STG moves forward under new structure
If you look at the Securities and Exchange Commission filings and even some published reports it can seem like STG Group Inc. is imploding.
Board members have resigned and claim they have no resources to fulfill their roles. Senior executives have also resigned. A creditor has stepped in because the company wasn’t meeting the conditions of loans.
But you have to peel back a few layers because this is a complicated story and mostly because of the STG’s structure.
First there is STG Group Inc., which is a publicly-traded entity. Its shares trade over-the-counter under the symbol "STGG."
Under the public entity is STG Holdings. Then under STG Holdings is the operating company STG Inc. The resignations have all dealt with the publicly-traded entity STG Group.
Those resignations included Phil Lacombe, who was the president and chief operating officer of STG Group, and Chief Financial Officer Charles Cosgrove.
But Lacombe and Cosgove remain in place as the COO and CFO of STG Holdings and STG Inc., the operating company.
The board members who resigned included Damian Perl, who helped create the special purpose acquisition company -- or "SPAC -- that first acquired STG in 2015 to create the publicly-traded entity.
The publicly-traded entity still exists and still owns STG Holdings and STG Inc., Lacombe explained to me. But the creditor MC Credit (called MC Admin in SEC filings) stepped in because STG Group had essentially defaulted on its loans.
MC Credit has since created a new board that consists of Lacombe, Jarlaith Johnson and Robert Wahauer. The board sits between STG Group and the operating business, Lacombe said.
“With this new board at the intermediary level and the renewal of commitment of our lender, I feel very positive,” Lacombe said. “Our lender MC Credit has been very forceful about their support for the company.”
Day-to-day operations are continuing as normal at the company, he said. The board’s role is to serve the interest of all of the stakeholders that includes the shareholders of STG Group, he said.
The company is also not looking to liquidate assets, Lacombe said.
Lacombe said the company faces challenges. Revenue has fallen in recent years, which led to the difficulty in meeting the loan requirements.
But the revenue decline has slowed and there are signs of a turnaround, Lacombe said.
STG recently won a spot on the General Services Administration's $50 billion Alliant 2 contract. “But that is just an IDIQ,” Lacombe said.
The company also has a large number of contracts coming up for award. “That’s the kind of story MC Credit is embracing,” he said.
He believes STG can return to growth in 2018.
“Ultimately, this will be a good thing for STG’s men and women and our customers and STG families,” Lacombe said.
The three-member board is looking at alternatives for STG that include an equity investment, a restructure of its debt or a sale.
“All options are on the table,” he said. “This board is looking at all options that are in the best interest of all of the stakeholders.”
The biggest stakeholder financially and probably emotionally is Simon Lee, who founded STG in 1986 as the Software Technology Group.
When Lee sold STG in 2015 to the SPAC, he retained a significant percentage of the shares and was named chairman. He remains chairman of STG Group and is the only officer of that publicly-traded entity. According to an SEC filing, Lee and his family trusts own 58.9 percent of the stock.
Right now the stock is trading about 3 cents a share.
Lacombe said he speaks with Lee frequently, but that Lee is not involved in the company’s operations at this point.
Posted by Nick Wakeman on Dec 01, 2017 at 12:20 PM