CONVERSATION WITH ROBERT GORDON (PART 1): Private Placement
Before I start I want to make it clear that I have not been told anything of an "inside" nature and this is the information I heard him say as accurately as I can portray it. I am paraphrasing my questions and his answers. I am choosing to share my own DD and you can choose to listen to it or not.
DG: Tell me about the PP. It seems to have hurt the stock price
RG: Well, the timing of the PP turned out much differently than we expected. We filed a registration statement with the SEC and they approved it in about 10 days, which is extremely quick. This made the PP shares that were exercised fully tradeable. The lawyers told me that normally the SEC will take a much longer period of time, especially with the first registration from a company. They usually come back with questions. They expected it to take 4-6 months and by that time I felt we would be profitable, so the impact of the PP would be less. It hurts short term but I feel that it assured us what we needed to move the company forward much quicker.
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DG: How did you get involved in the PP?
RG: John Black, our banker, introduced us to several people that he had worked with. These type individuals usually do some selling right away since they got an immediate positive return. It is not a sign of anything negative, it's just how these guys operate. They take a quick guaranteed profit. I expect that some will hold and some may continue to sell.
ASIDE (my thoughts): The PP folks probably exercised a lot of their stock in the 20's. Only the DTC's could probably tell us that for sure. These guys got a 30% discount, so they sold quickly. Isn't a 30% discount a high one? Not really because sometimes BB stocks have a wide bid/ask and are so volatile. An investor risks more on BB stocks than if it were a NASDAQ stock.
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DG: Did you have to do a PP and why?
RG: We needed the cash to carry out our business plan quickly and correctly. This is all we need now. The other venture led by John was not working as well as we hoped and was eating significant cash. I finally had to make the decision to pull the plug on that since it might be another year or more before that brought in revenue. We can always come back to it later this year when we have significant cash flow in hand.
The focus on the MyMusicCard is a sure winner, I think, and it does require some upfront costs, like the $700,000 it cost us to produce 170,000 self contained MyMusicCard kits that we mailed out already on the LifeTime Learning Deal with schools, and the 102,000 add'l packets for principals and others that will be mailed out in the near future.
By doing a PP we made sure we had all the financing to carry out what I am certain will be a very profitable venture starting in October.
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DG: Will you use all the money that the PP allows?
RG: We have used $3M so far and hopefully another 2.2M will do it. That is the goal. We have scaled back a lot.
DG: Is there any danger the PP holders will try to drive the stock down toward ZERO?
RG: Well, that would not be in their best interest, since they can only exercise 52 Million shares total. That is the maximum the SEC allowed for in the registration agreement. This is not really a floorless convertible as some have claimed because of the share cap. There is no incentive for them to destroy their own investment.
ASIDE (my thoughts): A floorless convertible tempts those involved to get the share price as low as possible, since they will get more shares that way. In fact in a floorless there is no limit to how many shares they can get. Here there is a cap of 52Million per the SEC, which is a lot better than the 200-300 million that some claimed the PP holders could get in a true floorless situation.
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DG: Have you sold any shares recently? I know you have not sold any 144 shares since you must report those sales, but waht about S-8's?
RG: I have not sold any shares for a long time and I have $13Million of my own money invested in TSIG.
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DG: Will any of the people who recently left the Company be selling any shares, you think?
RG: They got options exerciseable at 30 cents and are restricted, so no they will not be selling.
PART 2 COMING…..
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