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“It's possible the other shares may never come to market or may even be retired they are able to get enough QSGI commons at this level on their own”
The DS clearly states 190 million QSGI shares will be issued to the KruseCom shareholders if the Reverse Merger is executed. QSGI is also obligated to issue almost 10.5 million shares to unsecured creditors and preferred shareholders. QSGI is also obligated to issue the approximate 3.5 million shares of stock to the attorney if he chooses that choice of payment (and he clearly would if the stock price is anything above about 6 cents a share).
People are not going to just contribute shares back to QSGI right after the RM.
“If Krusecom is to do $20 million in revenues in 2011”
QSGI / Kruse forecasted revenues for the 4 quarters after the RM at $8,000,000 and revenues for 2012 at $11,500,000. These were done on February 1, 2011 and included in the DS sent to impaired classes.
“If they are profitable and are earning about $0.02 a share”
At even just 235,000,000 shares (versus 247,000,000), this would be $4,700,000 million dollars in net income and it would be a net margin of 24%. Not only is this not practical and not like anything QSGI ever saw or projected, but QSGI / Kruse has forecast EBIDTA margins of 12% on the 3rd year after the reverse merger. Note that 12% is a Pre-tax margin versus that calculation being a 24% net margin. That number is actually projecting the reverse merger entity will have a 39% pre-tax margin (based on a 40% tax rate).
“We also have to consider the value of the NOL. I think QSGI lost approximately $15 million in 2009. Using that amount it would add about $0.06 to the earnings for 2011. Possible EPS then would be in the $0.05-$0.08 range for 2011”
It’s common knowledge that NOL’s are significantly reduced in a change of control transaction, as the reverse merger will be. The NOL’s that carry through equal the market value of the merger transaction (QSGI O/S shares X stock price). So even at 30 cents a share and with 42 million shares (Legacy plus 10.5 million for creditors and preferred shareholders), that would be $12.2 million in NOL’s. Then the annual use of the remaining NOL’s is limited to about 5%, or about $630,000 per year (offsets to pre-tax income), thus a maximum of about $250,000 in tax savings a year. So in the model put forth model, this would add one tenth of one penny to EPS, not 6 cents. ($0.001 versus ($0.06).
Then the model uses $20 million in revenue (150% above Kruse’s’ own forecast), $4,700,000 in net income (39% pre-tax margin versus Kruse using a 12% EBIDTA margin) and then adds back 6 cents per share or $15,000,000 to net income for NOL’s (that would be limited to a max of about $630,000). Using the modeled 8 cents a share in EPS on $20,000,000 in revenue comes out to claiming QSGI / Kruse will have Net income of $20,000,000 or a 100% NET MARGIN.
“well QSGI/Kruse will uplist to a major exchange by summers end, no doubt about it.”
Listings on exchanges require a company to meet a multitude of requirements (SOX and exchange). There is no information that supports this and in fact QSGI has stated they plan on becoming current in SEC reporting by 6 months after the Plan is confirmed and that won’t be until sometime in April. Just on this point alone, 6 months takes you into October 2011 so there IS DOUBT.
“I like to look a year or two out. At the rate Kruse is growing the business and possible acquisitions down the road I see revenues in the $50-$75 million range for 2012….based upon the 247 million possible share count”
There no credible basis to support such a forecast, but any acquisitions that would get revenue anywhere close to that would be very expensive, either by very significant stock issuances or by the issuance of a significant amount of debt. As a rule, an acquisition would normally be viewed as neutral to share price and thus one should just model QSGI’s revenue forecast for 2012 of $11,500,000 with 235,000,000 to 250,000,000 shares. Remember, you actually have to pay for acquisitions; you don’t get them for free.
“If a settlement with IBM is “around the corner” this will be adding some serious value to Krusecom which will strengthen an already clean balance sheet. The settlement, imo, will and can be valued anywhere from $150-$750 million. This would add $0.61 to $3 in cash value to the PPS. So a minimum settlement with IBM should have QSGIQ trading for $0.61 at least just on the cash they will receive. “
QSGI resold a limited number of used IBM mainframes in 2007 and IBM placed some restrictions that limited the terms of what could be sold and when. Any hoped for claim or settlement would be based on Anti-trust rules, which limit damages to PROVABLE LOST PROFITS. These would be limited in QSGI’s case, although any amount would be subject to trebling. Then QSGi / Kruse would have to pay 40% of any recovery to their attorney and pay taxes on the rest (no NOL benefit if after the merger). QSGI / Kruse would net about 44% of any settlement amount, which could be zero.
Then any comparison to PSI or Compuware is meaningless. Research each of them. PSI lost many hundreds of millions in lost profits from IBM’s actions and was resolved by IBM acquiring them. The tort claims were varied. Compuware’s issue was an intellectual property issue and also an anti-competitive issue. The settlement was not for IBM to pay any damages to Compuware. The settlement had IBM agreeing to buy $260 million in Compuware services and license $40 million in software over the next 4 years. In fact QSGI executives and BOD would be exposing themselves to major civil and regulatory exposure if they believed any IBM settlement could produce even a quarter of the lowest range being argued by some.
“Directors are receiving options for 250,000 each in pre-reorganization QSGI, or our legacy shares. They vest ratably over 3 years in lieu of a cash compensation. So the board of directors are taking QSGI current shares as compensation, If we stay a $0.10 stock their 3 year compensation would total $25,000. I am sure the compensation range will be in the $250,000 to $750,000 area for the three years,”
1. These directors were appointed in Q3 2010 and the 250,000 options were for the 1st year. Vesting over 3 years has no correlation to claiming these option will serve as their compensation for years 2 and 3. In fact the DS makes it clear that if the post merger company is profitable, the BOD will likely reinstate the old compensation structure of paying directors in cash (with initial grants of options).
2. QSGI previously paid their directors $25,000 in cash per year. The 250,000 options more than covers a reasonable fee through August of 2011. You can expect them to get cash and or equity later this year and every year afterwards.
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