July 21, 1999 Investor Update
HouseHold Direct.com, Inc. (OTCBB: BYIT)
From: John Folger, President,
This memo is in response to the questions posed recently regarding the registration of restricted shares by Corporate Management, and other matters.
Restricted Share Registration - - Last week, Ann Jameson and I filed the required documents in order to lift the restriction on 1.6 million shares of our personal holdings of HouseHold Direct.com common stock (BYIT). This process was the first step in the event we may be required to provide additional capital to the Company. The stock would be loaned to the Company and the use of any proceeds will, if needed, be designated as corporate working capital, with the possible exception of any personal tax liability in the case of any sales.
This procedure is necessary because restricted BB stock is not useful for most loan collateral, and this is the most likely scenario. If it became required, some portion of the stock may be made available for possible sale, which at these prices we would be reluctant to allow.
The proceeds from any loans or sale would be used in the case of any shortfall or delay encountered by the Company during the next stage of the funding process. A delay or shortfall at this time would have, in our view, a much higher negative impact on the Company than the possibility of using our personal shares in this manner. As long term investors, we have been contributing capital and time, and we see this as a continuation of that process.
If any of the stock were to be sold in order to provide additional corporate liquidity, it would be accomplished over time, so as not to negatively effect the stock price. This would mean a sales rate of about 10-20,000 shares per day out of an average volume of 164,000 daily. If any sales were required, it would be in our interest, as well as our shareholders, to sell the smallest amount possible.
We are reserving the right to use our shares to benefit the Company, but will maintain our rights not to pledge or sell any of them if the funding terms and timing do not require that we do so. We are merely preparing for the possibility.
Continuing Financing, Auditing and Reporting Activities - - The negotiation for the next phases of funding for HouseHold Direct.com has resulted in a series of options for the staged completion of the acquisitions, as well as the continuing development and evolution of the Internet portal and e-commerce web site. These options include debt, equity and accounts receivable financing. We are now hoping to immediatly finalize an advance of $300,000 against a bridge of $5 million.
In broad terms, the Company is planning to conclude this bridge financing of up to $5 million dollars, which would be used to conclude some, or all, of the acquisitions presently under contract. Once these funds have been placed, and while the effective acquisition closings are underway, the Company will be required to complete the audits on the acquisitions. In addition, the audits for HouseHold Direct.com will be completed and are a more simple matter, in that the financial accounting relates to a development stage company with very small accounts receivable or payable. The audits of the financial affairs are merely the inflows and outflows of capital as a result of the 504 Offering proceeds, and their subsequent disbursement.
What can complicate this audit is the multiple legal aspects of the corporation itself, which started as the initial public corporate shell, based in Florida. For those who have followed these issues from previous press releases, the Company is now registered in Delaware, and changed both name and trading symbol. The Company audits will document and verify the correctness and completeness of all the legal transactions, including individual state procedures, which must be part of the eventual corporate SEC reporting procedure.
While the acquisitions are being concluded and audited, which we believe will begin in August, the reporting process will also be underway, which may extend up to six months. This time period allows the SEC to make comments, or ask questions, about any matters pertaining to the legal and financial issues. Unfortunately, no one can accurately predict the amount of time this process may actually take, but we feel that six months is within the normal range for a bulletin board company under these circumstances. The Company is not in any jeopardy of being delisted for timing issues.
With the completion of the acquisitions and the audits, the Company may undertake a larger IPO, or technically, a secondary offering. More information to be released.
Acquisition terms - - In all cases, the acquisitions contemplate the use of both cash and restricted stock payment. Cash and stock are delivered in the form of a down payment, and a series of payments over time. Since each transaction is different, I cannot discuss the details here; however, the issue of stock dilution to shareholders will be accomplished in certain cases over a span of up to 3 years. Since the number of shares used for these payments is a function of the share price over the period, it is not possible to make exact representations regarding this dilution. There may be up to 34 million shares on a fully diluted basis at the end of 3 years as a result of the acquisitions. (Reference "Whisper on Wall Street" Report - July Issue - for additional information.)
Website Launch Date and other Details - - The site review will be conducted on Friday (July 23rd) where we will finalize the magnitude and schedule of the web site release. The initial stage predicted for June 15th incorporated the availability of approximately 400 products. The product list has now expanded to over 65,000 items. These products are name brands, with shipping already priced and scheduled. The order and fulfillment can be accomplished by e-mail or through calling a toll-free number.
The site will have a membership sign-up capability - either electronic or via toll-free number. This function will allow for a built in customer service function so members and/or inquiries do not get mis-proccessed. These service bureaus are being prepared for our launch, and will be supporting the marketing effort for new members, to commence in the fall. Marketing will include direct mail, inbound and outbound telemarketing as well as Internet based cross marketing and revenue sharing programs.
Because HouseHold Direct.com will have a much more efficient product ordering system in comparison to any other company within the private buying club industry, the site will be instrumental in our ability to merge large volumes of members into our consolidation plan of the physical locations.
Website Portal - - A portal is a more comprehensive web site in that it should create a sense of a community of people on the web who have similar interests. For many of our investors, the best comparison to this effect is the "Raging Bull" site (RB) - the community is made up of people whose common interest is stock market investing. One advantage for RB as a company, is that the "community" itself creates the content of the site, by way of the posting boards, which correspondingly continue to drive more interest, more posting, more content. This almost resembles a perpetual motion machine if handled properly.
The HouseHold Direct.com portal will be similar, but have the addition of an "open directory" style of operation. This format allows for a designated individual to have the responsibility for a segment of content, with the general population contributing to the overall content. For example, go to: www.dmoz.org .
Additional Portal Features - Chat, Auctions and Personal Web Pages - - We will add a personal web page capability for members; individual "chat" areas, based on location; products or projects; and, an auction site that will allow the participation of members, and will also be a service for vendors who have excess product for distribution in this manner.
Bundled Services and Member Benefits - - We are continuing to establish relationships for ISP and digital satellite services as part of a bundled suite of services. Additional member benefits will include a discount travel club, discounted medical and eyecare services, and a prescription drug plan. There is also a discount program for name brand services, mufflers, tires etc. Further details will follow.
Membership Rates and Fees - - As many of you know, the membership from a "bricks & mortar" service facility ranges from $1,000 to $2,000, depending on the program selected. Those rates will continue in the short term while we complete the acquisitions and the conversions of existing members. Simultaneously, we will build the usage and market awareness of the web site. Eventually, the rates from the locations will be reduced, to coincide with the web-based member program. We are pricing the new membership on the web in the range of $49.99, with a monthly fee of $9.99, again, depending on program or member choices. Promotion campaigns will be used to drive discounted member sign-up.
Corporate Location - - We have not moved in with Thunderstick, our offices are about 15 minutes apart. We lease just under 3,000 square feet in a suburban office park between Danbury and Waterbury, CT (about 1 ½ hours from New York City.
Thank you for your continued support.
John Folger, President & CEO |
