Chris Stern Blog

I would like to use this blog entry to talk about the reasons for proposing a reverse stock split of the company’s shares. I hope that after reading this you will vote your shares to approve the proposal.

At our last general shareholders meeting, I said that one of my goals was to move our shares from the OTC Bulletin Board to a major stock exchange. This reverse split is a key step in making such a move. It also has significant potential for our future ability to raise any capital we might need.

Let’s look at capital first. In the past the Company’s ability to raise capital has been meaningfully constrained as a result of the low market price of our common stock, the thin trading of the shares, and the absence of a listing on a major exchange. The result was that when the company needed to raise money, the terms were very expensive. This has increased the cost of raising capital and limited the types of offerings that can be made.

I believe these circumstances have also significantly reduced the number of potential investors in our shares, since most institutions will not buy penny stocks or shares that are not traded on a major exchange and priced below $5 per share. Likewise, many retail brokerage firms cannot recommend such stocks to their clients.

By reducing the number of shares of common stock outstanding, the resulting share price could increase to a level where there may be greater interest in the common stock by the financial community and the investing public.

Investor interest would be further enhanced by listing the Company’s common stock on a major exchange, which we intend to purse as soon as we meet all applicable listing criteria.

Listing requirements for the major exchanges include a minimum market price depending on the exchange. For NYSE AMEX for example, the minimum price is $3. So based on the present and historical trading prices for our common stock, effecting the reverse split is really a prerequisite to meet the listing criteria of an exchange.

Without a reverse split, we would have to wait until the stock price increased on its own to a high enough level to qualify for a move. But there is no way to know when or even if that would happen. In the meantime, our shares would continue to be subject to all of the disadvantages and negatives associated with being traded over the counter.

Some people seem to fear a reverse stock split because they don’t understand what it means. Here is the way a reverse split works:

If approved by the stockholders, the principal effect will be to decrease the number of outstanding shares of common stock from 293,767,389 to approximately 19,584,492 based on share information as of September 4, 2009. Also, the number of shares of common stock issued subject to stock options, warrants, or convertible securities will automatically be proportionately decreased by a factor of 15 and the exercise price or conversion ratio will automatically be proportionately increased by a factor of 15.

For example, an option to purchase 300,000 shares at an exercise price of $0.40 per share outstanding before the reverse stock split will become, after the reverse split, an option to purchase 20,000 shares at an exercise price of $6.00.

The reverse stock split will not change the number of authorized shares of our common stock under the Certificate of Incorporation. Therefore, because the number of issued and outstanding shares of the Company’s common stock would decrease, the number of shares remaining available for issuance would increase. These additional shares of common stock would be available for issuance from time to time for corporate purposes such as acquisitions of companies or assets or sales of stock or securities convertible into common stock to raise additional capital.

The availability of the additional shares will provide us with the flexibility to meet business needs as they arise, to take advantage of favorable opportunities, and to respond to a changing corporate environment.

I cannot predict the future. But I do know this: Without the split and the option to move to a major market, our ability to attract large institutional investors will be seriously impaired. And that could limit the company’s future.

This reverse split is an important and positive step in our company’s development, and I personally believe it is a necessity for the development of our firm. So I urge you to vote  your shares in favor of this proposal.