Fwd: Valuations

From: Eric Schwerin <eschwerin@rosemontseneca.com>
Date: March 6, 2019 at 9:41:30 PM CST
To: "George R. Mesires" <george.mesires@FaegreBD.com>
Subject: Valuations

George,

Just wanted to put down in an email what we discussed earlier regarding the valuations of the entities and why I feel that I am already making concessions so that Hunter receives more than 75% of the value of Skaneateles.

If you look at the entities remaining in Skaneateles that I giving up my 25% of there is significant value there.  BHR was valued at RMB 60m in November 2016.  In today’s dollars that equates to $8.94m.   Skaneateles shares would therefore be valued at $894,000.  25% of $894,000 is $223,500.  I am attributing the full value of the shares even though there is a $150,000 loan due to BHR by Skaneateles because there is a high likelihood that that there will be a distribution in 2019 that would repay that loan and still provide a distribution to Skaneateles.   This is not even taking in consideration future distributions from exits of Henniges, Sinopec, and Face++.  All of these investments are likely to be profitable for BHR.  

I served as the Supervisor for BHR on behalf of the US shareholders for no compensation and served as the Skaneateles point person for BHR over the past few years.  Giving up the 25% of BHR is a big concession on my part.

While Rosemont Seneca Advisors may not have any market value, there is also some value in the Tadich Grill shares.  While the restaurant has closed down there is litigation ongoing that may benefit the shareholders.  If that fails there will be a tax loss that the shareholders will receive which could hold value to Hunter.

I think it is conservative to say I am giving up at least $250,000 by ceding my 25% of the above entities to Hunter.

If you look at what Hunter is ceding to me the sole transfer is the 75% of RSP Holdings (the parent of RSP Investments).  As the entity is not profitable, has no fee trails that would be owed to the owners, and requires at least a $10-15K a month capital contribution to make up the deficit the value of RSP is minimal.  That said, let’s say the broker-dealer has a value of approximately $100,000 based on a generous valuation of the business.  That means Hunter is giving up $75,000.  But that isn’t considering the $237,000 in capital contributions I made over the past 16 months.  Agreeing to wipe out that debt to me is another major concession.  

Eudora is the only entity that I am proposing we keep our current equity in.   Therefore neither of us is giving up anything in value as it relates to Eudora.  But as a reminder, Hunter and I received our shares of Eudora as sweat equity for our shares of Radix.  Radix was established partially based on my personal relationship with Xiaoying Zeng who became a partner and manager of their business in China.  I am confident I provided at least 25% of the value to our shares of Eudora.  

Finally, I want to clarify that I have received no extra compensation from Rosemont Seneca, Skaneateles or RSP Investments since September 2017 beyond that which has been paid to Hunter and me equally (via Eudora or one CAF payment).  I also funded Joan’s salary and Joan provided significant support to Hunter through the end of 2017, and then provided Katie with a lot of help as she even today tries to get up to speed.

In summary, from a pure value point of view I am ceding Hunter at least $250,000 in value versus him ceding me $75,000 in value.  That’s excluding any direct capital I funded to the businesses since September 2017 or uncompensated work I did to keep the businesses running since that time.   But looking at pure dollar value I am giving Hunter approximately $175,000 more than if we valued the entities and paid cash for our shares.

Hope this is helpful.  I just wanted you to have this in writing in case you need to refer to it.

Thanks,

Eric

Eric D. Schwerin

2550 M Street NW

Washington, DC 20037

(202) 333-5196

eschwerin@rosemontseneca.com

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