First, Merry Christmas or Happy Hanukah.
I had to log back on to address a problem with
your analysis despite the holiday.
You noted the operating expenses, and projected this
annually noting this as the "burn rate" projecting this
forward as ongoing and re-occurring expenses that have to
be offset with additional financing.
The nine month number of $5.45 mill you noted was correct
but a bit misleading and "incomplete". First re-read this
portion of the filings.
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
Operating Expenses:
Selling, general and administrative 983,060 147,283 2,013,643 251,932
Depreciation and amortization 212,481 -- 240,431 --
Outside advisory services 169,974 -- 3,197,755 --
------------ ------------ ------------ ------------
Total Operating Expenses 1,365,515 147,283 5,451,829
Selling, General and Administrative - The Company's selling, general
and administrative expenses for the nine months ended September 30, 2000 were
$2,013,643 as compared to $251,932 for the period from inception, May 1, 1999
through September 30, 1999, an increase of $1,761,711. The increase is the
result of GSCI operating ended for 9 months in 2000 as compared to five months
in 1999 and GSCI's expanded staff and operations during 2000 of which $906,355
related to increased payroll expense. In addition, TSIG operating expenses of
$464,013 have been included for the month of September 2000 that consisted
primarily of payroll, facility costs and office operating expenses.
Outside Advisory Services - The Company's outside advisory services
expense was $3,197,755 and $169,974 for the nine months and the three months
ended September 30, 2000, respectively, as compared to none in the same periods
in the year prior. The increase in financial advisory fees is primarily
attributable to the issuance of common stock by GSCI, valued at $2,977,210,
during the first six months of 2000 to financial advisors in connection with a
private placement of GSCI's common stock, and $126,931 related to one month of
consulting expense for TSIG in September 2000.
==================================
The $5.45 mill number includes a one time
non-reoccurring cost of approx $3.20 mil due
to the reverse merger.
The 4Q will also have one time costs associated with
the Affinity acquisition.
These non-reoccuring expenses aren't part of any
projected annual burn.
If one were to try to accurately calculate and project the
re-occuring burn rate, they'd take the 3q numbers
for the first line item (selling, general, and
administrative) and multiply it by four for four
quarters or $1.2mil or approx. $4.8 mil annually.
Though this assumes zero growth and these numbers
only reflect the General Search and TSIG operations
with the large increase from the previous year's quarter
being attributed to General Search's payroll expenses.
The operational and payroll expenses should actually increase substantially for
the inclusion of Affinity's payroll, since Affinity
has the most staff. The big question is will Affinity
generate enough revenues to offset its own expenses
and that $4.8 burn or so of the other two merged companies.
If that projected earning is $4 mill, the shortfall is
only $800 thous assuming no rev. growth for next year
Thus for better or worse the numbers you cited are
pretty meaningless until we see audited numbers from
Affinity. Since operating expenses will obviously be
higher, as will revenues. As to whether the synergy
betw. the three generate additional revs for
the combined entity also has to be seen, since in theory
and reality Affinity benefits the most through the
existing corporate relationships.
Finally your accounting didn't attempt to note what
the expenses would have been had the RIMC acquisition
occurred. These filings are available to read.
If you take RIMC's 3q re-occurring expense and project
this out for 4 quarters not assuming for additional
growth, RIMC would have added an additonal $16 mil of expenses
on top of the $4.8 mil annual burn of GS/tsig or $20.8
mil total expenses . Though RIMC's expenses are largely offset by
revenues, any expansion of RIMC would require the
most additional cash.
Again though this hypothetical doesn't account for any
efficiency through streamlining or increased business
through synergies.
Anyway, the point still is that the numbers you cite
are inaccurately portrayed and projected, since you
did not do your accounting in accordence with the 3q
numbers which were only reflective of the GS/tsig combo
and included non-re-occurring costs as annual expenditures.
Thus again according to a more accurate portrayal of the "burn"
per your method of a "current ongoing negative
cash flow at best" of the $4.8 mil GS/tsig burn offset by
a forecast of $4 mil or a neg. of $800 thous.
which may already be accounted for from existing
or soon to be announced promotions, thus negating
the need for financing to fund operations irrespective
of market conditions and thus possibly allowing
for any additional funding to be used for cash acquisitions.
Any way just another point of view.
Hope all is well.
z |
