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General Stores International Inc. -- FutureSuperStock's (FSS) December 1997 stock pick. With FSS's reputation as a pumper dumper, this stock too has an interesting story. Here's what I've found... The company in question was incorporated in Minnesota on January 6, 1997 and is publicly traded company on the NASD Electronic Bulletin Board under the symbol "GSIC". Why Minnesota?? I don't know - it doesn't operate in Minnesota and none of the principals are in Minnesota. The company purports to be an operating grocery home shopping/delivery service. FSS did not identify GSIC's web page. Why? Well, C.Riley has found one nevertheless: www.genstore.com It is just an advertisement. You can't order anything from this website - but it says you can order online, call in your order from a color catalogue, or through a cable device which is not yet ready. FSS claims the company is in the midst of taking its business nationwide with plans to enter the Seattle, Chicago, Los Angeles, Denver, Dallas, Atlanta, New York, Calgary and Toronto markets within the next 6 months. However, the company currently does not operate outside the lower mainland of Vancouver. They purport to deliver groceries to your door the next day for $4.95, but you MUST ORDER THEM AT **THEIR** PRICES, which are higher than the local grocery's prices. And, for next day delivery, you must place your order by 1 P.M. Who runs the company? Just 3 people plus another director/consultant. The CEO,Director&Founder (all one person) used to run a mobile catering company. Apparently, no college education. This one man "is responsible for ALL aspects of the company's day to day activities." The President worked for a cable company as an electronics technician for 11 years until 1993, apparently also without a college education. I suppose he is responsible for the technology aspects of the company. The CFO,Secretary&Director (again all one person) joined the construction business at age 14. Then without any apparent college education or law degree, he expanded his skills into stocks, bonds, and tax exempt/asset protection techniques. In case you missed it, please note "TAX EXEMPT/ASSET PROTECTION TECHNIQUES." The 4th person, the director/consultant, was born in East Germany and ran away from home at the age of 14 to West Germany, where he obtained his high school education at night while working days. At age 18 he moved to Canada where he worked hard saving his pennies to open in 1981 a furniture warehouse store which grew into 100 locations by 1995. This I believe to be true, and I commend the man. I cannot find a stock symbol for United Furniture Warehouse though. What about the stock? Well, FSS doesn't tell you any of this... but the web site does: Convertible preferred --------------------- 2 million issued and outstanding (50 million authorized) Each of these 2 million shares is convertible into 10 common shares for $1.00 (that's ten cents a share folks, well below the current market price) and 1 preferred share (that's what the web site says!). Common ------ 11 million issued and outstanding (100 million authorized) The conversion of 2 million preferred shares adds 20 million more for a total of 31 million shares. The public float is 250,000. All remaining shares (i.e. all tens of millions of them) are held by insiders and "close business associates" (that would include FSS). About 5,000,000 shares are unrestricted and can be sold by insiders and those "close business associates" at any time. The rest had a 1 year restriction, which assuming they were issued when the corporation was formed on January 6, 1996, means they can be sold anytime after January 6, 1998 (about 30 days from now). The company projects 1998 revenues of $19 million and profit of $7.5 million. Where does the revenue come from? Well, they identify 2 primary sources: 1) advertising in their catalog and 2) fees from people willing to pay $6000 to $10000 for the privilege of delivering groceries to up to 500 customers. According to FSS, the General Store currently has 1250 customers and hopes for 18,000 by the end of 1998. So let's do some math... 1) advertising - I really doubt a customer base of 18,000 would provide much advertising revenue as this is a very competitive business. 2) fees from reps -- 18,000 customers would be served by 36 reps representing 500 customers each. Each of the 36 reps pays $6000 to $10000 (say an average of $8000) for the privilege of playing errand boy for lazy shoppers. Now 36 x $8000 = $288,000 -- that's nowhere close to $19 million. Or try this math... On a per customer basis, that's revenues of $1055 and profit of $417, leaving $639 to actually pay for the groceries and all the middle men and overhead. Probably yields about 6 bags of groceries. Unfortunately, to even justify its current $2.50 share price using FSS's multiplier of 20, this stock would have to earn 12.5 cents a share. With 31,000,000 common shares equivalent outstanding, the company would have to show a PROFIT of $3.9 million in 1998 to justify it's CURRENT price. Now, in summary... Do you believe the ambitious yet poorly educated management can actually turn this little Vancouver operation into a multinational conglomerate, from 1 city to 10 in six months? How much groceries must a rep sell to his 500 customers to earn back his $6000 to $10000 plus gasoline, insurance, labor, etc? How long do you think before the share price falls back to 30 cents as the insiders and "close business associates" start to sell out? With those experts at ASSET PROTECTION and TAX EVASION at the helm, whose interests do you think they have at heart? | ||||||||||||
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