Dear Shelton:IMS/ISC agree with your assumptions about significant startup costs,
a declining market, and the potential for unforseen costs. You will see in
our attanched financial statements that we have taken these factors into account.
I would note that ours is the only bid that published cost estimates, market growth
assumptions, and projected cash flow over the 5-year term.
Many of the applicants
have definitely overestimated the revenue picture for the .org registry. If
you examine our forecasts in sections 2.3/2.4 of the Condolidated Financials, you
will see our revenue model builds in very steep declines in price and a registry
size that reaches a minimum of 1.7 million names. In addition, you will see
in the sections on capital expense, operating expense, and cash flow analysis, that
we project a 37% average gross margin and maintain a $500,000 minimum operating reserve,
so we believe we are protected against even steeper declines in revenue or unforseen
expenses.
Let me respond to your specific questions:
a. I'd like each bidder
to identify the funds that they are relying on for the transition. Do you have money
in the bank set aside or are you relying on the third party partners or money from
capital markets for the transition?
Answer: Please see the Joint Statement of Authority
submitted with our bid, which is at http://trusted.resource.org/joint-statement.html.
As you see, we have a binding commitment for capital, and anticipate using $1.65
million of our $2.5 million line of credit for startup costs, leaving a substantial
cushion for unforeseen delays in revenue, or increased expenses.
b. To what extent
does your financing for the transition depend on timely receipt of all or part of
the Verisign endowment? What are your plans for alternative financing if a dispute
or a delay arises in the transfer of those funds?
Answer: Our financing plan does
not depend on any of the VeriSign endowment.
c. Are you financially prepared to
deal with unforeseen costs that might arise in the transition, particularly those
related to the technical operation of the registry?
Answer: Yes. Please see
the Consolidated Financial Statements. In addition, our proposal specifies
in detail a series of contingency plans so that you can fully evaluate the contingencies
we have anticipated. For those that we did not anticipate, you will note that
we have a strong operating reserve.
d. Are you financially prepared to deal with
lower than expected numbers of new names being purchased/registrants renewing. What
tolerances do you have in your cash projections before being forced to seek further
funding?
Answer: Yes, we are prepared to deal with decreases in volume and price.
We built in a 10% decline per year in price to our revenue model, and applied extremely
conservative renewal and new registrant rates. We also left enough margin after
operating and capital expenses to account for potential increases in expenses, decreases
in revenue, or changes in the aging structure of accounts receivable.
As a final
point, I would like to refer you to the governance structure for IMS/ISC, which consists
of a highly experienced and respected board of directors. We have all spent
many years operating businesses, particularly 501(c)(3) public works services for
the Internet. In Bucharest I heard one of the other applicants refer to the
.org registry as a "nifty revenue stream." IMS and ISC view .org as a public
trust and intend to run it as a real business in the public interest. You can
read the biographies of board members and learn more about our history operating
these kinds of services in section C50 of the proposal at http://trusted.resource.org/org-proposal.html#C50.
Please
feel free to email me at carl@media.org or post here in the forum if you have additional
questions.
Regards,
Carl Malamud
Internet Multicasting Service
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