a21 has announced that it may soon have a new majority shareholder. The Florida-based publicly traded company has executed a non-binding Letter of Intent with Vermont-based Applejack Art Partners. If the agreement proceeds as outlined, Applejack will own the majority share of a21 stock.
Applejack was established in 1988 by Jack Appleman, who remains its CEO today. Originally focused on publishing, the company has explored other niches in the art world. Currently, Applejack comprises several divisions, many brought in through acquisition. The company embraces fine-art prints and posters, artist representation and art licensing, auctions and fine porcelain. The latter two were added in 2007, when Applejack bought a Holbrook, N.Y.-based AJ Ross Art Auctions and EM Boehm Fine Porcelain of Ewing, New Jersey.
At the beginning of this year, a21 had a total of 87,061,076 outstanding shares. Under the letter of intent, Applejack intends to purchase all of a21's outstanding notes, valued at $18 million, and all of the common stock, some 41 million shares, currently owned by current note holders. Subsequently, a21 would sell 110 million new shares of common stock to Applejack to satisfy $13 million of the notes. The transaction is contingent upon the execution of definitive agreements by all stakeholders, but the intent is to move forward as soon as possible.
Applejack has also extended a credit facility to a21. As of July 16, a21 has access to up to $500,000 under the annual interest of 12%. a21 has already borrowed one-fifth of the total amount.
The two companies believe they have complementary offerings. In addition to its stock-photography businesses - SuperStock and newly launched MediaMagnet - a21Group runs ArtSelect, which sells prints, posters and art-framing services via the Internet. The company has offices in Florida, Iowa and London.
In February, following layoffs, consolidation of operations and re-allocation of cash assets, a21 executives said they had doubts about the company's future. Its financial performance was in a downward spiral. Both divisions, which account for nearly equal shares of total revenue, were in trouble: SuperStock's fourth-quarter 2007 revenues were within $1million of the first quarter of 2006. ArtSelect was fairing even worse, with a 10% drop in revenue in the third quarter of 2007, compared to the previous year. In addition, a21 reported significant recurring losses, which accumulated a deficit of $26.9 million in September 2007. The company desperately needed cash and said it was seeking strategic alternatives, with the help of a local investment bank.
Still, a21's stock offering is fairing reasonably well in troubled economy. MediaMagnet's budget-stock offering is too young to have produced results; however, it could potentially become a growth area. Company CEO John Ferguson said the deal with Applejack would result in a significant reduction of a21 debt and position it for growth. Jack Appleman added that he saw opportunity for incremental sales and improved efficiency for both companies.