Wedding Bells Off for HSX, Predict It

With venture capital sugar daddies increasingly playing matchmaker for ailing start-ups in their struggling portfolios, sometimes love at first sight can turn into the morning after blues. When Hollywood Stock Exchange (HSX) initially announced plans to merge with fellow virtual stock exchange, Predict It observers were anxious to see the blushing bride and groom whisk away on their honeymoon. But a month later, the two have unveiled an annulment following revelations that Predict It can hardly afford to rub two nickels together.

Under the original terms of the deal, HSX and Predict It were to form a new company called HSX. Upon completion of the merger, a group of investors that include Citigroup Investments would breathe new life into the combined entity with a $10 million cash infusion. While the merger was slated to wrap up sometime later this year, Predict It meanwhile collapsed under a cash flow crunch.

Predict It's commander-in-chief, Andrew Merkatz, shed some light on the development saying, "Due to extremely difficult capital market conditions and a general lack of investor enthusiasm for interactive entertainment companies, we were unable to secure the financing to complete the HSX deal or continue to meet our current payroll obligations."

Predict It boasted revenues of just $100,000 for the three months ended June 30, 2000. That figure was up dramatically from the trivial $6,000 from the year-ago-same-period, but so were the losses, climbing from $450,000 in Q2 1999 to a bloated $2 million a year later.

With a steep burn rate, the company set out to find a fix to its cash flow problems, arranging to sell company shares in an effort to stash a few million bucks in the bank. But even with a $6 million infusion Predict It was left with roughly $900,000 under its pillow by the end of June, or just over a month's worth of working capital. Without additional funding, Predict It finally pulled the plug on the merger deal late last week, while sending 90% of its 30 employees to the bread lines.

In the current environment, there is no guarantee that Hollywood Stock Exchange was in substantially better shape than Predict It, so it is possible this deal might have fallen apart regardless of Predict It's latest dire straits.

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