I had an interesting telephone interview with Bob Smith around noon. He returned my call, and we spoke for about 20-25 minutes. Here are my observations and report, but with these two caveats:
A. I did not write down verbatim what was said and can only report to the best of my recollection and understanding; and,
B. I don't have the time to review, edit and re-write this
"report". I will make corrections, edits, etc., later if
they are called to my attention.
Here goes:
1. Personality
Bob's telephone personality is friendly and straightforward. He does not come across as someone who is "sharp" or "slick". He was patient. He tried to answer my questions, and did so directly and without hesitation. There was no hemming and hawing at any time. He told me when he needed to look something up, or could not comment. He makes a very good, positive impression (by telephone) as an individual. He would be terrific for Zulu/ESVS if he handled all inside IR/PR matters.
My comment: I did not meet him in person, and can only go by his excellent telephone demeanor and manner.
2. Financials
Bob said there have been no, and will be no financials for the parent company. Audited financials have been prepared for Zulumedia only. I asked him twice, and he said he expected them to be released within 10 days. He said there were some technical issues
relating to the report which were being worked out.
My comment: Irrespective of past history and promises, this is what we "get" in the way of a commitment.
Yesterday would not be soon enough. I told him how
frustrated we were for credible information, and he
seemed to understand that. I sense there have been
and are material issues affecting the release of
this information, but he could not discuss that.
I am unhappy re no consolidated financials for Zulu-tek, since we don't know what the full scope of its operations are, assets, liabilities, etc. I
will assume for now that there is little or nothing of Zulu-tek left, outside of Zulumedia,
and that is the impression Bob Smith left with me.
3. Business Combination
Bob said the sale of assets will be completed within the next week. So, basically the sale has been consummated, and what is left is for Zulu-tek to "get paid" for those assets. Bob said that ESVS can't issue more than 20% of common for any one purpose, thus requiring the preferred stock issuance, which will require a shareholder proxy, meeting and vote.
Bob reassured me that the ZULU common will get their 10:1 exchange. The shareholder meeting will be in November, with 60 day notice period for meeting.
Bob said new company will be Zulugroup.com, Inc. This has previously been reported.
My comment: I don't like the sale of assets being consummated,
without Zulu-tek getting paid, although Bob Smith
seemed (I am assuming) to view the regulatory process as straightforward and the vote approving the stock issuance as a sure thing.
4. $12million Series D preferred.
Bob believed the $12mm preferred included in the asset purchase deal involved the Softbank Holding interests, not the 1,000,000 shares of Series D which has liquidation value of $12 per share. He said the Series D stock had already been issued at time of Netvest deal, and ESVS simply received it as part of stock exchange with Netvest.
In any event, he said that the $30mm purchase price does not relate to the Series D preferred stock. He also said any such stock, and the 12mm shares of ZULU common received as part of Netvest deal would be cancelled or become treasury stock.
My comment: This may very well be the case, and would eliminate
one of my areas of concerns. It appears to be (if Bob Smith is correct) pure coincidence that the amount being paid to the Softbank Holding interests for preferred stock is the same as the liquidation value of the Series D preferred stock received by ESVS as part of the Netvest deal.
5. Litigation, Landlord Disputes
Bob Smith said all debts will be paid as part of deal, and that ESVS/ZULU was not evicted from El Segundo office. He said the move was planned, and that while there may be monies due the landlord, there is every intention of paying that. He attributed this to transitional problems.
6. Lousy PR
I could not have communicated better how poor PR/IR has been in my opinion, how frustrated the shareholders have been, and how even bad information would be appreciated so that at least the investors could get some kind of reading on their investment. Bob Smith acknowledged, indirectly, the problem, and the ongoing effort at this time to retain a PR firm to try to make amends.
Comment: I will never understand this IR/PR disaster, but I
would have gained nothing by harping further on the issue at this time.
7. New CEO/Mincheff
Bob Smith reported as positive the search for a CEO. I asked, and Bob indicated, that Mr. Mincheff would continue with the company.
Comment: I had no reason to believe Mr. Mincheff would not remain with the company, but I communicated my respect for his reputation and hope he would continue irrespective of any search for a CEO.
8. $50 million financing
Apparently, the new financing package was complicated, and further complicated by the difficulty of selling it to investors during the transitional period and prior to the combination being consummated. A renewed effort will be made after the shareholders' meeting in November.
9. 10:1 Exchange; Valuation
I indicated the shareholders had numerous questions about how do we know this deal is fair to Zulu-tek, but Bob could not or would not comment directly. Basically, he assumed the deal was fair, and I was left with the hope that the financials justifying this will be out in 7-10 days (I know we have heard that before, but. . . . .?).
10. Netscape;Revenue Figures
We tap danced around revenue figures for this fiscal year, and he said he was not comfortable giving out quarterly numbers or future projections. I think it was clear, from his discussion, that with the transition and restructuring after Softbank Holdings there was a loss of customers and revenue; that this year's totals will be less than last year's reported numbers for SIM; and, that a number of companies have gone or will (e.g., Netscape) go in-house. He said a lot of ad companies have seen customers go in-house, so it is not as if Zulu lost business because of its services/product. He also did not treat the fact Netscape is going in-house as being the deathknell of the company by any means.
Apparently, the 4th quarter is the best quarter traditionally, and he said that with aggressive marketing, which he acknowledged the company would have to do, they would have a year which I believe he felt wuld be "solid". He did not use the word "solid," but that is the impression I received.
Summary: This was another one of many pleasant conversations various posters have had with members of Zulu/ESVS. The questions remain (i) whether the promised financials will ever be released, (ii) whether this is a good/fair deal for Zulu-tek, and (iii) what is the logic of the asset sale being partially consummated (i.e., ESVS gets to go ahead and acquire all of Zulu's assets) prior to ESVS sending out a proxy, scheduling a shareholder vote, and having a shareholder meeting on the issuance of the preferred stock which will constitute the consideration for buying Zulu's assets.
Unless the circumstances are really special, I don't believe any seller, in his right mind, would ever agree to a time lapse between the transfer of the seller's assets (out of its control) and the receipt of the money/valuable consideration being paid for the assets. Any lawyer allowing this to happen would probably be guilty of malpractice.
However, I guess this means the deal is a "done deal", and the shareholder proxy (requiring SEC review), shareholder meeting, and shareholder vote, are technically necessary, but in substance only a formality. For the sake of Zulu's shareholders, which will have lost control of its asseets and will be awaiting ESVS' approval on the preferred stock for those assets, I hope this is correct. However, I would have preferred to see some additional protections for Zulu-tek, such as a delayed closing, or something comparabler that leaves Zulu-tek's assets in its name while we "wait" for SEC review of the proxy, and the shareolder vote. What is the rush to transfer the assets before all of the i's are crossed and t's are dotted. I also am concerned about what the "majority" shareholders of ESVS might try to do with the deal, after they receive control of the assets of Zulu.
These perhaps are lawyer-type concerns/fears, but even businessmen know that no deal is a "sure thing" until there actually has been a closing, and the cash proceeds or cashier's check are in hand. Too many things can go wrong. I am troubled by the timing of this deal. I have never seen a deal handled like this before. Perhaps those of you that follow up with the company can find out better what protections are being provided to Zulu-tek during this interim period.
P.S. While ESVS has for all intents and purpose had possession of
Zulu's assets, under the operator agreement, it is different
when actual title has changed hands. There is a further removal
from Zulu's control, and makes the assets subject to being
further transferred or dissipated by ESVS. In the worst case, what happened if ESVS went ahead and transferred these assets, then refused to approve the issuance of preferred stock, or refused to approve preferred stock which could be converted into voting common stock, to Zulu? Where does that leave Zulu, high and dry as they say? Whoops! |
