EXHIBIT 99.1
CAPITAL GROWTH SYSTEMS, INC.
50 EAST COMMERCE DRIVE, SUITE A, SCHAUMBURG, ILLINOIS 60173
TELEPHONE: 630-872-5800 - FACSIMILE: 630-872-5801
November 12, 2004
Dear Shareholder:
The first ten months of 2004 have been both challenging and rewarding.
During this period, there have been some difficult but important decisions made
that are now producing solid results for Capital Growth System, Inc.
shareholders.
In early July, the Board of Directors was increasingly aware it had to
make some key strategic and economic decisions. At this point in the year, the
existing sales and marketing plan being implemented by the executive management
team was not producing the results to meet our financial expectations with
respect to our Nexvu subsidiary. The Board of Directors decided to pursue a
strategic acquisition that would not only give the company immediate substantial
revenue, but a significant customer base as well. The targeted company also
provided a technological infrastructure that would allow the Company to build a
Remote Managed Services offering for the Nexvu Analyzer product. As a result, in
July of this year, the Board of Directors made the conscious decision to acquire
Frontrunner Network Systems Corp. (www.frontrunnernetworks.com), knowing that
the acquisition would delay the company's public registration. We believe it was
the right decision at the right time and are now more convinced than ever that
it is a key asset to creating increased value for our shareholders.
The Frontrunner acquisition provided us with immediate annual revenue of
approximately $12 million, a customer base of over 1,000 companies along with an
installed, fully functional Network Operating Center ("NOC") that will enable us
to extend the current Nexvu product offering with a set of Remote Network and
Application Performance Monitoring services.
In early August, the Board of Directors made an economic decision in
response to the lack of sales results being realized by the Nexvu executive
management team. We decided that the capital investment and related return on
investment for having a world class, but high priced sales team, was not prudent
given the sales results at the time. The Board of Directors determined we were
better served both strategically and financially with a scaled down sales force
with an extremely focused approach, versus a high-priced, full-scale national
sales assault. As a result of the change in the sales strategy, Scott Allen, and
substantially all of the sales team are no longer with the Company.
In September, we closed on the acquisition of Frontrunner (see business
updates of Nexvu and Frontrunner below).
CAPITAL GROWTH SYSTEM INC. UPDATE; PUBLICLY REPORTING HOLDING COMPANY
With the acquisition of Frontrunner and the curtailment of the executive
management team, we have constituted a new Board of Directors and senior
management team.
BOARD OF DIRECTORS
The Board of Directors consists of Bob Geras, Doug Stukel, Lee Wiskowski,
Phil Kenny and David Beamish.
Philip Kenny. Philip Kenny is an owner and partner in Kenny Industries,
which serves as a holding company for the Kenny family interests in Kenny
Construction, Seven K Construction, Northgate Investments, Casino Queen, and
Clinton Industries. Mr. Kenny serves as President in two entities of the holding
company, Seven K Construction and Northgate Investments.
Kenny Construction Company is a 76 year old construction company that is
based in Chicago, Illinois. It currently is working on projects in six major
cities in the United States. It has been involved in some of Chicago's greatest
landmarks and projects, including the recent six hundred million dollar
renovation of Soldier Field. The company also serves as Construction Manager for
the one billion dollar expansion at Midway Airport, the Chicago Transit
Authority's Blue/Orange/and Brown line, and Millennium Park.
Northgate Investment is the primary investment vehicle for the companies.
It is involved in ownership, development of numerous building and real estate
projects in Cook, Lake and Will County. Northgate also has various interests in
other companies from manufacturing to entertainment properties. Mr. Kenny serves
on the Executive Committee of Sports Publishing, a Champaign Illinois publisher
that produces and distributes 120 sports publications on an annual basis.
He also serves on the Boards of Umbrella Entertainment, the largest
production manager of air shows in the United States; Fifth Media, a technology
company in Libertyville, Illinois; and Insight Productions, a designer and
importer of custom products based in Naperville, Illinois. He serves on the
Business Advisory Board at Miami University in Oxford, Ohio; the Board at
Northern Illinois University School of Engineering and Technology, and Loyola
Academy, the largest Jesuit High School in the United States. He is a graduate
of the Business School at Arizona State University.
David Beamish. David Beamish has been in sales and marketing for over 18
years. He began his career in the medical sales working for Medline Industries
for 5 years. He successfully managed and built a four state territory to over
$35 million in sales. In 1987 he left and formed Premier Medical Industries Inc.
which he and a partner built to $32 million in sales over eight years. After
Premier Medical Industries, Mr. Beamish successfully formed, built and sold five
local businesses: Premier Sales Inc. (a linen and textile distributor), Premier
Tax and Accounting LLC (an accounting and tax firm), Premier Construction LLC (a
small construction firm), Premier Technologies (a computer distributor and
internet firm), and Premier Products LLC (a nursing home supply company). Today,
Mr. Beamish owns and operates Premier Laundry Technologies LLC ("PLT"), the
largest independently owned COG Healthcare Laundry in the Midwest. PLT has three
plants and employs over 150 people.
Robert T. Geras. Mr. Geras has been an active participant in the VC and
Angel community in Chicago for over 35 years. In addition to having been an
active investor and mentor in many other deals, in 1986 Mr. Geras bought MEDX,
Inc. a troubled Rolling Meadows medical equipment company, and in 5 years turned
it around and sold it for 26 times his cost. He is a co-founder and the largest
shareholder of publicly traded Merge Technologies (MRGE - Nasdaq National
Market), the industry leader in eHealth connectivity products for medical
imaging and other clinical information, helping to make the "electronic patient
record" a reality. Mr. Geras is also a director and/or investor in
VideoHomeTours, the premier provider of visual content management and marketing
services for large brokerage firms; ShowingTime.com, a complete Internet
scheduling and productivity tool for real estate agents; Exadigm, Inc., a
company engaged in the development and sale of electronic payment processing
equipment
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utilizing wi-fi technology; 20/20 Technologies, LLC, a successful provider of
bandwidth and connectivity to the high speed data transmission industry; Arryx,
Inc., a nanotechnology company, and Advanced Diamond Technologies, Inc., a
synthetic diamond company spun out of Argonne Labs. In addition, Mr. Geras is an
investor and/or advisor to Kettle Venture Partners, Chicago Ventures, K-B
Partners, Kingsport Capital, Artesian Capital, DuoDesign and is a founding
member and a Director of the Illinois Venture Capital Association.
Mr. Geras was termed "a virtual Renaissance Man of Entrepreneurship" in a
David Lundy Chicago Sun-Times interview, "one of the Big Three `old-timer'
angels in Chicago" in a cover story by iStreet, and featured on a recent Cover
of Crain's Chicago Business. Mr. Geras was given the "Angel of the Year-2002"
award by the Chicago Software Association at their Annual CityLIGHTS ceremony.
SENIOR MANAGEMENT - HOLDING COMPANY
The new senior management team of Capital Growth Systems, Inc. consists of
Doug Stukel and Lee Wiskowski as Co-Chief Executive Officers, and Skip Behm as
Chief Financial Officer.
Lee Wiskowski - Co-Chief Executive Officer, Director. Lee Wiskowski was
the co-founder of Madison Securities (40-person team) and an early co-founder of
Advanced Equities (50-person team), both NASD licensed broker-dealers focusing
on emerging growth companies. During his tenure with these two companies, Mr.
Wiskowski had significant responsibility in the companies' raising in excess of
$125 million and $250 million, respectively, for private and public placements,
primarily of high technology companies. Mr. Wiskowski sold his interest to the
other principals of Advanced Equities approximately three years ago, and has
been engaged in the investment and advisory business since that time through
Grander, L.L.C., d/b/a Capital Strategies Group, a privately held advisory and
consulting firm engaged in the structuring of public and private financings and
more recently, through Momentum Capital LLC, in which he and Douglas Stukel are
equal partners. While at Grander, Mr. Wiskowski together with Mr. Stukel, was
instrumental in structuring and advising on the Company's acquisition of Nexvu
and Frontrunner. Mr. Wiskowski is also a principal in Capital Growth Systems II,
Inc., which is under contract to acquire Meandaur, Inc., a leading internet
marketing firm.
Douglas Stukel - Co-Chief Executive Officer, Director. Douglas Stukel is a
50% owner of Momentum Capital, LLC, and worked with Mr. Wiskowski in the
Company's acquisition of Nexvu and Frontrunner. Mr. Stukel is the past president
of Premier Medical, L.L.C., a distributor of medical supplies based in Joliet,
Illinois. Prior to co-founding Premier Holdings, L.L.C., he was the president of
Cendant Home Funding. Cendant Home Funding is a residential mortgage company
based in Joliet, Illinois, which originated approximately $75,000,000 per year
in mortgages. He sold his interest in the company in 2001. In addition, Mr.
Stukel is a principal, along with Mr. Wiskowski in Capital Growth Systems II,
Inc., which is under contract to acquire Meandaur, Inc.
Derry "Skip" Behm - Chief Financial Officer. Skip Behm most recently
served as vice president of financial planning and control for Spiegel Catalog,
a division of the Spiegel Group. He also spent several years as the corporate
controller of the Spiegel Group as well as stints in the financial reporting and
financial analysis areas. In addition, he has worked at Harrod's Online in
London, as their CFO and has over five years of Public Accounting experience
with Arthur Andersen. Skip graduated with a Bachelor of Science degree from
Illinois State University and is a Certified Public Accountant.
KEY MANAGEMENT OF OPERATING SUBSIDIARIES
Rory Herriman - President and Chief Technology Officer, Nexvu. Mr.
Herriman is the President and Chief Technology Officer of Nexvu Technologies,
LLC. Mr. Herriman is the driving force behind
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Nexvu's product vision. Prior to joining Nexvu, he was Senior Director of
Technology Architecture and Engineering at Sears, Roebuck and Company where he
defined and executed enterprise wide technology direction in the areas of
telecommunications, networking and computing. Prior to joining Sears, Mr.
Herriman was a Senior Product Engineer for MCI Telecommunications where he
worked with Fortune 500 companies to define and implement global communication
infrastructures.
James Cuppini - President and Chief Executive Officer, Frontrunner. Mr.
Cuppini has over 20 years' experience in the telecom industry at top-level
management and consulting positions, including executive positions at Centel and
Frontier Corporation. He created and implemented turnaround strategies for over
10 separate firms. He has over 10 years' senior management experience specific
to telecom IT systems and finance/administration. He was responsible for
restructuring Frontrunner to profitability as a business unit of Frontier
Corporation, and ultimately taking the company private in 1999. Mr. Cuppini is
also president and a majority owner of Soft-serv Incorporated, which provides
critical software to Frontrunner. His education includes a CPA degree with focus
on taxation, M&A and operational accounting.
Kevin D. DiPaolo - Senior Vice President Sales, Marketing and Business
Development. Mr. DiPaolo has 20 years of technical and business experience,
including 10 years' experience in telecommunications networks and CPE both as a
Director at Frontier Communications and as a senior manager for Coopers &
Lybrand and Price Waterhouse Coopers telecom consulting divisions. He has
extensive management and restructuring experience including work on a $300
million pricing and marketing project for BellSouth, and a $1 billion AT&T sales
and service channel restructuring. He was project manager for Mr. Cuppini on a
corporate-wide business re-engineering of Frontrunner for Frontier Corporation.
His education includes a Cornell MBA with general business consulting and
corporate strategy focus
NEXVU UPDATE
Since the implementation of our new sales strategy, Nexvu has closed sales
to several new customers including Xpedite, Inc., The Chicago Tribune, EDS,
Milliman USA, NCI and Bearing Point. Additionally, the company is extremely
excited about the pipeline of new opportunities for the near term and is very
pleased with the potential of having second purchase orders from several
existing clients. Also during this period, Nexvu has added one additional VAR to
its channel program and completed a Technology Alliance partnership with
SMARTS(R), an industry leading provider of business service management and root
cause analysis solutions. As part of this partnership, SMARTS(R) will have the
ability to cross-sell the Nexvu product offerings.
In October of this year, Nexvu released its Version 2.2 of the Nexvu
Analyzer and Nexvu Command Center products. We feel that this is the most
feature rich and market competitive release of the product to date. Based
largely on the feedback of existing Nexvu customers, this release provides
improved ease-of-use for the end-user, easier integration with third-party
products and significantly improved scalability and reliability. With this
release, Nexvu intends to launch its Remote Managed Service offering. Through
Frontrunner's extensive customer base, we believe the opportunity to have at
least one or more clients using the service by year end is very likely.
Additionally, the Remote Managed Service offering will allow us to penetrate the
market more quickly with product and build a recurring revenue stream.
FRONTRUNNER UPDATE
Frontrunner continues to show progress with both its installed customer
base and new customer contracts. Frontrunner has budgeted to operate in a
profitable manner on a going-forward basis. In the
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past several months it has had an excellent new order flow, including: (i)
signing a voice-over internet protocol ("VOIP") solution for ITT with respect to
approximately 2,300 of its phones, estimated to generate $1.6 million in
revenues over the next six months and ongoing maintenance revenues; and (ii) a
preliminary three month purchase order for $250,000 from SBC to maintain the
Pfizer locations in Kalamazoo, Michigan; if positive, this may lead to a $1.6
million maintenance contract. Frontrunner is in active dialogue with several
potential acquisition candidates. We believe that consolidation in Frontrunner's
space is more synergistic than in many other industries, due to the ability to
perform many maintenance and monitoring services from its current remote
location without adding significant overhead or personnel; in addition, many of
Frontrunner's competitors lack the VOIP expertise of Frontrunner or a
sophisticated NOC (network operations center) such as is maintained by
Frontrunner, so that VOIP and NOC services could be offered by certain
acquisition candidates to their installed bases with minimal increase in
overhead, should Frontrunner be successful in acquiring one or more of its
competitors who lack this expertise. With the addition of the Nexvu Analyzer
tools, Frontrunner will be able to streamline its VOIP offering considerably, as
well as offer a new suite of services to its installed base.
PUBLIC REGISTRATION UPDATE; PUBLIC COMPANY DELAYS DUE TO FRONTRUNNER ACQUISITION
Enclosed with this letter is a copy of the stock certificate that has been
issued to you if you were an investor in our 2004 private placement. We had
originally scheduled a shareholder meeting for June 30, 2004, at which time we
planned to change the name of the Company to "Nexvu Business Solutions, Inc."
and effect certain other corporate transactions and mail you a new certificate
with the corrected name. We can mail your current certificate on request, but
still believe it will be administratively easier to hold your certificate
pending the holding of the meeting as referenced below. We had also filed a
registration statement on May 4, 2004 to register the shares of common stock
placed in the 2004 offering (as well as certain shares underlying certain
warrants), with the expectation of the registration statement being declared
effective in approximately September of 2004.
Shortly prior to the date of the June shareholder meeting, we received
back the initial round of comments from the Securities and Exchange Commission
whereby it wanted, among other things, certain information to be provided
regarding Nexvu to be added to our previously filed Form 10-K. As this came in
shortly before the scheduled annual meeting, we chose to postpone the annual
meeting until the Form 10-K was updated. This has now been done, and you will be
getting notice of the newly scheduled meeting date shortly.
In addition, prior to the resubmission of our response to the registration
statement comments, we went under contract to acquire Frontrunner and expected
that the Commission would require updated financial information consolidating
our financial statements with those of Frontrunner before the registration
statement would be declared effective. Therefore, we have delayed response to
the registration statement until the consolidation numbers are completed, which
should be done within the next several weeks. We plan to file our response
shortly thereafter, and are hopeful that the registration statement will be
declared effective in approximately January. We also intend to pursue the
automated quotation of our common stock for trading on the OTC Bulletin Board
Quotation System, simultaneous with the declaration of effectiveness of the
registration statement. While we cannot guarantee the timing of regulatory
approvals, we are hopeful that time frame can be achieved.
In closing, we are very excited about our future and the future of our
subsidiaries, Nexvu Technologies and Frontrunner Network Systems Corp. We plan
to continue to be aggressive as a management team and Board of Directors. We
plan to grow internally as well as through acquisition.
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We appreciate your continued support in the exciting endeavors set forth
in front of us.
Very truly yours,
CAPITAL GROWTH SYSTEMS, INC.
By: /s/ Douglas Stukel, Co-CEO
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By: /s/ Lee Wiskowski, Co-CEO
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* * *
This letter may contain certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which are intended to be covered by
safe harbors created hereby. Such forward-looking statements involve known and
unknown risks, uncertainties (including those risk factors referenced in the
Company's filings with the Securities and Exchange Commission), and other
factors that may cause the actual results, performance or achievements of the
Company to be materially different from any future results, performance, or
achievements of the Company expressed or implied by such forward-looking
statements.
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