Footnotes from Investview's Filings are Revealing
The footnotes from Investview's (OTCQB:INVU) recent filing of its financial statements for its most recent quarter ended September 30, 2012 were revealing. Revenue for the quarter as compared to the quarter ended September 30, 2011, declined by 29% to $390,835 from $556,947. Losses declined by 44% to -$956,138. This compared to a loss of -$1,726,250 for the same year earlier quarter.
Investview is in transition
Investview's losses declined at a faster pace than its revenue since its business or revenue model is currently in transition. Since Dr. Joseph Louro joined the company as its chief executive officer (CEO) in the summer of 2011, Investview has been engaged in the process of reinventing itself.
In October of 2012 the company acquired Instilend. It was the most significant development or transformation in Investview's history. Instilend owns and operates the world's only electronic securities lending exchange (SLE). The acquisition put Instilend into a no risk transaction processing business which has the potential to generate the company immediate and exponential revenue and profit growth. Instilend also gives the company significant credibility and visibility since the Bank of Montreal's (BOM) Capital Market's division recently became a licensee of its SLE. For more information on how Instilend could potentially generate aggregate net profits in excess of $210 million for Investview over the next 36 months see Acquisition of Instilend Transforms Investview .
The acquisition of Instilend also increases the price earnings (PE) multiple of its shares. The shares of companies in the no risk transaction processing industry have much higher price earnings multiples than the S&P 500's multiple of 15.2. Expedia (NASDAQ:EXPE) most recently had a PE of 23.51 and Priceline's (NASDAQ:PCLN) was 23.24. Visa's (NYSE:V) most recent PE was 45.3 and Mastercard's (NYSE:MA) was 27.2. LML Payment Systems (NYSEARCA:LMLP) recently announced that it is being acquired by Digital River (NASDAQ:DRIV). Its most recent PE was 27.93.
Below are the additional developments which have occurred since May 2012 that are reshaping the company:
- Randy MacDonald, who is a former chief financial officer (CFO) of Ameritrade joined as its President and CFO in May of 2012.
- David Kelley, who is a former chief operating officer (COO) of Ameritrade joined as its COO in August of 2012.
- Entered into a joint venture with Choice Trades, an online brokerage firm boutique in October of 2012.
- Entered into a white labeling deal with a second online broker in October of 2012.
- Entered into a Definitive Agreement to acquire S.A.F.E. Management LLC, which is a registered investment advisor in October 2012.
The recent developments above enable Investiew to transition its online investor education and information business from a high cost to a low or a no cost marketing and advertising model. The two former Ameritrade (NYSE:AMTD) officers who joined the company provide Investview the credibility that it needs to become a primary supplier of online investor education and information to the global online brokerage community. Instead of having to pay excessive customer acquisition costs it will soon be able to market and sell its online investor education, financial information and investment advisory products to the clients of its new online brokerage partners. Finally, Instilend's customer acquisition costs are minimal. See Mystery Surrounding Instilend's Acquisition By Investview Has Been Solved .
Investview's Losses and Costs have decreased significantly
Before Dr. Louro joined Investview as its CEO the company had been completely dependent on spending all the cash that it could generate from its operating and capital raising activities to acquire subscribers for its online investor education and financial information products. It's the primary reason why the company racked up losses and its shareholders suffered massive dilution. The company's losses were $9.1 million and $9.9 million for its Fiscal years ended March 31, 2012, and March 31, 2011, respectively.
Investview's marketing and advertising costs have declined significantly. For its three months ended September 30, 2011, Investview incurred $180,000 in marketing accretion costs. This compared to a cost of nil or 0 for the current 2012 comparable quarter. Also, for the latest reported quarter it spent approximately $46,000 on direct marketing or 12% of its revenues versus 96% or about $535,000 for the same quarter in 2011.
A further review of Investview's financial statements for its most recent quarter ended September 30th indicated that a portion of its operating losses were not related to its direct operations. In September 2012, the Company issued 70,000 shares of its common stock, valued at $284,200, to First National Boston Corporation (NASDAQ:FNBC) as payment for the waiver of a non-circumvent agreement. The payment was related to the company's ongoing negotiations to acquire the Quick & Reilly brand from FNBC. The company's accountants treated the issuance of the shares as an operating expense for the quarter. Without the one time issuance of the shares the company' losses for the quarter would have been $672,138. Additionally, stock in lieu of cash compensation for employees accounted for $402,000 of the September 2012 quarter's reported losses.
Investview's successful raise of capital reduces dilution risk
The biggest risk to shareholders which was addressed in a recent report authored by me was the risk of potential dilution. My argument had been that Investview is currently running at a deficit and it does not have that much cash on its Balance Sheet. The risk that its shareholders faced was that it might have to issue shares at a significant discount to its current $4.00 share price until its able to generate enough revenue and profits to get it to breakeven.
The company disclosed in its most recent filing that between October 22nd and 24th of 2012, it had placed $800,000 in 8% Secured Convertible Promissory Notes with two investors. The Notes bear interest at 8%, mature three years from the date of issuance, and are convertible into Investview's common at a conversion price of $4.00 per share. The investors also received 87,500 warrants to purchase Investview's common shares at $6.00 per share for five years. In obtaining the recent capital the company has significantly reduced the risk that it could be forced to issue shares or convertible securities at a significant discount to its current share price.
The company's insiders have provided the company with capital at very favorable terms and conditions. The terms and conditions of the recent $800,000 that was raised by the company in October are similar to the $500,000 in loans that the company's CEO and COO have made since joining Investview:
- $200,000- June 30, 2011, CEO Joseph Louro
- $100,000- December 29, 2011, CEO Joseph Louro
- $100,000-August 6, 2012, CEO Joseph Louro
- $100,000-August 17, 2012, COO David Kelley
The timing of Louro's loans to Investview is very telling. Its because the first two loans that the CEO made occurred at the end of two of the company's quarterly filing periods. The third loan that he made on August 6, 2012 was within a week before the company filed its June 30, 2012 quarterly report. Louro's making of the three loans to meet crucial deadlines to insure that the company remained afloat during the early stages of an extremely difficult period speaks volumes. Additionally, Louro helped to improve the company's Balance Sheet by converting $600,000 that the company owed him for his accrued salary and bonuses into 150,000 shares. Louro by his actions has demonstrated that he and the company are making decisions which protect and enhance value for all of Investview's shareholders. Shareholders of public companies rarely experience this.
Furthermore, David Kelley provided his loan to the company on the day that he accepted the position as the company's COO. It's the first time that I have ever seen anything like this happen. Kelley's making of the loan on the day that he joined the company also says a lot about the level of commitment that he made to Investview. He willingly joined Investview even though it had negative cash flow. The former COO of Ameritrade did not have to join a fledgling company. He received a $4 million severance package in 2011 from Ameritrade . The fact that he took the risk to even join the company as a senior officer is in itself remarkable. He had spent almost his entire career as a member of the senior management of both Ameritrade and Merrill Lynch. In joining Investview Kelley made a statement. He joined and was willing to make an investment into a fledgling company because he saw that it had potential.
I have been with the stock market and the investment business for 35 years. I can recall few, if any, instances where the incoming management of an established public company had personally invested into the company under any terms and conditions. This is especially, if the case was that a company was generating negative cash flow such as is Investview's. What normally happens is just the opposite. Management obtains funds from minority investors so that the company will have the capital that it needs to pay management.
In summary, Investview's filing of its financial statements for its quarter ended September 30, 2012, revealed that the company is in transition. Its moving from a revenue or business model that required significant marketing and advertising expenditures. Its new model requires it to spend little or any monies to acquire customers. Instead it can market and sell its online investor education products and services to the established account bases of its online broker dealer partners. The filings also revealed that the risk that its shareholders face in being significantly diluted has been reduced. This is due to the success that it had in August and October capital raising activities.
More information on Investview and on the online financial sector in which Investview is a member is available at onlinefinancialsector.com. There is a video which is available that explains why the sector's cash flow metrics are superior to many of the other industries and sectors that I follow. I have owned shares in Investview for several years and I may buy and sell shares in the company from time to time.
Disclosure: I am long OTCQB:INVU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.