My notes from Shareholder Meeting:
Costs about 30-35K to do a proxy
The term “Gold Standard” is an S3I term for companies which are considered for a reverse merger. It consists of a list of requirements that helps assure that an RTO (Chinese term) or Reverse Merger (U.S. term) will be successful. These Gold Standards require the Chinese company to be very successful and profitable. S3I is trying to build Redwood a reputation as a company that has remarkable success in RTOs. Jim Bickel wants to be right “every time” they do an RTO. The quotes are for his words.
The RTO costs 250K for the Chinese company so only profitable, established companies are being reversed into the U.S. market. The initial fee for the RTO is 50K and the remainder is on a payment schedule. These are for S3I/Redwood expenses to get it in the works. The 250K is not for profit but for expenses so these Chinese companies have to be serious, successful and dedicated about doing it.
In addition, S3I/Redwood gets a “Success Fee” as payment which is in the low six figures.
We also get equity in that company (shares) when reversed into the U.S. market. These shares amount to a high six figure dollar amount. These shares are restricted for 1 year. The Dalian shares will be unrestricted in several months. S3I will make a decision after they become unrestricted whether to hold the shares or sell them. The great benefit of holding the shares is that the company may try to become uplisted on another exchange which is called a secondary offer. This is much like an IPO type situation where the stock could appreciate considerably, making S3I’s shares worth considerably more.
We act as a consultant to these RTO companies and receive fees for this which are shared with Investment banks and Investment relation companies.
The Dalian deal took 6 months to complete. Jim said that 4-6 months is about the average time to complete an RTO. They said that they could shave off 2-3 months when the process becomes more fluid.
Q: Will SINO and Redwood delay the payment of their loans to the parent, after S3 becomes an operating company, or will S3 take the funds to acquire additional China subsidiaries?
They weren’t sure at this point. They said that that is something that will have to be determined.
Q: When S3 begins a stock buy back program, will the shares be put in treasury for possible future use for investments or a management stock option plan or will the shares be cancelled?
The company has no plans of doing a share buyback at this time. The reason that the company will not do a share buyback is that they don’t feel it would add shareholder value at this time. Since many of the expenses incurred during the RTO process need to be paid by S3I initially before they are reimbursed through the payment schedule, the company must utilize these funds to grow the business. They believe that a share buyback would temporarily and falsely inflate the value. Jim Bickel’s big goal is to grow the business. He is focused on this mission. They want to get these companies, like Abexis, that want to get their product in China and get them set up to start selling it in that huge market. We have many companies being considered to do this. We must have the finances to do these things. However, they said that if they did do a buyback that the shares would be put in treasury.
Also, the unelection from the BDC allows S3I to get institutional financial backing to support these big deals in the future. I have to completely agree with him as I’ve always indicated on these boards that S3I needs to build the busisness into a powerhouse and worry about reducing the shares when they are very well established and have many companies bringing in multiple orders for Sino and getting multiple RTOs under their belt.
Once Chinese companies realize that Redwood is the company that will “absolutely get the RTO done”, Chinese companies will be knocking on our door rather than the other way around. Jim has a big view of things and is looking to build that company image in China that is synonymous with success. Other competitors to Redwood have about a 70% success rate. S3I has studied those deals and found the reasons why the 30% have failed. They have used this information to set some of their criteria for the “Gold Standard” that I mentioned above. They are diligent and working to improve the RTO process and ensure success.
Q: Assuming the BDC withdrawal is voted affirmative, how soon can investors expect to see real operating numbers for SEIH and its subsidiaries or at least numbers on a pro-forma mid term basis?
The 10K should be out in September which will be consolidated for all companies.
The next 10Q will be as BDC. That is the last before the 10K.
They would like to put out proforma numbers to show to investors but it’s complicated since they have to coordinate with China and all the auditors. They would like to do this ASAP but in reality I wouldn’t expect it with how much work seemed to be involved in getting it all together and since the 10Q will be around May.
Q: How is the Sino/GreCon partnership going?
S3I has a minority interest (S3I owns 40%) of Grecon.
It’s considered a Sino asset. It’s a (WOFE) Wholly Owned Foreign Enterprise.
Grecon makes sensing devices to measure moisture content.
There’s none of our staff involved in Grecon. It’s an extra, independent thing.
Grecon is a German company who wanted to distribute in China. Since the Chinese will only deal with companies that are located there, S3I leased buildings in China so that Grecon could assemble devices and distribute there. We provided funding for 40% of company. S3I has not made back money yet but will be making money on it by 2007.
Grecon is doing very well in China and will be a good revenue source. They were very happy with Grecon since it’s one of those deals that they help set up and now just collect 40% without detracting from other business.
Jim indicated there are many companies looking to get into China and with whom S3I are talking. There are some big opportunities to bring products to the Chinese markets. The possibilities seem endless. China is very particular in their products. If a Chinese company buys a high tech product, they don’t want to have to call Germany to get service for it. They won’t do it. That’s why we set up these companies like Grecon in China with the facilities to make the products. Mostly it’s assembling the parts in China from parts made elsewhere but the companies that buy these products through Sino have the support and technical assistance in China. This is very important to the Chinese and if not “the reason”, it’s one the biggest reasons foreign companies cannot get into China with their products. This is the beauty of Sino.
Q: How many new Redwood clients could possibly be brought through the total reverse merger process this year if all goes very well?
Well, the PR covered this but I know they are being very conservative with their projections. They indicated 2-6 in pipeline and 2 or 3 closing. One should close this month.
Q: What is the current status of Redwood clients Xingye Copper and Jaso Holdings?
Xingye Copper is doubtful because they decided to keep their property management part of their business separate from the other businesses which is construction and a couple of other things which means restructuring. It was initially set up for 5% stake in stock but since they want to separate them it confuses the equation. Jim said if they can get it together then we will do it but he’s not too optimistic. Jaso Holdings has a 50/50 chance he said but I can’t remember exactly the issues. I can’t do these topics too much justice. He explained them but I didn’t take good notes
Q: Is a $400,000 order about average size for SINO or is there potential for an order to be significantly larger?
As the PR said, the average size of the deals are between 30K and 50K. The $400K deal was big Jim said.
I asked if they had any intention about buying more shares personally and they didn’t. They had preferred shares and said that they were working to increase the share value so that their preferred shares would be valuable.
I didn’t get any info on YaSheng.
There are approximately 80 employees in China. Not all are payroll employees.
All the employees are 4 year college graduates. They are all very sharp people Jim said. Many of these people are working to find companies that fit the “Gold Standard”. He described them much like I would imagine a baseball scout would scout new talent. They are constantly looking for companies to do an RTO.
They spent a long time anwering my questions and Jim really was personable. He spoke about Chris and his family a bit so it wasn’t all just facts and numbers. I told him we all appreciated his hard work. He spoke of Chris and said that he spends about 70% of his time in China and he has 5 children. Jim is hoping to grow the business so that Chris can spend less than 70% of his time in China.
Let me know. I tried to get this out before I left work so hopefully it makes sense.
Sloth
