FNTN! Watch out next week! If you already read this please read it again! Also heavy buying at the close!
Who is Longyin Network Technology (LNT) and what do they do?
LNT is an internet content provider (ICP), as opposed to an internet service provider (ISP). They own three primary assets, which were included in the transaction, including two web sites (hotage.com and hotage.net) and an e-mail magazine (E-age). The hotage.com portal offers its users daily, aggregated content in a wide range of areas including news, finance, sports, humor, games and technology.
How long have they been in business?
They are a four-year old company, based in the China province of Guandong, with an increasing user base of over 800,000 (approximately 10% of the Chinese Internet user population).
Where is Guangdong Province?
Guangdong is China's most affluent province and it's closest, geographically, to Hong Kong. It is regarded as the center of the Chinese Internet and technology industries, and is where Compaq, Cisco, Lucent and Microsoft and most technology companies have chosen to take their first step into the China market.
Is Longyin profitable?
They are not yet profitable, but we regard their growing number of users and an early entr‚e into the China market as valuable assets.
What do we know about doing business in China?
We know that China represents the next great opportunity, as indicated by the overwhelming attention focused on China?s acceptance into the World Trade Organization. We also know that there are uncertainties inherent in operating in any such emerging market, where a number of factors including those cultural, political and economic, are in a state of flux. We understand this to be a business risk, but believe we have mitigated it by purchasing existing Chinese assets with existing Chinese employees.
Will the acceptance by the World Trade Organization have an effect on the business?
We believe that it will have an extremely positive effect on the value of our controlled access to an untapped vast potential number of users. When it is opened up, we will have an advantage over other companies not yet in China and we're therefore very pleased about the timing of this deal. It was only very recently that the historic U.S.-China agreement to allow China to enter the WTO explicitly reversed the previous ban on foreign investment in China's Internet sector.
What are we going to do with their user base?
We will be using their base as a means of expanding our present content to now include a wider range of advertising and streaming video content. We think that U.S. advertisers would find the prospect of access to about 10% of the Chinese Internet users, generally thought to be among the most prosperous of the Chinese population, extremely attractive.
How will we grow the business?
We have committed to investing in people, processes and technology to bring the company to the next level in China. We will also attempt to introduce the predominately Chinese site to the Chinese population here in the United States.
What does this acquisition do to the FNTN business model?
Clearly, this acquisition changes the model in that our target audience is now global, but we still plan on building streaming media content and subscribers; we'll continue to provide users with access to financial information, just on a much broader basis. This acquisition gives us an interesting twist to the old equation.
Is there any Chinese connection with FNTN?
The founder of LNT, Wilson He, will continue to play an active role in Management; he'll be joining the FNTN Board of Directors and has signed a consulting agreement with us for a minimum of two years. Wilson will play an important role in identifying other acquisition candidates in China. In addition, we will retain Longyin's key executives in China.
How does this acquisition effect the FNTN web site? Or the timing of its release? Or content?
The redesigned site was projected to be launched in mid-April of this year; this acquisition should push it back only by a couple of weeks, until the end of April. We have been working with several key designers and other development consultants, and the project schedule has only been slightly affected by the closing of this deal.
How does this acquisition effect FNTN?s financial statements or release and timing of the required annual report?
The audit by Eisner & Co. is complete, and the financial statements are, as targeted, ready for release. However, with the addition of the Chinese business, Management felt that the 10K due March 30, which was complete, needed to be amended, and we will therefore file to have the deadline extended, as we are allowed, for two weeks as the report is revised. The numbers will be as expected and consistent with last year; look for revenues to be just under $100,000 and losses, before considering the non-cash interest expense associated with the favorable conversion terms of certain notes, as previously reported, to approximate $2 million.
However, with the additional equity funding received this month, the balance sheet will be significantly strengthened, although the actual numbers won?t appear until the 10Q for the period ending March 31, 2000 is released.
What are the terms of the deal?
FNTN paid $400,000 in cash and issued 1,350,000 shares of stock for the web sites, the e-mail magazine, the employees and all the intellectual property of LNT. Half of the money and 850,000 shares of the stock are being held in escrow pending certain milestones being met by the continuing operations of the Chinese assets.
In addition, FNTN received $1.5 million in equity funding which was used to purchase the assets and will also be used to fund operations.
What kind of effect will it have on FNTN?s cash flow?
This transaction will have an immediate positive impact on the company?s cash position. We raised approximately $1.3 million (after fees), of which $400,000 went towards the purchase price and the rest to the Company. We are now in the best cash position we have ever been in, with enough funds to adequately fund expanded operations, both domestically and in China, through 2000.
What effect does this acquisition have on FNTN?s capital structure?
The stock used to fund this transaction, coupled with the stock sold to the investors, completely taps out the authorized shares of the company. That is, of the 50,000,000 shares authorized under our charter virtually every one of them has either been issued or allocated to options or warrants. In fact, Executive Management has deferred the right to exercise any options until such time as the shareholders increase the number of authorized shares.
Are there any other deals in the works?
The stock used to fund this Part of our growth plan has always included mergers and acquisitions; up until now we just haven?t had the currency, whether cash or stock value, to use for such deals. Hopefully we can continue to identify companies, both here and in China through LNT and the investment advisors we used, and execute on this growth strategy, subject to the authorization of additional shares by the shareholders.
Has this acquisition been distracting?
Management of FNTN has spent considerable amounts of time in identifying and closing the transaction, but not at the expense of hindering the development of the company. As noted, the launch of the web site will be delayed by just a few weeks and the required financial statements due to the SEC will be put on extension for the two weeks allowed, but the development, sales and financial reporting elements have not been otherwise effected.
Why don?t I ever get responses from my phone calls to FNTN?
Unfortunately, with all that is going on, if we were to take all the calls that come in from the 2,000+ shareholders, we would spend about 30 hours per day on the phone without moving the company forward. So don?t get the wrong message; we would just would rather respond and communicate via messages on the web site.
Same thing for the e-mails we get ? plus, many of the questions we get we cannot respond to. We don?t know when you should sell, or how long you should keep your investment in the company, and we don't have any special information on why the stock behaves as it does, nor may we tell you when the next press release will be released. Our response will always be the same ? we always, like every other company in the world, think that our stock is undervalued and represents a good buying opportunity, and we always think that it is, of course, an extremely risky investment, but one that we feel should be a long term hold.
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