mm in revenue from company-owned stores on current store count with the following cost breakdown:  



% of revenues



Food Costs









Gross Profit










For comparison, Hearthstone generated 16% of economic EBITDA margin (grossed up for the franchise fee) in 2014, making our 10% EBITDA margins quite conservative.  Even our most aggressive best-case margin assumption of 12% is conservative relative to the Hearthstone TTM numbers.

Cash and Capitalization

One of the biggest issues facing turnaround candidate companies is cash flow.  Change costs money, and companies with negative cash flow are typically tight on cash.  While management has implemented many changes, there is still substantial work to be done in terms of improving and updating the look of the restaurants.  These improvements will cost money.  In 2014, the team successfully raised over $25mm in debt and equity capital.  As a result, the company had over $21mm in cash on the balance sheet as of year end.

  • On May 20, the company placed a $2.5mm note with AB Opportunity Fund and AB Value Partners.  

  • On August 19, COSI issued equity in a $4.5mm private placement transaction to Janus and an existing shareholder.

  • On December 12, the company completed a rights offering that raised $19.7mm from existing shareholders.

When we wrote our original thesis back last June, we believed that additional capital was needed for COSI to clean up its act outside Boston.  Clearly management agreed.

Hearthstone Acquisition

On April 1, 2015, COSI announced completion of the acquisition of RJ Dourney’s company, Hearthstone Associates.  The merger was originally discussed as part of his sign-on package.  The owners of Hearthstone (RJ, his wife, and CFO Richard Bagge) get a total of 1.79mm shares of COSI in exchange for Hearthstone, plus COSI assumes $10.7mm in Hearthstone debt.  

On April 10, the company raised $15.5mm of cash via an equity private placement.  The company used $4.7mm of the proceeds to pay down debt acquired in connection with the acquisition, for a net raise $10.8mm. We participated in this round.

We believe the acquisition serves to align RJ’s interests with shareholders, as RJ is trading his interest in a cashflow positive private company with a smaller share in a much riskier cashflow negative COSI corporate entity.  With 10 years experience with COSI as a franchisee and a long career in the chain / franchise restaurant industry, he is in a good position to evaluate the risks.  His decision was to take the opportunity. This gives us comfort with our long position. 

Balance Sheet

As of the 12/29/14 B/S, the company had $21.6mm in cash on the balance sheet and $6.6mm in debt.  In early April 2015, the acquisition of Hearthstone closed and the company raised over $15mm in new capital. Here is how we believe the balance sheet will look: 


Balance Sheet, $ in thousands




Projected 3/31/15

Pro-Forma for Hearthstone & Equity Issuance



















Other Current






Total CA












Other LA






Total LA






Total Assets












Accrued Exp






Current Portion






Total SL






Long-term Debt






Deferred Franchise Revenue






Other LL






Total LL






Common Stock












Treasury Stock






Retained Earnings






Total E






Total L+E






Shares Out (mm)





Notably, there is cash available for the capital improvements we know are necessary.  


Pulling it all together, we take our medium-term target numbers:

Restaurant Net Sales: $125mm

Gross profit margin: 20%

Gross Profit from Company-Owned Stores: $25mm

Franchise Revenue: $2.0mm ($2.8mm less $0.8mm from Hearthstone)

Total Gross Profit: $27mm

General & Administrative Expenses: $12.5mm

Projected EBITDA: $14.5mm

Competition’s EV/EBITDA multiples are at 11x for PNRA and 28x for CMG. If we use a conservative EV/EBITDA multiple of 10x, you get an EV of $145mm for the combined entity.  Total debt: $12.6mm      

Total Cash: $29.3mm

Market cap = EV - Debt + Cash: $161.7mm.  

NOL’s of $225mm: $44mm (Assuming 50% haircut to valuation)

Total Value: $206mm

Shares Outstanding 47.8mm   

Stock price of $4.30 with reasonable / conservative assumptions.  And that is without expanding store count at all.

Boundary Condition Valuation:

We have made some conservative assumptions.  Let’s now push it to the limit and see what the valuation looks like if RJ can get the rest of COSI to look exactly like Hearthstone in terms of AUV and EBITDA margin:

Restaurant Net Sales @ $1.75mm AUV: $135mm

EBITDA Margin: 12%

EBITDA from Company-Owned Stores: $16.2mm

Franchise Revenue @ $1.75mm AUV: $3.4mm

Total EBITDA: $19.5mm

EV @ 10x EV/EBITDA Ratio: $195mm

Total Debt: $12.6mm

Total Cash: $29.3mm

Market cap = EV - Debt + Cash: $212mm

NOL’s of $225mm (no haircut): $88mm

Total Value: $300mm

Shares Outstanding 47.8mm

Stock Price (incl. NOL’s): $6.27

So it is theoretically possible for the stock to get to $6.27 without any expansion of store count.

How Big Can Cosi Become?

Now let’s talk about growing store count.  This is the fun part of the analysis because we get a glimpse into the long-term potential for the company.

Now, the first priority for RJ and team is to get the current store base in order, and get to both the revenue and EBITDA margins goals we discuss above.  But in the long-term, there is huge potential for growth.  Cosi has 111 stores currently with a mix of 70% company-owned / 30% franchise post-Hearthstone acquisition.  Panera has 1810 locations with a mix of 50% company-owned stores and 50% franchise locations as of July 2014.  RJ believes there are about 2000 potential locations nationwide.  So long-term, with a profitable operating model at the store level, there is significant room for expansion in terms of store count.  

Even with 10x = 1110 total stores and the current 70/30 split between company-owned and franchise, the company could be worth a multiple of our projected numbers.  It is going to take time and capital to get there, but the team is already laying the groundwork for this type of success.

We think the Cosi team will focus on implementing the Boston processes throughout the organization over the next year. Once all of Cosi is ready to serve up an amazing experience, we believe RJ will press the pedal to the metal from a public relations and marketing standpoint.


As you can see, we believe there is tremendous opportunity in COSI if RJ and team can right the ship and get it headed in the correct direction.  Based on our meetings and discussions with management, we feel confident in their ability to do so.

We exercised our rights to purchase shares in the December rights offering, and we participated in the April 2015 deal.  

Of interest: New CEO Lights a Fire in the Ovens at Cosi 

Jennifer Galperin. Follow me on Twitter and Stocktwits.

Michael Bigger. Follow me on Twitter and StockTwits

Disclaimer: Bigger Capital and related entities are long a sizable position in COSI. COSI is in a turnaround mode and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. Take our opinions with a grain of salt. If you find yourself relying on our views to make an investment decision it means you definitely did not do your homework about this situation.


RMG Networks Investment Thesis


Stock Price: $1.50 (Deal Price $1)

Shares Outstanding (Assuming Conversion): 37.2mm

Market Cap: $56mm

Debt: $2.2mm

Cash: $14.7mm + $5.5mm for Media Biz

EV: $38mm (includes $5.5mm for the sales of the media business and no allocation for Q4 and Q1 cash burn)

Sales: About $62mm on a TTM basis. $46 mm not including media business.



  • Stock price down about 90% in about 18 months.  

  • Impressive customer list including 70 of the Fortune 100 and about half of the S&P500.

  • New, experienced, motivated CEO.

  • Earnings Power = 15% EBITDA margin

  • Debt significantly reduced due to recent equity financing.


Investment Thesis

RMG Networks (RMGN) operates in two distinct segments, Media and Enterprise Software .  In Media, they focus on the airline seatback content delivery space.  In Enterprise Software, RMG provides video tools for production analytics and internal communications for corporate uses in 5 distinct sectors.  RMG’s impressive Enterprise Software customer list includes 70 of the Fortune 100 companies, and about 70 percent of the S&P 500.  

Roth Capital Partners recently introduced us to Bob Michelson, the President and CEO of RMG Networks. Michelson took over as CEO in the summer of 2014.  He has a background in operations and strategy for Sterling Capital Partners, and came on board to return the company to profitability and growth.  As an aside, we know Sterling from a previous investment in Select Comfort (SCSS) in 2009. We rode SCSS from $.90 to $24 in just a few years (Article). Needless to say, we are impressed by how Sterling transformed SCSS. Michelson could transform RMGN into a real winner for us.

Michelson quickly identified several issues that he believes contributed to the company’s losses.  For each, he devised a solution that could be implemented quickly.  

First, he feels the Enterprise Software division lacks focus.  He identified 3 of the 5 operating sectors to focus on, and essentially eliminated the remaining 2 non-core sectors.  Michelson  will focus on 1) Supply Chain,  2) Call Centers, and 3) Internal Communications.  He eliminated the Retail and Hospitality sectors, although he plans to continue to service existing customers in these areas.  

Second, Michelson felt RMG had not delivered innovation to its customers which degraded the salesforce narrative.  Specifically, RMG had introduced zero new products to the market in 3 years.  He challenged the company to roll out 6 new products in 6 months, by generalizing some of their best one-time customer solutions.  To date he has rolled out 3 products in 3 months, including software to facilitate office hoteling.

His other turnaround solutions included rethinking the global expansion strategy, developing a new marketing strategy focusing on the value proposition of the key products, and improving the sales leadership structure. In addition, on March 19th, RMG disclosed that it signed a non-binding letter of intent to sell its media business for $5.5mm.

Strategically, RMG is moving Enterprise Software more towards a Software-As-A-Service (SAAS) model and away from the traditional licence purchase model.  While revenues may experience a decline during the transition, we feel the move will improve the sales experience and provide more smooth, consistent revenues for RMG.

In 2014, the company recorded total revenues of $61.8mm (including $14.8mm from the media business). RMG plans to be cashflow positive by the third quarter of 2015 through implementation of the turnaround initiatives.  According to Michelson, the supply chain business has the most near-term opportunity for revenue growth.  That business line generated less than $1mm of the total 2014 revenue, but the current pipeline in this channel is $8mm and the potential for this market is in the range of $50mm / year medium-term.  

If Michelson and team can successfully execute on his turnaround initiatives, a rough income statement looks something like this on an annual basis, medium-term (2-3 years out):

Revenue: $100mm ($50mm current from call centers + $50mm potential from supply chain)

EBITDA: $15mm (15% margin) (source: management)

EV @ 10x EBITDA: $150mm

Debt: $0

NOL’s Valued at: $10mm ($30mm of NOL’s valued conservatively at $10mm)

Total Value: $160mm

Shares Out: 37.2mm

Share Price: $4.30

If Michelson and team can increase call center revenues beyond the 2014 numbers, there is additional upside in our projections.  

On March 9, RMG announced that it expects sequential adjusted revenue growth to exceed 30% in the fourth quarter with stable adjusted gross margin and improved adjusted EBITDA. Michelson is already making a big impact.

On March 25, the company announced a new financing which goes a long way in shoring up RMG’s balance sheet and eliminating its debt.  We are happy to participate in the deal.

Overall, we are very excited about the opportunity to invest in a cheap company with an impressive client list including 70% of the Fortune 100.  We think there is tremendous upside potential.  While there is downside risk, we think the stock price is at a level where the risk / reward analysis is quite favorable.

Written by Jennifer Galperin and Michael Bigger.

Disclaimer: Bigger Capital and Bachelier, LLC are participating in the preferred shares transaction. RMGN is a highly distressed situation and it is not suitable for the majority of investors. The likely outcome of an investment is a loss of principal. In other words, the probability of losing all your investment in this situation is very high. 




Notes That As a Result Of Interest Payments In Stock, Possible Charney Default And Lender Status, Standard General Has Every Incentive To Hold Out On a Sale Of The Company

Cautions against Standard General-Dominated Board Failing to Capitalize on Acquisition Interest in American Apparel Contrary to the Best Interests of ALL Shareholders

New York, NY – January 23, 2015 – Bigger Capital Fund, LP, Bachelier, LLC and the Bigger Family, significant shareholders since 2011 of American Apparel, Inc. (NYSE: APP) (“American Apparel” or the “Company”), today announced that they have delivered a letter to American Apparel’s Board of Directors.  The full text of the letter is included below: 


January 23, 2015

Board of Directors

American Apparel, Inc.

747 Warehouse Street

Los Angeles, California 90021

Dear Members of the Board of American Apparel:

The Bigger Capital Fund, LP, Bachelier, LLC and the Bigger Family (together, “Bigger Capital”) is a significant shareholder of American Apparel, Inc. (NYSE: APP) (“American Apparel” or the “Company”).  We are a long-term investor in the Company and we have followed closely and with great concern the haphazard developments at American Apparel over the past years  and the loss of value that has resulted from them.  We write to you today to register our grave concerns over the serious conflicts of interest between Standard General L.P. (“Standard General”) on the one hand, and the rest of the American Apparel shareholders, on the other, which given Standard General’s de facto control in the boardroom may cause the Company’s Board of Directors (the “Board”) to make decisions that are contrary to the best interests of all American Apparel shareholders. 

In July, Standard General negotiated the right to replace five of the seven directors on the Board with three of its own designees and two designees mutually agreed upon by Standard General and the Company under a Nomination, Standstill and Support Agreement, dated as of July 9, 2014, between Standard General, Dov Charney and the Company (the “Agreement”).  This Board composition arrangement gives disproportionate power to Standard General and for all practical purposes, effective control over critical decisions for the Company and all its shareholders.

Moreover, according to public filings, Standard General owns 1,540,000 shares of American Apparel and has a security interest in an additional 74,560,813 shares owned by Dov Charney pursuant to their agreement dated June 25, 2014 (the “Charney Agreement”).  Under the Charney Agreement, Standard General purchased 27,351,407 shares of American Apparel and then sold them to Mr. Charney after providing him with a loan to purchase such shares, which bears an interest rate at 10% per annum, payable to Standard General in American Apparel shares.

In short, the Charney Agreement is structured so that with the passage of time, Standard General’s ownership position increases from the interest payments in shares and in the event of a default by Dov Charney, Standard General will become entitled to receive another sizable chunk of American Apparel shares pledged under the Charney Agreement.  Given Mr. Charney’s recent comments in the media that he is down to his last $100,000 a default appear quite possible if not likely.  As a result, the Charney Agreement creates every incentive for Standard General to resist any sale of the Company regardless of the price offered at least until Standard General has collected the full benefits of its deal with Dov Charney.  Needless to say, it does not appear that Standard General will be a very motivated seller.

While Standard General has no interest to sell out, not so for the rest of American Apparel’s embattled shareholders.  Most of us who have remained invested in the stock over the long-term have seen our stakes diminish dramatically in value with the tumultuous events over the past year or so.  Uncertainty about the Company’s leadership and strategic direction as well as questions about American Apparel’s prospects as a standalone business have significantly depressed the Company’s stock price.  This undervaluation has made American Apparel a very attractive acquisition target.  For example, as reported on December 18, 2014, Irving Place Capital approached American Apparel regarding a potential transaction valuing the Company at as much as $1.40 per share, a 103% premium from the previous day’s closing price of $0.69, causing American Apparel shares to soar nearly 45%.  We believe other interested potential acquirors may emerge as well.  It is clear to us, that the timing is right to capitalize on the acquisition interest in American Apparel and pursue a value-maximizing transaction to unlock value for shareholders.

Not only are the interests of Standard General in conflict with those of the other shareholders in terms of the upside to a prompt sale of the Company, but also Standard General does not face the same downside from missing value-maximizing opportunities as other shareholder do.  Standard General is also a lender to the Company. On July 16, 2014, Lion/Hollywood L.L.C. (“Lion”) assigned its rights and obligations as a lender under its Credit Agreement, dated as of May 22, 2013 with the Company to Standard General. As disclosed in the Company’s Quarterly Report filed on November 10, 2014, nearly $9.9 million was outstanding under the Credit Agreement as of September 30, 2014.  This means that even if the stock were to become worthless, Standard General will have the right to be repaid its loan in any liquidation or similar proceeding.  This effectively caps Standard General’s downside risk from the loss of value of American Apparel’s stock.

These conflicting interests between Standard General and the other American Apparel shareholders put the Standard General-dominated Board in a delicate position but with only one responsible course of action.  The Standard General-dominated Board must comply with its fiduciary duty to serve the bests interests of all shareholders and must resist the temptation to do what is best for Standard General alone to the detriment of other shareholders.  The coming days will be the true test to the Board’s fulfillment of its duties.

We will also closely monitor Standard General for any attempt to inappropriately interfere with the governance of American Apparel to extract unique benefits for itself that other shareholders do not share.  As a de facto controlling shareholder, Standard General, too, has important duties and responsibilities to the minority shareholders.  Bigger Capital has every intention of remaining alert and focused on the actions of the American Apparel’s Board, Standard General and its representatives on the Board and will consider all actions it deems necessary to protect the interests of the minority shareholders of American Apparel.



Michael Bigger

Bigger Capital Fund, LP

Bachelier, LLC