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| 8-K - NOTIFY TECHNOLOGY CORP | v202953_8-k.htm |
November
16. 2010
Bruce
Galloway
Galloway
Capital Management, LLC
720 Fifth
Avenue, 10th
Floor
New York,
NY 10019
Mr.
Galloway,
Thank you
for your letter dated November 3, 2010. Please be assured that the management
and Board of Notify Technology has already considered and extensively discussed
several of the options you have covered in your letter and has come to the
conclusion that they would not provide the Company or its shareholders any
meaningful long term benefit.
Notify as
a small public company is in a difficult position in a non-speculative investor
market. We are faced with the significant challenge in attracting
investors by the limitations of trading on the OTC Bulletin Board rather than on
NASDAQ. Furthermore, Notify‘s business does not naturally generate a
lot of substantial and lucrative news as our product is neither a consumer
product nor has our current market focus been the Fortune 500. Notify
has never had a policy of enticing investors by inflating the news that is
released or falling back on fluffy announcements to create opportunities to
artificially promote our name.
Historically,
the Company’s public relations activity was limited to product releases and
quarterly financial news. Up until six quarters ago, Notify was losing money on
a P&L basis and no amount of IR activity would have changed that
fact. Based on inquiries made by management, it has been the opinion
of the Company that hiring an IR firm would have required Notify to use a
significant amount of its much needed cash with little to no lasting
effect. The fact that Notify’s product releases and financial news,
regardless of content, showed at best, temporary stock price improvements and
quite often produced zero trading proved that the market was not sensitive to
our performance. We feel that it is difficult to generate excitement
in these turbulent days of the stock market.
Notify
has regularly reported over the last six quarters financial improvement
involving both profitability and increased cash. These improvements
have failed to garner any real investor interest, share volume activity or any
increase in the market value of the Company. I have enclosed with
this letter two graphs that illustrate this point.
Notify
has and continues to look for acquisitions that would add shareholder value.
Unfortunately, the low value of Notify’s stock makes it difficult to negotiate a
deal without accepting substantial dilution or loss of control in any deal.
Notify does not have the cash to make up the difference and could certainly not
support an acquisition partner with a significant negative cash
flow. Notify believes that an accurate evaluation of its value
is held hostage by its public valuation and that any current M&A activity
would not be beneficial to shareholders.
Notify
has investigated the possibility of a share buyback program and carefully
examined the stringent rules governing such activity. It has
determined that due to the rules and regulations governing share buybacks,
Notify would only be able to repurchase a limited number of
shares. Based on these limitations, the Board did not feel this would
create any significant shareholder value. The attached analysis of
the market values of the Company over the last few years versus the improvement
in profit performance and cash performance further confirms the total disconnect
between our market value and the real value demonstrated by our
performance.
Your
suggestion of providing shareholders a dividend may serve some companies when
they have a cash surplus from which to pay out dividends. Notify has
improved its cash position over the last few years and is finally in a position
to make choices in investing in the Company’s future rather than being concerned
with solvency. Liquidating that solvency in a dividend payout seems
to be moving in the wrong direction and we are reluctant to put short term share
price over long term investment in shareholder value. Long term
shareholder value must remain our chief concern and liquidating 40% of our cash
reserves in a dividend payout does not serve that end
Although
Notify has improved its cash position over the last three years, the balance
still represents only three months of operating expenses. Using a
significant amount of this cash reserve to achieve, what I believe would be, a
temporary increase in our stock price would be financially
unsound. Should we miscalculate, the cost and difficulty of raising
additional capital in these economic times to recover to a stable cash position
would be expensive and dilute shareholder equity. I believe we must
preserve what cash we have on hand.
Bruce, we
can understand your concerns as a significant investor and we appreciate the
feedback. You have asked many of the questions we have asked
ourselves. The Board has investigated and discussed your many
suggestions over the past two years as it has consistently sought opportunities
to generate shareholder value. I have made sure your concerns were passed on to
the Board and the Independent Committee. We all look at possible
strategies for Notify from many angles and you represent one of
them. In the end, the Board will use its best judgment and act on
what it believes is best for the shareholders as a whole and the Company in
general. Thank you for your input. Please feel free to
inject any other thoughts you find relevant.
Sincerely,
Paul DePond
President
Notify
Technology
Graph
1
Graph
2
