research done in Sept 98 notice MICROSOFT has a minority shareholding in LHSPF "Look under Other Considerations in the report to find Microsoft "
Publication Date
September 14, 1998
Product/Service
JVWeb (JVWB) offers the full range of technical and advisory services for
companies that want to establish World Wide Web sites capable of performing
sophisticated marketing, information distribution, and electronic commerce
functions. The Company is targeting small- and medium-sized companies whose
in-house marketing and technical resources would not include individuals (either
employees or senior management) with the experience or skills needed to fully
plan and implement a successful Web-based marketing presence.
JVWB offers these services under the title "Strategic Internet Services." For an
example of JVWB's capabilities, visit the Company's corporate web site at
www.jvweb.com and its Web commerce showcase site "Dad and Me"
(www.dadandme.com).
Company Background
JVWB was founded in Houston in 1997 by its current chief executive officer.
Management
Chief Executive/Operating Officer Greg J. Micek is primarily responsible for the
day-to-day operations of JVWB as well as development of the Company's
strategic planning. Prior to founding JVWB Mr. Micek had 17 years experience as
a consultant contracting with various companies to serve as interim chief
executive officer/chief financial officer on multiyear assignments. At different
times during his business career Mr. Micek's activities have included strategic
planning, acquisitions strategies, technology application, business
reorganization, financial management, and political and community relations
work. Mr. Micek also founded the Houston Inventors Association. Mr. Micek
holds a degree in law from Creighton University.
Director of Market Strategy & Brand Development Cherie L. Dunn has spent the
better part of her 21-year career developing, expanding, and strengthening the
marketing and branding of a variety of products and services. After stints in
brand management at Texas Instruments, Advanced Micro Devices, and
McDonnell Douglas, Ms. Dunn subsequently worked for investment banking,
charitable foundation, and electronic publishing organizations managing fund
raising and electronic publishing activities.
Chief Technical Officer Kevin Dotson has worked in both private companies and
the public sector (the US Army) in a variety of computer networking
environments. Mr. Dotson's academic background includes studies in Computer
Information Systems from Arizona State University.
Gabriel C. Cox, who founded and now runs a Houston-based Internet Service
Provider (ISP), is actively involved as a consultant to JVWB.
Competitive Position
JVWB faces a large number of competitors throughout its potential markets, a
situation that will continue for the foreseeable future. Barriers to entry into the
Web site programming business are low and the demand for web site
programming is very strong¾ any recent college graduate with a degree in
computer science can hang out a shingle saying he/she is a "web developer."
However, many of JVWB's potential competitors will be at a significant
disadvantage to the Company's broad, integrated range of services related to the
design, development, and implementation of business-quality web sites. Most of
JVWB's potential competitors will be specialists (in web site programming or
graphic design or web site hosting, for example), making it necessary for their
own customers to have the time and expertise to manage a variety of such service
providers. JVWB's significant advantage is that its in-house personnel or one of
its partners will provide the complete range of services its customers need.
This arrangement will be a big selling point for JVWB's customers in that they
can save time, money, and effort via close cooperation between the different
areas of expertise needed to plan, design and implement a successful Web site.
Income Statement Review
Because JVWB is in its startup phase, the Company has had no significant
service revenues or profits to date. As outlined below, JVWB's internal forecasts
include expectations the Company will realize a meaningful level of revenues in
the quarter ended September 30, 1998. If JVWB meets its goals as established by
management, major revenue and profit enhancements will come about in later
periods as management builds business relationships in the three specific types
of services JVWB will focus on: e-commerce branding, fee-for-service, and
acquisitions.
In the e-commerce branding sector JVWB already has one revenue- and
profit-producing asset¾ the on-line investment newsletter Wall Street Whispers
(www.wallstwhispers.com). In addition to Wall Street Whispers, JVWB has
acquired the rights to market Chameleon Casuals' "Frogletz" line of children's
clothing (in conjunction with JVWB's "Dad and Me" web site). JVWB plans to
commit substantial resources to building both the Wall Street Whispers and
"Frogletz" brands. Current management projections for these two brands for the
coming 12 months project an aggregate $500,000 in revenues with a 20%
operating profit margin.
Fee-for-service is the area in which JVWB's relationship with Heitmann SAC (see
discussion beginning on Page Four of this report) will be key. Heitmann SAC
currently has no significant marketing presence in the huge US market for Web
site development services. For example, JVWB will act as a marketing
representative for Heitmann SAC, managing customer relationships in the US on
behalf of Heitmann SAC and receiving compensation as a percentage of total
Heitmann SAC billings for such customers. JVWB will also provide certain
services directly to customers, including web site hosting (as an Internet Service
Provider), web site development, and site maintenance.
Although every customer relationship in the fee-for-service area will be unique,
Company management feels a typical relationship could eventually result in
annual per-customer revenues of as much as $300,000. Current management
projections for the coming year are $500,000 in revenues with a 20% operating
profit margin.
In the acquisitions area, Company management is actively involved in
discussions with possible targets and partners in a variety of operational areas,
including internet service providers and advertising firms. No firm agreements
have yet been reached between JVWB and any such potential acquisition targets
and/or partners, but management expects one or more such agreements to be
reached later this year. Company management estimates $5,000,000 in additional
revenues due to acquisitions over the next 12 months.
For the foreseeable future, company management expects to re-invest any net
profits back into the business.
Balance Sheet
JVWB has the potential to raise up to $22.5 million through the three different
classes of warrants issued in conjunction with the issuance of its common
shares. As of the publication date of this research report, the Company has about
$50,000 of cash on hand, which management estimates will be sufficient to fund
JVWB's operations through December 1998. To the extent additional cash
beyond operating cash flows is needed after December 1998, management and
certain insiders are prepared to address such needs. (Note: The Company has
taken a conservative stance and decided to recognize as a current expense the
full amount of the $170,000 cost of developing its two existing showcase web
sites. Although both sites have value, no dollar amount for either site is currently
accounted for on JVWB's balance sheet.)
Other Considerations
In June 1998 JVWB formally announced a joint venture with Heitmann SAC, a
Scottish affiliate of Germany's Heitmann Group (Web address: www.sac.co.uk).
Heitmann SAC, which has provided communications services to customers since
1973, offers web site programming and graphic design to its customers through a
network of 11 offices throughout Europe as well as two small production facilities
in the US. The company's client list includes a wide spectrum of major
international firms such as NCR, General Motors, Rolls Royce, British Telecom
(the UK's oldest and largest phone company), British Gas (a major UK utility),
BZW (a major global merchant/investment bank) and a variety of smaller
companies. In addition, Heitmann (in partnership with JVWB) is in the running to
build a web site to distribute documents and information for the legislative body
of a major European government, which would be a very high-profile piece of
work and would add considerably to JVWB's and Heitmann SAC's "visibility"
among companies who have (or wish to build) a presence on the World Wide
Web.
JVWB and Heitmann SAC have begun to build a strong relationship that both
companies hope will produce valuable synergies. For example, Heitmann SAC's
activities will turn up customers who are new to the Web and need business and
marketing assistance¾ areas in which Heitmann does not have particular
expertise but JVWB does. For its part, JVWB will work with companies that need
graphic and programming services for their Web sites¾ areas in which JVWB can
pass along work to Heitmann SAC.
With Heitmann SAC based in Scotland and JVWB based in Houston, we believe
the partnership of the two companies represents a trend for business
partnerships that is only just becoming evident. Today's communications
technologies transform geographic distances and boundaries that once served as
limits to cooperation to competitive advantages. For example, in this particular
partnership JVWB's US customers profit in that the time zone in which Heitmann
SAC works is five to eight hours ahead of US time zones. Work sent by JVWB to
Heitmann SAC one afternoon will be worked on (and possibly completed) in the
early morning hours US time of the next day. US customers will likely often find
their work finished overnight, which would not be so likely if US-based
programmers were doing the same work. The relationship with Heitmann SAC will
allow JVWB to be much more responsive to its customers than would be the case
if Heitmann SAC were not involved. This relationship also minimizes JVWB's
need to hire its own in-house staff of web site programmers, substantially
reducing JVWB's ongoing operating costs.
In addition, Heitmann SAC's parent was recently acquired by Lernout &
Hauspie, a Belgium-based firm (NASDAQ symbol: LHSPF, Web address:
www.lhs.com) whose specialty is computer-based speech recognition
technology. Microsoft has a minority shareholding in Lernout & Hauspie,
potentially adding resources as well as credibility to Lernout & Hauspie,
Heitmann SAC, and JVWB.
Both Heitmann SAC and Lernout & Hauspie currently have or will build
relationships with companies that will need the services JVWB provides. We
expect JVWB's relationship with both companies to serve as a significant
conduit of new business for JVWB.
Capital Structure
JVWB currently has 7.2 million common shares outstanding. CEO Greg Micek
owns 6.2 million (86.1% of the total) of those shares, 220,000 shares (3.1%) are
held by initial investors in the Company, 400,000 (5.5%) are owned by other
insiders, and the remaining 380,000 (5.3%) of shares outstanding are in the hands
of the general public. Mr. Micek also has an option to purchase 2,000,000 JVWB
shares at a per-share price of 10 cents.
The Company has issued 1,500,000 warrants in conjunction with the issuance of
common shares, exercisable at $1.00 and due to expire on May 12, 2001. There are
also potentially 3 million Class "B" warrants exercisable at $2 per share and 3
million Class "C" warrants exercisable at $5 per share. JVWB's three classes of
warrants are structured such that "A" warrants must be exercised before their
holders receive "B" warrants and "B" warrants must be exercised before their
holders receive "C" warrants. Both Class "B" and Class "C" warrants will have a
three-year lifetime commencing with their respective issue dates.
The eventual exercise of JVWB's warrants is dependent on the Company's share
price rising to a level that makes such exercise attractive for warrant holders.
Management expects the exercise of warrants to be a major source of funding for
the Company for the next year or so.
There are no pre-emptive rights attached to the Company's warrants. As a result,
exercise of any of JVWB's warrants will result in dilution for existing JVWB
shareholders.
Risks
Many risks face every start-up firm, particularly one that operates in a market
environment as volatile and fast changing as the Internet/World Wide Web. In
fact, JVWB's own May 12, 1998 prospectus lists 13 pages of such risks.
We believe the following are the most important risks for JVWB's shareholders:
Dilution due to capital structure – As mentioned above, current shareholders
will experience dilution of their ownership of JVWB as existing warrants are
exercised.
Lack of current revenues/no guarantee of future revenues – JVWB is a
development-stage company on the verge of finding its first major paying
customer relationship. With the services JVWB provides in such wide demand,
JVWB will report its first revenues to shareholders in the current fiscal quarter.
Unproven prospects for e-commerce – Although the Internet and World Wide
Web have been hot topics on both Wall Street and Main Street over the past
couple of years, only time will tell whether on-line commerce will be significant
over the long term. If for any reason JVWB's target markets of small- and
medium-sized corporations do not embrace the Internet/World Wide Web as a
means of distributing corporate, financial, technical, and other information to
customers, potential customers, and shareholders, the multibillion market JVWB
and others are expecting to develop over the next three to five years may not
develop. We believe the Internet/World Wide Web is a permanent and
fast-growing new medium, but the size of the eventual world of e-commerce may
not be as large as is widely expected, may take longer to develop than is
expected, or both. The rapid growth we believe JVWB will experience over the
next year or two is somewhat dependent on the continued overall growth of the
Internet/World Wide Web itself.
Lack of management depth - Unlike many new start-up firms looking to
exploit the business opportunities available on the Internet/World
Wide Web, JVWB has in place a management team that includes two
experienced individuals with proven histories of managing
substantial business enterprises. However, to date the Company has
relied heavily on chief executive Greg Micek for both vision and
sense of purpose. If Mr. Micek were to cease his relationship with
JVWB the Company would, at least in the short term, experience
material difficulties.
Low operating cash balances - The Company feels its current cash balances and
committed funding are sufficient to fund operations through at least the end of
1998. The Company's chief executive and other insiders have indicated they
intend to provide sufficient funds to the Company so that the Company can at
least continue minimal operations for the near term. These persons are not legally
obligated to provide such funds and cannot be legally compelled to do so.
Partnership risk – As of the publication date of this report, the relationship
between JVWB and Heitmann SAC is not legally binding. Both companies gain a
good deal from their relationship and it appears to us that the management teams
of both firms are very excited about and committed to their informal
"partnership."
Both companies have expressed an interest in formalizing their relationship via a
written agreement. However, whether or not such a written agreement is ever
signed by the two companies, every partnership faces the possibility that at
some point in the future the commitment of one or both partners may change.
Heitmann SAC will be a key factor in JVWB's success. If Heinemann SAC (or its
new parent Lernout & Hauspie) should decide to weaken or sever the
relationship with JVWB, it would be a setback for JVWB.
Inability of JVWB to find existing advertising agencies to buy/merge with – A
key part of JVWB's strategy is the purchase of or merger with one or more
advertising agencies. Although JVWB will provide a wide range of technical
expertise to its customers the Company's central focus is as a marketing firm. To
date, no such purchase or merger has taken place. There is no assurance at this
time that JVWB's management will be able to finalize a buyout or merger with one
or more such agencies.
Investment Rating Speculative Buy
Most small- and medium-sized firms in the US and overseas have yet to create a
presence for themselves on the Internet, yet we expect such a presence to be as
common as a listing in the Yellow Pages phone directory within the next five
years or so.
JVWB's potential customers do not and will not have the necessary expertise
in-house to establish and maintain an Internet presence. By working with JVWB
(whether in a joint venture or other arrangement), JVWB's customers will have at
their disposal a complete roster of the specialized skills needed to build and
maintain such a presence.
Too often in the recent investment mania surrounding Internet-related
companies, investors have been overly impressed with specific technological
advances and have paid too little attention to the management skills and
business sense of company managements. JVWB, although a new company with
little operating experience, has put in place a management team that has proven
marketing, administrative, and technical skills. Recognizing the fact that JVWB
faces significant challenges, we believe the Company has laid the groundwork to
build itself into a profitable player in the World Wide Web business.
For any investor interested in getting in on the ground floor with a small firm with
an experienced management team in the fast-changing world of the
Internet/World Wide Web, JVWB deserves a close look. The share prices of
many Internet-related companies are now selling at values of 10 or more times
forecast company revenues for the coming year. If JVWB's share price rises to
only one-half that valuation level (or 5 times next year's forecast company
revenues), JVWB's share price could increase to well over $4 apiece. Even
allowing for dilution from the issuance of another 5 million shares (due to the
exercising of warrants and/or to complete share-related acquisitions by JVWB),
our twelve month Target Price of $2 - $3 is easily within reach.
Company Contacts:
Mr. Greg Micek
Chief Executive Officer
Telephone: (713) 622-9287, Ext. 2
Fax: (713) 840-9034
Website: www.jvweb.com
Investor Contacts:
John H. Martin
Telephone: (888) 588-3322
Cynthia DeMonte
Telephone: (212) 420-0088
JVWeb, Inc. |
