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First Revenue for Cigarette Company

Posted on: Wednesday, 17 May 2006, 06:07 CDT

By Anne Krishnan, The News & Observer, Raleigh, N.C.

May 17--Wellstone Filters' business is starting to light up.

The Timberlake startup cigarette company recorded its first-ever revenue in the first three months of the year. Company officials say momentum is building for their products, which are now in five markets in the Southeast and on the West Coast.

Wellstone's cigarettes combine 100 percent tobacco with proprietary filters that remove some toxins in the smoke while improving the cigarette's flavor, the company says. The company doesn't market them as safer cigarettes, but highlights taste, smoothness and a discount price as selling points.

Wellstone has six employees in Timberlake, about 20 miles north of Durham, and contracts with the Flue-Cured Tobacco Cooperative for manufacturing in the Person County community. It has 20 full-time employees nationwide.

Customer and retailer acceptance have been encouraging, CEO Jeremiah Hand said. Wellstone is adding stores in Los Angeles at the rate of five to 10 per day. Reorders are coming in, although its local salesperson has been making calls in the Triangle for only about a week.

The company recorded sales of $48,846 in the first quarter and a net loss of $583,450, or a break-even figure per share. In the same quarter last year, Wellstone had a net loss of $5.1 million, mainly because of research and development expenses and stock-based compensation for its lawyer -- Hand's brother -- as well as scientists and consultants.

Still, the fledgling company's financials aren't all sunny.

Wellstone disclosed in a quarterly filing with the Securities and Exchange Commission that its auditor doubts its ability to continue operating as a viable business. The company had assets of $667,510 and liabilities of $2.6 million as of March 31 and said it would seek additional sources of capital by issuing more stock or taking on debt.

Wellstone also disclosed in its annual report that it had made a mistake in the way it accounted for stock and stock options as compensation in one of its SEC filings. As a result, company officials have refiled the document, "implemented an array of internal controls" and hired a full-time staff accountant, Hand said.

"Any time, with any growing company, you learn from your mistakes," he said.

Wellstone shares, which trade on the over-the-counter bulletin boards, fell 1 cent Tuesday to close at 26 cents. The shares are down 41 percent this year.

Wellstone's products hit the market in January, but the National Association of Tobacco Outlets trade show in March was the official debut of the cigarettes, which come in regular, menthol and lighter-tasting versions.

"There were companies that didn't know anything about Wellstone," Hand said. "Now they do."

The company is focusing on regional sales, but it's laying the groundwork for national distribution, as well. Wellstone has received permission from regulators to sell its cigarettes in 42 states and has signed regional and national distributors to sell its products, including JT Davenport & Sons, a Sanford company that supplies 1,700 convenience stores from South Carolina to Maryland.

Wellstone also has salespeople working on a grass-roots level, making calls to convenience stores. "We're going at it from the top down and from the bottom up," Hand said.

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Copyright (c) 2006, The News & Observer, Raleigh, N.C.

Distributed by Knight Ridder/Tribune Business News.

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NASDAQ-OTCBB:WLSF,

Source: The News & Observer

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