When it can effect the stock price...DD is DD... good or bad.....
WSi Interactive Corp WIZ
Shares issued 43,419,279 Jun 5 close $1.25
Tue 6 Jun 2000 Street Wire
by Will Purcell
One telecommunications deal seems to have faltered, but another is rising
to take its place, as WSi nears the end of its first year as a high-tech
company. To end the month of May, the company released its third quarter
financials and issued a letter to shareholders, discussing the tumultuous
events to date. A day later, WSi began June with the announcement of a new
deal. The flurry of information contained a bit of good news, a fair chunk
of bad news, and the first look at a new deal that has been -- to use the
trendy term -- incubating for months.
The confessional section of WSi's announcement revealed that its broadband
deal with Global Communications Inc. is suddenly in a bad way.
Through March and early April, the company frequently touted the deal as an
exceptional opportunity for the company, one that would allow it to become
nothing less than a major provider of broadband services across Canada and
in the state of Washington. Nevertheless, amid all the glowing
pronouncements, WSi did work in the qualifier that the deal was subject to
a detailed due diligence investigation, saying that it would have to
consider many factors before it made a firm decision to commit to the
project, adding that it would issue a news release with all the pertinent
information when that decision had been made.
It now appears that the much-trumpeted deal is unlikely to proceed, based
on a paragraph buried deep within the lengthy shareholder update. The
company stated: "To date, WSi has not received the necessary due diligence
information and no formal licence agreements have been entered into.
Consequently, WSi is currently looking for other opportunities in the
broadband and wireless sectors."
Although WSi president, Theo Sanidas, declined to comment on company
matters, Mat Matson, president and chairman of Global Communications was of
much more assistance to investors. "I'm extremely upset with them, needless
to say," he said. Mr. Matson stated that WSi had paid Global a letter of
intent fee of $25,000 (U.S.), and he added that Global then went out and
did indeed obtain full due diligence packages for WSi, so that it would be
able to ascertain if it wished to move forward or not. He said that the
information gathered included populace counts and mix, regulations
regarding antenna installations, building codes, zoning regulations and
maps -- everything that Global felt was necessary for WSi to determine
whether or not it should continue to pursue the deal.
Mr. Matson disputes WSi's statement that it had not received the necessary
due diligence information. "We went out and finished all of those due
diligence reports, lock, stock, and barrel, one end to the other, I mean in
depth, under a contractual arrangement that we had with WSi. Subsequently
we just never, ever, seem to get anything out of WSi," he stated, adding
that he had flown to Vancouver to go over the documentation, to make sure
everything was in place. "They kind of just sloughed it off," he growled.
In Mr. Matson's opinion, the problem was not with the information provided
by his company. "The bottom line is, it gets down to where it is some real
earnest money," he stated. In the end, Mr. Matson said, WSi was asking
questions that he felt were ridiculous. "It became evident that it was just
simply a stall. So the end result is, they have to cough up $2.5-million
(U.S.) to us to proceed forward, and I don't think they have the money," he
stated.
As late as early April, all appeared well, as the two prospective partners
participated in the ballyhoo of the Spring Internet World 2000 exposition
in Los Angeles, showcasing the Global technology. At the time, Mr. Matson
was also singing a far chummier tune, saying he was excited to be working
with WSi, and he heaped glowing praise on the company. Two months later,
Mr. Matson says he now believes WSi's management is "not strong enough to
do what they're trying to do," adding that he thought they were flitting
"from hither, yither, and yon," and not accomplishing a lot. Mr. Matson
went on to say, "We have filed notice on them that they either pay up or
shut up, and if they shut up, then they better inform the stock market,
because if they don't inform the stock market, we will inform the stock
market."
Apparently Mr. Matson is either unaware of WSi's recent low-key public
comment on the status of the deal, or perhaps he is just unsatisfied with
its content. "As president and chairman of the company here, I feel they
have used our good name to promote their stock for their own personal
benefit. I have asked for some responses, I have not gotten them. I'm about
to turn them into the SEC here in the States," Mr. Matson complained. "You
can't believe the amount of calls I am getting down here. I'm extremely
pissed, to be honest with you. I just don't know any other, nice way to put
it."
Meanwhile, WSi appears to have been working behind the scenes for some time
in search of a better telecommunications story. Last Thursday, Petra
Resources Corp. announced that it was acquiring Ariel Wireless Technologies
Inc., a private company in which WSi holds a 40-per-cent interest. Under
the terms of the deal, Ariel shareholders would receive six million shares
of Petra, or roughly a one-third interest in the former resource company.
A superficial glance at the deal would suggest the transaction has a value
of $3-million, based on the number of shares to be issued and a 52-cent
value for Petra shares, but Petra president Don Willoughby said that such a
calculation would be incorrect, as all of the shares to be issued will be
held in escrow. Under the current rules of the Canadian Venture Exchange,
none of the shares will actually be released until six months after the
deal closes. At that point, 5 per cent of the shares would be released, and
a further 5 per cent would be released each six months until 30 months
after closing, when the rate of release would increase to 10 per cent. As a
result, the entire pool of six million shares would not be released until
six full years after the deal closes.
Mr. Willoughby stated that there was a provision in the agreement that,
should the project fail, the remaining escrow shares would be cancelled.
That was important to existing Petra shareholders, he added, because the
company would not be burdened with the additional shares should the deal
fail to live up to the company's hopes. Curiously, Mr. Willoughby also said
that there was "quite a speculative premium" built into the most recent
Petra share. He has a point. Petra traded for less than five cents through
the winter, but peaked at 76 cents in early April, after the company
announced that it was contemplating a change in business. Nevertheless, it
is a refreshing event when a Howe Street promoter suggests his company's
stock contains a speculative premium.
Petra's change of business will apparently be the marketing of
telecommunications equipment. Ariel's major asset is a worldwide original
manufacturing agreement with an unnamed European provider of communications
hardware and software. The agreement is non-exclusive, but at least for now
the anonymous manufacturer does not have any other agreements in place, Mr.
Willoughby said.
Petra will now set out to secure sales agreements for the mystery
equipment, which the company will have manufactured under contract. As a
result, there will not be a major requirement for startup capital. Mr.
Willoughby said that he believed Petra had sufficient funds for the next
few months, adding that he thought a "couple million dollars" would be
sufficient to get the new business off and running.
New partner Willoughby appears to have a better impression of WSi's
management than old partner Matson currently has. Petra has added Mr.
Sanidas, to its board of directors, along with Robert Fraser, who appears
to be the brains behind Ariel. Mr. Willoughby said, "Mr. Fraser is key to
the whole thing, this is his brainchild." He went on to say that WSi took
Mr. Fraser through the development stage, and ended up owning a significant
portion of the private company in the process. According to Mr. Willoughby,
WSi also provided Mr. Fraser with space to work out of for a time, and
provided introductions for him. Indeed, one of those introductions
apparently brought Mr. Fraser and Mr. Willoughby together. Although Mr.
Fraser appears to be the primary player in the deal, Mr. Willoughby seemed
thoroughly pleased to be associated with WSi and its management. "We think
Mr. Sanidas will add a lot to the strength of our board," he said.
The Ariel deal may represent a new direction for WSi, as the company has
been acquiring equity positions in other businesses at an increasing rate
in recent times, either directly, or through partnerships with other
companies. Agreements have been reached with Nurv Media Corp.,
Flashcandy.com, RG Diamonds Inc. and IBM Canada. The deals were hailed as
important strategic steps in increasing assets and revenues, but the
announcements were generally scant on what actual benefits would accrue to
WSi. For example, the company continues to hail the IBM deal as one that
will allow it to "take on business projects of virtually unlimited scope
using IBM's software solutions," but there has been no mention of what
beyond a reselling agreement this might entail. IBM advertises its services
for small business relentlessly.
The new deals appear to have provided a degree of reassurance to many WSi
shareholders, who had even more bad news to absorb. Earlier this year, the
company had announced its intention to sell its most advanced Internet
site, Stocksecrets.com, to a U.S. public company. The move seemed like a
done deal at the end of March, when WSi announced that the buyer,
Internetfinancialcorp.com (IFAN), had secured a $1.0-million (U.S.)
financing, which was a condition of the sale. IFAN had previously been a
shell, and apparently has become a shell once more, as the financing deal
has apparently collapsed. The Stocksecrets Web site will remain the
property of WSi, although the company apparently still has hopes to spin
off the site to a new buyer.
IFAN has 15.4 million shares outstanding, of which about half were to be
acquired by WSi under the terms of the deal. At the time the news of the
$2.50 (U.S.) per share financing was announced, IFAN shares were trading
for about $5 (U.S.), and the company had a market value of about
$75-million (U.S.). Since then, IFAN shares have been slumping steadily,
but still managed a $2 (U.S.) Friday close, despite the apparent lack of
any tangible assets. Based on the most recent closing prices, IFAN has a
market capitalization of about $45-million, roughly equal to that of WSi.
Meanwhile, WSi has been having a few problems of its own raising cash.
Early in April, the company said it had arranged a private placement of 1.1
million units at $3.15 per unit, which was to have generated gross proceeds
of $3.47-million. The subsequent market changes took WSi shares sharply
lower, and the deal was renegotiated later that month. Under the revised
terms, 1.6 million units were to be issued at $2.15 each, to raise gross
proceeds of $3.44-million. WSi has now announced that the private placement
has been junked, citing the recent market volatility that has taken WSi
shares as low as 92 cents recently, a far cry from the $8.25 high set in
mid-March, when the company was touting the broadband deal with Global.
Despite the failure of the financing, WSi appears to have a reasonable
amount of cash on hand as of the end of March. Financial results for the
third quarter, ended March 31, reveal a current account balance of
$3-million, the majority of it held in cash. The company's cash position
has increased by just over $800,000 over the nine months, largely thanks to
the issue of common stock through the exercise of warrants and options,
which generated $5.2-million, most of it during the third quarter stock
market roller coaster ride. WSi reported a net loss for the nine-month
period of only $216,787, but the company has nevertheless used nearly
$2-million in cash through that period, and additions to capital assets and
investments bring the amount of net cash spent or invested to just over
$4.3-million, before financing activities.
The company will likely need a significant amount of cash over the coming
months, if it hopes to advance its many projects and partnerships beyond
the announcement stage. The company has expanded from 20 employees to
nearly 90 over the last year, but revenue growth appears to have stalled,
at least for now. The company reported first quarter revenues of just over
$800,000, and $2.1-million during the following three months, but in the
most recent quarter, revenues declined to $1.2-million. Nevertheless, the
company says it still hopes to meet its revenue target of $6-million for
its first full fiscal year in operation. WSi shares recovered smartly to
end the week, gaining 14 cents Thursday, and another dime on Friday, to
close at $1.28. Yesterday, it lost Friday's dime.
(c) Copyright 2000 Canjex Publishing Ltd. canada-stockwatch.com |
