I just talked to Paul Henry. The following is my best recollection of the conversation. My thoughts and comments appear in brackets.
The great majority of the shares issued to Robert Gordon was for money Gordon put into the company. [As an aside, last summer I was actually asked if I had a few hundred thousand dollars I was willing to put into the company. I believe it was put on the thread that if anybody had money they were willing to put into the company, then they should contact Henry or Gordon.]
Because of the new investment bank, TSIG is having to hire a Big 10 accounting firm. TSIG will have an audit committee and probably more outside directors. Through the reverse split, TSIG will try to get on the NASDAQ. Because of this process along with the new acquisitions, the investment bank, and new accounting firm, TSIG is going to be run more on an "institutional" basis. [I think we can read that as in a more "business-like" manner. ]
SEC regulations still prohibit naming the investment bank. Apparently the gist of the regulation is that the SEC wants a company to raise the money, and then announce the bank. The SEC doesn't want a company's stock to run up merely on the identity of its investment bank. Henry said that there will be a registration statement in June or July with the name of the bank on it.
In regard to the weak stock price, Henry down-played the role of the reverse split. He said the entire market is weak, and many Internet stocks are down 75%. He reiterated several times that the company is in no way trying to keep the stock price down, but he said it is convenient that the stock price is weak at this time. [The explanation of this part gets a little complicated, but I'll give it my best shot.]
If Company A is purchasing Company B and pays more than book value, that excess amount over book value is called "goodwill." Goodwill must be amortized over 15 years. Thus, goodwill is a non-cash expense, but it will adversely affect earnings for years to come. The gist of the conversation was that because TSIG's stock price is currently low, TSIG would pay minimal goodwill for its acquisitions. The implication is that TSIG is paying a certain number of shares for Affinity and General Search with the acknowledgment that those shares will be worth much more in the future.
[It appears here that General Search and Affinity are willing to cast their lots in with TSIG in a big way. By accepting low-value shares today for their companies, they are insuring that profits to come are maximized and not hampered by high goodwill amortization.]
When I mentioned the Disney deal, Henry said he thought it would be "quite a bit bigger."
Henry pointed out that Affinity had $30 million in revenue and $6 million in profits. When TSIG, Affinity, and General Search are combined, the resulting company will be cash flow positive. Because of the synergy that TSIG can provide to Affinity, that revenue can be taken up to $60-70 million. Henry said that Affinity was very experienced at marketing and implementation, General Search had very good technology, and TSIG could open doors. With its current relationships with 4H, UCP, Coke, Disney, etc., TSIG could provide significant synergy to Affinity and General Search.
Henry went on to say that after the acquisitions and the other developments mentioned above, that TSIG would be valued by more conventional business yardsticks. That is, analysts would look at revenue growth and apply values to that growth rate. No longer would the stock price gyrate wildly over the announcement of a deal, rather the company would be judged by standard business methods.
[It is easy for us to lose focus in this current environment in which the stock price is drifting downward in anticipation of the RS, no news is being announced, and a former vocal supporter is posting negative information. If the number of shares that have passed through Gordon's hands seems astronomical to you, please take a moment to divide $1,000,000 by $.04 per share. The result is 25 million shares. That is the number of shares any of us could have had if we had been able and willing to fork over a million dollars. I am told by other investors that Gordon has put multiple millions into this company. Am I perfectly happy about how the shares of this company have been used? No, but I prefer this to bankruptcy.]
Regards, Suzanne |
