EastBridge Investment Group, Inc. (OTCBB: EBIG), a provider of financial services to emerging public companies in Asia, with clients similar to companies like Chinacast Education Corporation (Nasdaq: CAST) and China Education Alliance, Inc. (NYSE: CEU), recently held an interview with Accelerize Financial, in which CFO Norm Klein discussed the company’s current and future prospects and how it is working to unlock value for shareholders.
Accelerize: Can you provide us with a brief overview of EastBridge Investment Group and what it does?
EastBridge: EastBridge provides financial services to its clients, this includes helping them with capital raises, getting listed on U.S. stock exchanges and joint ventures. To date, our primary service is to help clients become listed on a U.S. stock exchange. Most of our clients are in the Far East in places like China, Australia, Hong Kong, etc. And, for our services, we receive cash fees plus 10% to 20% ownership in a client, so once they are listed, we own 10% to 20% of the outstanding stock.
Accelerize: Of that 10% to 20%, how much do you typically dividend to shareholders versus keep for yourself, and long-term, do you plan on holding that equity for several years or just until certain restrictions go away?
EastBridge: For the most part, we provide a stock dividend to EastBridge shareholders that amounts to anywhere from 1% to 2% of outstanding stock.
What we normally do is declare a record date. For example, we just did one for Alpha Lujo, we sent out a press release on March 1st and said that ,as of March 31st, if you are a shareholder of EastBridge, you will become a shareholder of Alpha Lujo as well, once we issue the dividend. And, we normally issue those dividend shares after a client has been cleared by the SEC.
As far as what EastBridge does with the percentage we own, once a client becomes listed, we will sell a small percentage of that stock, to help our cash flow. But, our main goal is to hold our client’s stock, because what we’re hoping to have a long-term relationship with these clients where we can help them grow their businesses and help them with future capital raises, etc. We intend to add value to their businesses which should increase the value of their stock that we will hold.
Helping our cash flow by selling some stock will be applied to our future business, because that allows us to do more marketing, visit potential clients, etc. Bottom line, we will use the extra cash to grow our business.
Accelerize: So, long-term, that converts you somewhat of a holding company, like Berkshire Hathaway, but on a smaller scale, where you own equity in a lot of different companies?
EastBridge: Yes, that’s exactly right. Obviously, it helps our balance sheet with the increase in assets. Short-term, once a client gets listed and cleared, we can sell some stock and start recording that as revenue, and our plans are to spread that revenue over 2-3 quarters. That helps us build our revenues, which will also increase our net income each quarter. So, it helps both our balance sheet and our income statements. Long-term, our financials should significantly look better as we get more and more clients listed. And, as I mentioned earlier, we’ll hold onto the bulk of our client’s stock , so our balance sheet will continue to improve over time.
Accelerize: And, that should also be a pretty versatile cap structure as well, since you’ll be able to take out short-term loans against those assets?
EastBridge: Yes, very much so. And our long-term plan for EastBridge is to move to a higher stock exchange. Currently, we’re trading on the OTC markets – our intent is to be listed on Amex or Nasdaq. Obviously, we need to have strong financials for that to happen and our stock price needs to be at the right level. And, we believe we can get there, as our financials begin to improve. They are starting to improve right now and we believe that they will continue to improve to a point where our share price will increase. Our financials should become very strong over the next several quarters, and we’ll be able to apply to Amex or Nasdaq. Once you get to a higher exchange that will help us into the future.
Accelerize: Yes, you’ll have significantly increased liquidity.
EastBridge: Yes, and really provide great value to shareholders. Because, once you get to the higher exchanges, you begin having more financial institutions invest into your company bringing higher net worth investors. There’s a chance we might do an IPO as a part of the listing to a higher stock exchange. This will provide the necessary capital for us to increase our business significantly. All of these plans are intended to grow the company, bring us additional clients with high market caps. This should increase shareholder value.
Accelerize: And then, have you publicly disclosed any kind of a timeline for an uplisting or does that depend on other factors?
EastBridge: No timeline. It’s really based on results. Our share price needs to be at the right level and the only way to do that is with strong financials. We believe that it’s doable in the near-term, versus the long-term. Once we list a couple of our clients, our financials will improve significantly and we will apply to a higher exchange. Let me be perfectly clear – we will not move to a new exchange until we have the necessary strong financials. The move will be based on results, not a target date.
Accelerize: How many clients do you plan on helping become public this year and maybe over the next 3-5 years? And, what can shareholders expect from those as far as dividends?
EastBridge: Well, this year, our target is 3-4 clients and probably somewhere in the range of 4-6 clients per year for future years. One or two clients should be listed by the end of June this year and then hopefully list 1-2 more clients by the end of 2011. So, I think that’s a good target for this year, and then, as I stated before, we should be able to grow the business and increase that to 4-6 per year as we move into the future.
Accelerize: What is the average market capitalization for these clients?
EastBridge: We work with small to medium sized companies, so I expect their market caps to be somewhere in the $20 to $75 million. We might have a couple larger than that, but for the most part, it should be in that range.
Accelerize: So, then as far as dividends, if you wanted to make the calculation, between $25 and $75 million, take 1% to2% of that, and multiply that by the number of clients per year.
EastBridge: That’s exactly right. Of course, that amount is spread over 1600 shareholders of EastBridge and it depends on the number of EastBridge shares that you own. More EastBridge shares that you own, the more client shares you will own. Again, we usually distribute the dividends after the company gets cleared by the SEC. Of course, SEC clearance happens before they actually get listed. So, people should have their shares before the company gets listed on a U.S. stock exchange. After listing, you can usually begin trading the stock if you have free trading shares. If the stock is restricted, then you will need to wait until the stock is freed up. Usually, restrictions last anywhere from six to twelve months after SEC clearance. Restrictions are placed on stocks by the SEC, not by Eastbridge.
Accelerize: On another topic, there are a lot of accounting concerns with some Chinese companies. Do you work with a lot of US based auditors with these companies?
EastBridge: They are all US based auditors, because you need to understand what the SEC requirements are, etc. We are very, very careful with that. We work with the clients very closely to help improve their accounting practices and making sure they meet US GAAP requirements, which are some very strict accounting practices that need to be met. We work with several different auditors and SEC attorneys, we do the correct due diligence and scrutiny of the clients. Before the auditor get started, we have the auditor review the accounting just to make sure we’re not missing any major issues there.
We understand the issue and the concern from US investors, and we’re just doing the correct amount of due diligence and scrutiny of their books and accounting practices, to hopefully alleviate those concerns.
Accelerize: Then, from a macroeconomic prospective, do you have any thoughts or opinions on the Chinese government’s move to raise interest rates to combat inflation? Or, any other opinions on those issues?
EastBridge: I think we all know that the Chinese economy is growing significantly and I believe that growth will continue. They are #2 in the world, just below the US, so obviously they’re a key world partner. And, what’s really encouraging, is that their middle class is growing and those families and individuals are purchasing items that they never even thought of in the past. So, we believe that’s going to continue, so the opportunity is great.
As you mentioned, there are a couple of concerns around inflation and interest rates, and I think, hopefully, the Chinese government and US governments will work together to get those resolved. So, we think the future is very, very bright in China. EastBridge provides our shareholders not only the opportunity to hold stock in Eastbridge, but also in our Chinese client companies that should grow significantly. Therefore, our shareholders can participate in the growth of a very strong economy that could be #1 in the world someday.
Accelerize: And, I know, a lot of your clients like Wonder Education and Tsingda are focused more on the domestic markets rather than export markets. And, I know a lot of these negative changes are largely only affecting export companies, like the appreciation in the Yuan and so forth. So, that’s good.
EastBridge: Exactly.
Accelerize: What does the timeline look like for the next 2-3 clients for this year?
EastBridge: We have two education companies in China that are very good, strong companies that plan to get listed and conduct an IPO in the near future.
The first one is called Tsingda and they tutor kids from K-12 and their business has doubled every year over the last three years. We’ve already achieved clearance on a couple SEC registration statements, and we’re in the process of receiving clearance for a third registration statement for their IPO, which we’re hoping to conduct over the next 30-60 days. Once that is done, we’ll be applying to Amex to get them listed. We plan to complete all of this the end of May.
Our second client is Wonder International Education Investment Group and they have already been cleared by the SEC. We’re just about ready to file their S-1 registration statement for their IPO, which we’re hoping to complete in the next couple of months, and obtain an Amex listing for them as well by the end of June.
Those are two clients that are close to being listed on Amex, most likely, and we’re hoping to get that done by the end of June. We’re working on several other clients, too. One is Dwarf Technologies, one is Aero Pacific and one is Alpha Green. All of these companies are going through audits right now, and working with SEC attorneys that EastBridge has provided. I would expect that we will have 1-2 of these companies listed by the end of 2011.
There’s another company called Alpha Lujo that is based in the US and we’re working on merging an Australian company into that firm. The Australian company is involved with electric vehicles, so we think their potential is extremely high. We hope to get that merger completed in the near future, and Alpha Lujo is already trading on the OTC market, so people can already go purchase that stock. Once the merger is done, we should see some significant growth there.
So, those are the primary companies that we’re working with, and we’re also looking for potential new clients. We’re close on a couple, but I can’t share those details at this time, until we have those agreements executed.
Accelerize: For Alpha Lujo, is that for equity or just for a fee?
EastBridge: We have already received our stock for that, because we helped the Australian company purchase an OTCBB shell company, which was called E Global Marketing and we changed the name to Alpha Lujo. As I mentioned earlier, we’re going to provide a share dividend for EastBridge shareholders on record as of March 31st of this year.
Accelerize: Ok, and moving back to Tsingda Education and Wonder Education, do you know what multiples the comparables are trading at?
EastBridge: Most of the multiples for the education companies are anywhere from 10x to 20x, so we’re hoping to have a similar multiple for Tsingda and Wonder when they complete their IPO process.
Accelerize: If you could tell would-be shareholders one thing, what would it be?
EastBridge: I think the future is very bright for EastBridge. We have 3-4 clients hopefully listed by the end of this year, with Wonder and Tsingda leading the way. Once we get a couple clients listed, our financials will become stronger. In fact, our financials for 2010 are already going to be better, because we were able to record part of Tsingda’s revenues in the fourth quarter of 2010. Because of that, we’re showing revenue of about $1 million and net income of about $800,000 in the fourth quarter of 2010, which we shared with the market via an Earning Guidance in a press release in late February.
Our annual report will be filed within the next couple of weeks and people can see our fourth quarter results. So, even now, our results are stronger than what they have been in the past, and we expect to continue that as we move through 2011. So, we believe that the future looks bright, we plan to move to a higher stock exchange in the near future. It’s a good time to get into EBIG right now and hopefully we’ll all share in the success of Eastbridge.
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