Wellfleet Partners, inc.

As we recently concluded the 2003 NBA draft, it’s an appropriate time to highlight the “hoopla” (no pun intended) over the 18 year old phenom LeBron James, the recently graduated high schooler drafted first by the perpetually woeful Cleveland Cavaliers. The 6’8 native of Akron, Ohio was not the initial high schooler drafted first; that distinction happened in 2001 with Kwame Brown of the Washington Wizards. Nor was the attention and notoriety showered on him particularly unusual; last year’s first pick Yao Ming, the gentle 7’5 Chinese immigrant giant of the Houston Rockets, was worldwide news. King James was, however, record setting when it comes to what our society clearly judges success by: KACHING! Before playing one professional game, one practice or even graduating from High School, he signed a $5M contract with a collectible card company and even more unbelievable, NIKE announced a $90M, 7 year contract to create a LeBron James signature shoe. In beating out Reebok and Adidas, NIKE has added considerably to its already massive $100M budget on basketball player’s endorsements in order to increase its current 60% market share. Sports fan or not, this is big news and it has been splattered across the Wall Street Journal and various business periodicals as well as the sports pages. It speaks volumes about our youth oriented, street savvy hip-hop culture that appeals equally to inner-city kids and suburban teens. In a business that peaked at $2 Billion in the late 90’s, the “sneaker wars” has reached a new fever pitch. What will this contract do to the business of NIKE, a $9 Billion company if LeBron is a bust like Kwame Brown before him? Isn’t Kobe Bryant (no shoe endorsement this past year) or Kevin Garnett whose contract is up, arguably the two best players in the world, a better gamble? Both are proven entities and already endorse a host of other products (e.g. soft drinks, clothing, music and entertainment companies…). To me, it feels like the late 90’s when newly formed “dot com” companies received exaggerated and quite frankly ridiculous valuations while low tech, older and significantly more stable companies were passed over as “boring”. LeBron James may be great and I too would pick him with the first pick in the draft, but $90M!

“No person was ever honored for what he received. Honor has been the reward for what he gave.”
-Calvin Coolidge

In contrast and under the topic of worldwide news, David Beckham, the global superstar soccer player of Manchester United, was sold recently to Real Madrid of Spain’s premier division La Liga for $35M. Barely a footnote in America, this was front page news in Europe, Asia and many other parts of the world. Beckham, whose name you might recognize from the largely successful independent film “Bend It like Beckham”, is such a global figure that he actually was the major campaign promise of the newly elected President of Barcelona. Like many other politicians (“Read my lips, no new taxes”), once in office he will not keep his campaign promise as the move to the 9 time European Champion prevents. Throughout his 11 year love affair with Manchester United, the football club won 8 titles in 11 years, he played in close to 400 games and became a national and international cultural icon, trendsetter and celebrity. His popularity was only enhanced upon his marriage to Posh, one of the Spice Girls. If David Beckham, a marketing colossus and the Captain of England’s national team can be sold and transferred to Spain, is anyone really safe?

“While we are sad to see David go after so many great years, we believe this is a good deal for the club.”
- Peter Kenyon, CEO
Manchester United Football Club

The market has continued to be volatile yet over the past quarter we have seen a 20% appreciation. Many investors miss rallies by being blinded by volatility, shell shocked from the prior 2/3 years or simply paralyzed by indecision. Yet, since 1925 the market has fallen in 24 years and risen in 78 (Ken Fisher, Forbes). While admittedly the massive run up of the late 90’s and down turn of the past 3 spooked many, the thought of a continuous bear market flies in the face of history. Thus, we are collectively changing our position from “cautiously optimistic” (see spring 2003) to simply “optimistic”. We suggest you, or through your financial service professional, rebalance or modify your portfolio by increasing your outperforming assets but continue to employ safe, sagacious investment strategies (e.g. covered calls, Loss limits, diversify…) Be flexible!

“We have no choice but to be shorter term in our outlook, it’s essential.”
Peter Bernstein
Author
Against the Gods: The remarkable Story of Risk

This past quarter was one of painful but inevitable separations and exciting new beginnings. After 5 wonderful years and not a single germane disagreement, Zachary Prensky, the former Managing Partner and Co-Founder of WPs and Spider Financial (“Spider”) decided to continue to take personal time off and pursue other unrelated business interests. In his first few months, at his newly formed personal investment firm Little Bear Investments, he made tender offers for two publicly traded companies, “RCOM” and “CALP” and purchased out of bankruptcy the assets of Divine, Inc which included one of our former portfolio companies, Aluminum.com. We all wish him and his family only the best! We also welcome to our company Alan Fine, an investment banker with an extensive real estate background and Ted Breitbart, a professional in the financial service business for close to 30 years. Also, we are pleased that Zalman Zimmerman and Marissa McKelvey will be joining us on a full-time basis this fall.

“Learn from yesterday, live for today, hope for tomorrow.”
-Anonymous

Under the direction of Neal Scott, we intend to expand Starobin Partners brokerage activities and to that end, are pleased to report the hiring of several new registered representatives. With the market offering renewed hope, we are seeing enhanced opportunities in various financial services and we are evaluating several synergistic options.

During the past quarter we welcomed to our family of portfolio companies Magnitude Information Systems, Inc (“MAGY”); Nu Think Technologies, Inc., Braselton, Georgia; Oak Forest Hotels, Fort Lauderdale, Florida; The Rampling Group, Terrey Hills, Australia; Kryotrans, Inc., Suerry, England; and The Ropa Group, Hauppauge, New York.

Our Palo Alto affiliate, under the leadership and direction of Scott Munro, likewise had an active quarter. One of its portfolio companies, Tarantella, Inc. (“TTLDC”) announced the acquisition of New Moon Systems. Inveraray Partners, LLC (WPs west) found, negotiated and assisted in the closing of the aforementioned transaction. Inveraray added three new partners to the firm. Nancy Albertini, Founder and Chairman of Taylor Winfield and responsible for introducing Warbug Pincus to BEA Systems resulting in one of the largest VC wins ever, Mark Vershel, formerly General Partner with Matrix Partners and executive with Borland, PeopleSoft, Intel and Red Hat Software and Bob Kohn, Vice Chairman of Borland, successful entrepreneur with multiple start ups, world renowned IP lawyer and author of a number of books. Inveraray also added several new clients including Black Pearl Systems, Mountain View, CA.

“We do not remember days, we remember moments.”
-Caesar Pavese

On Behalf of the members of our organization, we wish you and your family a very enjoyable, relaxing and prosperous summer.

Sincerely,

WELLFLEET PARTNERS, Inc.
Spider Financial, Inc.
Starobin Partners, Inc.

Note: This report was produced by Wellfleet Partners, Inc. (“WPs”) from various public research sources, for the sole purpose of general information. WP makes no warranties to its factual content and is not a brokerage firm, registered Investment Advisor nor securities dealer; therefore, nothing contained in this report shall constitute an offer to sell, solicit or buy any securities or investment advice. Investment in these securities mentioned here involves risk and should not be considered without first reading the target Company’s most recent financial statements, 10Q and 10K, its Private Placement, Offering Memorandum or Business Plan, if applicable, and discussing the investment with your registered representative or professional financial advisor. Venture capital and investment in the market is inherently extremely risky. Mr. Lev, the author of this newsletter as well as other members of WPs and SR, are registered representatives of J.P. Turner & Company, LLC, an NASD member broker-dealer principally headquartered in Atlanta, Georgia.