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Archive for July, 2009

Lamassu Holdings has blasted the board of Ditech Networks Inc (NASDAQ:DITC). In a letter to the board, Lamassu Holdngs accuses DITC management of “spending as though Ditech Networks has money to burn, adding to the amount of money you have already lost for shareholders during your tenure,” “aggressively [overstepping] the bounds of good corporate governance” and “clearly [violating] your fiduciary responsibility.”

We’ve been following DITC (see our archive here) because it is trading below its net cash value with an investor, Lamassu Holdings LLC, disclosing a 9.4% holding in November last year. Lamassu has previously offered to acquire DITC for $1.25 per share in cash. Lamassu says that it “anticipates its due diligence requirement will take no more than two weeks and there is no financing contingency.” Lamassu has now nominated two candidates for election to the board “who are committed to enhancing shareholder value through a review of the Company’s business and strategic direction.” Lloyd I Miller III has also disclosed a 5.9% holding and has come out in support of Mr. Leehealey and Mr. Sansone – the director candidates nominated by Lamassu Holdings for election to the board of directors at the DITC annual meeting – as “candidates who are independent of management and he seeks to encourage greater attention to corporate governance by all members of the Board of Directors.” The stock is up 44.9% from our initial $0.89 to close yesterday at $1.29, giving the company a market capitalization of $33.9M. We last estimated the net cash value at around $32.2M or $1.23 per share and the liquidation value at around $43.4M or $1.65 per share. While the deterioration in value is a concern, Mr. Miller’s support of Lamassu Holding’s director candidates introduces a new element to the position. We’re inclined to hold on to see how the annual meeting plays out.

The press release setting out the text of the letter from Lamassu Holdings is set out below (via Yahoo Finance):

NEWPORT BEACH, Calif.–(BUSINESS WIRE)–Lamassu Holdings, LLC (“Lamassu”) has sent the following letter to the Board of Directors of Ditech Networks, Inc. (NASDAQ:DITC – News) (“Ditech Networks”) Members of the Board:

Over the past month a significant number of shareholders have either publicly, through filings, or privately rejected your leadership by expressing their support for Lamassu’s director nominees. Instead of listening to these shareholders and correcting your course, you push forward spending as though Ditech Networks has money to burn, adding to the amount of money you have already lost for shareholders during your tenure. Your recent decision to tie executive compensation to a level of investment associated with mStage/toktok, an unproven technology that to date has produced no revenues and has no immediate prospects, is outrageous and limits management’s ability to make the hard but intelligent decisions to reduce investment in that technology if its prospects for revenue continue to be elusive. With this measure we believe you have aggressively overstepped the bounds of good corporate governance and have clearly violated your fiduciary responsibility.

Investors in Ditech Networks (NASDAQ: DITC – News) are not venture capitalists and did not sign up for this type of speculative investing with such a large portion of the Company’s assets. Management needs to have the latitude to make the decisions that are appropriate given the revenue prospects of each product and the Board should ensure that no individual investment puts the Company in as much jeopardy of total failure as the mStage/toktok investment does.

In addition, given the level of support for Lamassu’s slate of director nominees, we remain completely perplexed by your apparent desire to engage in a pointless proxy fight and waste Company resources to protect your own interests. It is obvious shareholders will aggressively reject the idea of spending millions of dollars of their money in this manner when the addition of Lamassu’s nominees to the Board will clearly provide a much needed new perspective that is not steeped in the countless mistakes of the past or married to visions and dreams that produce little or nothing in the way of actual revenue.

For the sake of all investors we encourage you to radically alter your behavior and begin listening to shareholders as opposed to pursuing your own interests and extremely risky agendas. While you personally will not be significantly harmed if mStage/toktok is unsuccessful and Ditech Networks ultimately fails, many investors are not in a position to so casually lose their money.

Sincerely Lamassu Holdings, LLC

Hat tip to Toby.

[Full Disclosure:  We do not have a holding in DITC. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Update: The response to the request has been quite overwhelming and we think we’ve found the assistance that we need. We are working through all of the emails now and will respond to each one. One of the best things about running Greenbackd is interacting with our readers, so thank you to all who responded.

Do you have access to CompuStat, CapitalIQ or a similar service? Are you willing to help us with a research project? If so, please contact us by email at greenbackd [at] gmail [dot] com.

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MathStar Inc’s (OTC:MATH) board has announced a “possible merger” with a company called Sajan, Inc, presumably the private company discussed in the presentation at the annual meeting. Douglas M. Pihl, MATH’s CEO, has resigned in protest, saying in his resignation letter that he was resigning because of the board’s “rejection of the plan I have presented to restart MathStar based on Video Encoding technology.” Pihl goes on to say:

I do not believe the proposed Sajan acquisition is in the best interest of MathStar shareholders. I do not believe that Sajan, or the advisors hired to do the due diligence, have presented a business plan that warrants committing over $13 million of cash, nearly half of which will not remain in the combined company but will be distributed to the current Sajan shareholders. In addition the newly issued shares will result in nearly a 50% dilution of the equity currently held by MathStar shareholders.

The full text of Pihl’s letter is set out below. We tend to agree with Pihl’s assessment that the Sajan acquisition is a loser for MATH shareholders. On that basis, we’re out at yesterday’s close of $1.20. We initiated the position on December 17 last year at $0.68, which means we’re up 76.5% on an absolute basis. The S&P500 closed at 913.18 when we intiated the position, and closed yesterday at to close yesterday at 932.68, which means we’re up 74.3% on a relative basis.

Post mortem

We started following MATH in December last year (see our post archive here) because it was trading below its net cash value and had two substantial stockholders lobbying management to liquidate. MATH’s board had suspended the company’s operations and had been exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.” Two activist investors, Mr. Zachary McAdoo of The Zanett Group and Mr. Salvatore Muoio of S. Muoio & Co., urged MATH’s board to consider liquidation rather than merger, but MATH’s management seem intent on a merger. The liquidation was presented to stockholders on Friday last week, and rejected. Tiberius Capital has a tender offer for MATH at $1.25 per share in cash expiring on July 20. We’ve elected to sell our stock on market rather than tender to Tiberius Capital because there’s no certainty that Tiberius Capital will be successful, and it’s time to get as far away from MATH’s management as humanly possible. While the position didn’t play out as we had hoped, we’re still satisfied with the result.

The company’s press release announcing the merger is set out below:

MathStar Announces Letter of Intent for Possible Merger;

Board Announces Special Committee

HILLSBORO, Ore., July 15, 2009 — MathStar, Inc. (MATH.PK) today announced that it has entered into a non-binding Letter of Intent with Sajan, Inc. regarding a potential merger. Sajan is a leading provider of language translation management solutions. Sajan’s language translation services use advanced process and quality management through their next generation SaaS technology. Sajan’s patent-pending data management and on-demand collaboration and workflow platform create a unique blend of technology and service, resulting in the most advanced and measurable solution available today. Among their clients are several Fortune 500 companies.

MathStar also announced that on July 14, 2009, the Board of Directors appointed a special committee consisting of MathStar’s independent directors, Richard C. Perkins and Benno G. Sand, to negotiate the completion of a definitive merger and ancillary agreements with Sajan. Craig-Hallum Capital Group, LLC is representing MathStar as its investment banker in connection with the proposed transaction.

The Mathstar Board, in conjunction with Craig-Hallum and several independent technology and financial consultants, has conducted extensive due diligence of Sajan; however, entry into definitive merger and ancillary agreements with Sajan is subject to the completion of due diligence, among other customary conditions. Final terms and conditions of the proposed transaction will be disclosed upon any signing of the definitive merger agreement.

Statements in this press release, other than historical information, may be “forward-looking” in nature within the meaning of the Private Securities Litigation Reform Act of 1995 and are subject to various risks, uncertainties and assumptions. These statements are based on management’s current expectations, estimates and projections about MathStar and include, but are not limited to, those set forth in the section of MathStar’s Annual Report on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission on March 31, 2009 under the heading “Item 1A. Risk Factors” and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2009. Except as may be required by law, MathStar undertakes no obligation to update any forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.

The CEO’s resignation letter is set out below:

July 14, 2009

Gentlemen;

In response to your decision today to pursue the Sajan acquisition I hereby tender my resignation as President, CEO and CFO of MathStar and also my position on the Board of Directors, effective immediately. I am disappointed by the actions you took regarding Sajan and by your rejection of the plan I have presented to restart MathStar based on Video Encoding technology.

Further, I do not believe the proposed Sajan acquisition is in the best interest of MathStar shareholders. I do not believe that Sajan, or the advisors hired to do the due diligence, have presented a business plan that warrants committing over $13 million of cash, nearly half of which will not remain in the combined company but will be distributed to the current Sajan shareholders. In addition the newly issued shares will result in nearly a 50% dilution of the equity currently held by MathStar shareholders.

Douglas M. Pihl

[Full Disclosure:  We do not have a holding in MATH. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Northstar Neuroscience Inc (NASDAQ:NSTR) has paid an initial distribution of $2.06 per share.

We’ve been following NSTR (see our post archive here) because it was a net cash stock that had announced a plan to liquidate. We estimated that the final pay out figure in the liquidation would be around $59M or $2.26 per share, which presented an upside of around 18% from our initial $1.91 position. The company had estimated a slightly lower pay out figure of between $1.90 and $2.10 “assuming we are unable to sell our non-cash assets” and expected the initial distribution to be approximately $1.80 per share. The $2.06 distribution returns our initial capital and makes our profit since inception 7.9%, with further distributions to come.

From the relevant report:

As previously disclosed, on June 12, 2009 Northstar Neuroscience, Inc. (the “Company”) filed Articles of Dissolution (the “Articles of Dissolution”) with the Secretary of State of the State of Washington in accordance with the Company’s Plan of Complete Liquidation and Dissolution (the “Plan of Dissolution”). The Articles of Dissolution became effective, and the Company became a dissolved corporation under Washington law, on July 2, 2009 (the “Effective Date”) at 5:00 p.m. Pacific Time.

In addition, the Company’s common stock (the “Common Stock”) was officially delisted from the NASDAQ Global Market at the opening of trading on the Effective Date, pursuant to the previously filed Form 25, which the Company filed with the Securities and Exchange Commission and The NASDAQ Stock Market, Inc. on June 22, 2009. The Company has instructed its transfer agent to close the Company’s stock transfer records as of the close of business on the Effective Date and no longer to recognize or record any transfers of shares of the Common Stock after such date except by will, intestate succession or operation of law.

On July 13, 2009, pursuant to the Plan of Dissolution, the board of directors of the Company approved an initial liquidating distribution of $2.06 per share to the shareholders of record of the Common Stock as of the Effective Date. The Company expects to pay this initial liquidating distribution in cash on or about July 15, 2009.

Pursuant to the requirements of Washington law, the Company intends to retain certain of the remaining assets of the Company to satisfy and make reasonable provision for the satisfaction of any current, contingent or conditional claims and liabilities of the Company until such time as the Company’s board of directors determines that it is appropriate to distribute some or all of such remaining assets. The amount and timing of any subsequent and final distributions will be at the discretion of the Company’s board of directors.

(emphasis added)

[Full Disclosure:  We do not have a holding in NSTR. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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MathStar Inc’s (OTC:MATH) board has announced the results of the annual meeting and, disappointingly, MATH’s stockholders have rejected the proposal to liquidate MATH.

We’ve been following MATH since December last year (see our post archive here) when it was trading at $0.68. The stock is up 73.5% to close yesterday at $1.18, giving it a market capitalization of $10.8M. We estimate MATH’s net cash value to be around $11.7M or $1.27 per share. The board’s estimate of the company’s liquidation value is slightly higher than ours, at $1.40 per share. Both estimates exclude revenue from any sales of MATH’s existing inventory of field programmable object array chips or its FPOA technology, although we have ascribed negligible value to these assets. We initiated the position because MATH was trading below its net cash value and had two substantial stockholders lobbying management to liquidate. MATH’s board has suspended the company’s operations and has been exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.” Two activist investors, Mr. Zachary McAdoo of The Zanett Group and Mr. Salvatore Muoio of S. Muoio & Co., have been urging MATH’s board to consider liquidation rather than a merger. Tiberius Capital has also launched a tender offer for MATH at $1.25 per share in cash. MATH’s board has recommended against acceptance.

The company’s press release announcing the results is set out below:

MathStar Announces Results of Annual Meeting;

CEO Doug Pihl Announces Strategic Plan

HILLSBORO, Ore., July 13, 2009 — MathStar, Inc. (MATH.PK) today announced the results of its annual meeting of stockholders, held Friday, July 10, 2009 in Minneapolis, Minnesota. Three proposals were voted on at the meeting: (i) stockholders voted to re-elect the four nominated Directors of MathStar’s Board of Directors; (ii) stockholders ratified the appointment of MathStar’s independent registered public accounting firm, PricewaterhouseCoopers LLP; and (iii) as had been recommended by the Board, stockholders rejected the stockholder proposal recommending liquidation of MathStar.

After the vote tallies were announced, Doug Pihl, the Chairman, President and CEO of MathStar made a presentation regarding the strategic alternatives currently being explored by the Board, which include the possibility of a merger with a private company or a restart of MathStar upon the acquisition of certain video encoding technology.

Mr. Pihl said, “After the meeting, I am confident that our stockholders continue to support the vision of the MathStar Board and we are working hard to identify a business opportunity that leverages MathStar’s assets with the goal of growing revenues and enhancing shareholder value.”

As such, MathStar’s Board of Directors continues to recommend that MathStar stockholders reject the cash tender offer from Tiberius Capital II, LLC (Tiberius).

The MathStar Board of Directors continues to recommend AGAINST stockholders tendering their MathStar shares to Tiberius for several reasons, some of which include:

· MathStar stockholders voted to reject liquidation, signaling a continued confidence in the Board’s strategic vision;

· the myriad changes to the tender offer highlight that it continues to be inadequate and that MathStar stockholders are generally rejecting it;

· Tiberius’ offer still would eliminate the use of MathStar’s $140 million net operating loss carryforwards, which could shield taxes on more than $10 in earnings per share, if MathStar attains sufficient profitable operations in the future; and

· Tiberius still has not set forth any specific plans for the Company were it to acquire a controlling interest.

The Board’s reasons for recommending that you reject the Tiberius tender offer are explained in more detail in MathStar’s Solicitation/Recommendation Statement on Schedule 14D-9, as amended (MathStar Statement) filed with the Securities and Exchange Commission (SEC). You may review and obtain copies of the MathStar Statement and all amendments thereto free of charge at the SEC’s website at http://www.sec.gov. You may also obtain copies of the MathStar Statement at http://www.mathstar.com or by contacting calling MathStar’s information agent, The Proxy Advisory Group, LLC, at (888) 337-7699 (888-33PROXY) and requesting a copy.

[Full Disclosure:  We do not have a holding in MATH. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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MathStar Inc’s (OTC:MATH) board has filed the slides from its presentation to shareholders at the 2008 annual meeting. In the presentation, MATH’s board discusses in some detail its rationale for recommending that stockholders reject Tiberius Capital’s $1.25 per share cash tender offer. We’ve unpacked the slide show below to see if we can arrive at a decision about Greenbackd’s position in MATH.

We’ve been following MATH since December last year (see our post archive here) when it was trading at $0.68. We initiated the position because MATH was trading below its net cash value and had two substantial stockholders lobbying management to liquidate. The stock is up 79.4% to close yesterday at $1.22, giving it a market capitalization of $11.2M. We estimate MATH’s net cash value to be around $11.7M or $1.27 per share. That value is predominantly cash and short term investments and doesn’t take into account any further value that the sale of the FPOA technology and intellectual property may yield. The board’s estimate of the company’s liquidation value is slightly higher than ours, at $1.40 per share. The board’s estimate also excludes revenue from any sales of the MATH’s existing inventory of field programmable object array chips or its FPOA technology.

Prior to Tiberius Capital’s offer, MATH had received several unsolicited merger proposals from PureChoice, Inc, all of which have been rejected by MATH. Two activist investors, Mr. Zachary McAdoo of The Zanett Group and Mr. Salvatore Muoio of S. Muoio & Co., have been urging MATH’s board to consider liquidation rather than a merger. MATH’s board has suspended the company’s operations and has been exploring “strategic alternatives, which could include merger, acquisition, increasing operations in another structure or liquidation.”

Tiberius Capital launched its tender offer for MATH on June 1 this year at $1.15 cash per share, bidding for 51% of the outstanding shares. Robert T. Sullivan, one of the principals of Tiberius said in the press release announcing the initial offer:

We are making the tender offer to enhance shareholder value. The potential strategies that we may cause MathStar to pursue include a partial repurchase of Shares, an extraordinary dividend, liquidation, selling or licensing MathStar’s technology assets, a business re-start in which MathStar would hire new personnel to improve and commercially exploit its technology assets, and/or a merger or other business combination. We will use the balance of 2009 to carefully examine whether to re-start MathStar’s business and/or to identify a suitable merger partner.

Tiberius Capital has since increased its offer to$1.25 per share in cash. MATH’s board continues to recommend against acceptance. The board’s presentation to the annual meeting discusses in some detail the board’s rationale for recommending against Tiberius’ offer, and the other possibilities for MATH.

The Annual Meeting Presentation

MATH’s board values MATH as follows:

  • $1.40 per share in cash; plus
  • NOLs (which could shelter up to $10 per share in future earnings (if any)); plus
  • MATH’s FPOA intellectual property; plus
  • MATH’s status as a public company:

MATH Presentation Slide 1MATH has been reviewing other “business combination opportunities,” presumably in an effort to capture the additional value beyond MATH’s cash (i.e. the value of the NOLs, other IP and status as a public company).  All have been rejected “primarily on the basis of valuation, excessive risk to upside, or excessive risk to our cash position.”

The presentation sets out what MATH seeks in a merger partner:

MATH Presentation Slide 2

MATH is presently conducting “deep due diligence” on two possible business opportunities, the first a private company “that could proactively use a portion of MathStar’s cash” and the second “a possible restart involving video encoding technology, which we could acquire and commercialize.”

The first opportunity – the private company – has annual revenues “over $10M.” The terms for the deal with the private company are as follows:

MATH Presentation Slide 3The second opportunity – the restart – seems to be technology only, with no established revenue. Says MATH, “We would plan to build a sustainable profitable revenue stream derived from sales of software solutions, board-level solutions and, eventually, chip solutions.” The terms for the restart deal are as follows:

MATH Presentation Slide 4The final material slide sets out MATH’s board’s plan for 2009:

MATH Presentation Slide 5

Conclusion

MATH’s board’s view boils down to this: Tiberius Capital’s $1.25 per share offer should be rejected because it is lower than the board’s $1.40 per share estimate of MATH’s liquidation value, which value also excludes the value of the MATH’s NOLs (which could shelter up to $10 per share in future earnings (if any)), the value of MATH’s FPOA intellectual property and the value of MATH’s status as a public company. In MATH’s board’s view, the better options for MATH are the two business opportunities. Let’s consider those now:

The first deal – the private company – makes use of MATH’s status as a public company and makes capturing the value of the NOLs a possibility. From that perspective, it’s a commendable deal. On the downside, we do not know if the new combined entity will generate any net income to make use of the NOLs. We do know that MATH’s existing shareholders will be diluted down from owning 100% of MATH’s cash to approximately 50% of MATH’s cash and 50% of a unknown private company generating annual revenues of “over $10M,” although there is  no word on the profitability of the private company.

The second deal is harder to value. With no revenue history, the restart technology-only deal is a crapshoot. It seems quite conceivable to us that MATH spends a large portion of its cash on the technology and then spends the rest on commercializing it, never generating any revenue, let alone net income.

Our own estimate of MATH’s value is considerably more conservative than MATH’s board’s view. We ascribe minimal value to MATH’s FPOA technology and status as a public company. The NOLs certainly have value, but we question how successful MATH can be in harnessing that value given the regulations around preserving them. We also believe it will be extremely difficult for MATH to find a worthwhile merger partner, and the length of time MATH has taken in its search seems to bear out this view. MATH needs 50%+ of the combined entity and has only limited cash, which means either a tiny merger partner or an acquisition of technology with no revenue – lo and behold, those are the two options on the table. The second deal – the restart – is a non starter. We’ll take cash over commercially unproven, pre-revenue technology any day. The first deal – the private company – is better than the second, but not by much. It still doesn’t meet Greenbackd’s threshold for a deal, which is the exchanging of a known quantity of cash for unknown earnings. Long term readers of this site will recognize that our vast preference for cash over unknown future earnings means that we will almost always lean away from deals of this stripe.

So where does that leave our position in MATH? Our estimate of MATH’s liquidation value is its net cash value after deducting around $2M of cash burn, professional fees and other liquidation costs, or around $11.7M or $1.27 per share. If a near-term liquidation was a real possibility, our estimate of the liquidation value would be closer to the board’s view of $1.40 per share. Given the foregoing presentation by the board, we don’t believe that liquidation is likely in the near-term or at all. It seems much more likely that the board will undertake one of the two business opportunities outlined above, and we don’t believe either is likely to increase the value of our stake in MATH with any certainty. Accordingly, we’re going to consider our ongoing position in MATH in light of the results of the annual meeting. More tomorrow.

[Full Disclosure:  We do not have a holding in MATH. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Tiberius Capital has sent a letter to MathStar Inc (OTC:MATH) shareholders urging them to tender all of their MATH shares at $1.25 per share. Tiberius Capital’s offer expires on July 20, 2009, at 11:59 p.m. New York City time. Said John M. Fife, a principal of Tiberius:

The MathStar Board shut down business operations over a year ago, and since then there has been no deal, no merger partner and no value creation for the MathStar shareholders.

We’ve been following MATH since December last year (see our post archive here) when it was trading at $0.68. We initiated the position because MATH was trading below its net cash value and had two substantial stockholders lobbying management to liquidate. The stock is up 76.5% to close Friday at $1.20, giving it a market capitalization of $11.0M. We last estimated MATH’s liquidation value to be around $11.7M or $1.27 per share. That value is predominantly cash and short term investments and doesn’t take into account any further value that the sale of the FPOA technology and intellectual property may yield. The board’s estimate of the company’s liquidation value is slightly higher than ours, at $1.40 per share. From the amended Recommendation Statement:

As of March 31, 2009, the Company had cash, cash equivalents and long-term investments of approximately $14,782,000. After full payment of the Company’s outstanding obligations for its leased space and its contractual obligations for design tool leases, and assuming liquidation expenses of approximately $500,000, the liquidation value per Share would be approximately $1.40.

This board’s estimate of the liquidation value also excludes revenue from any sales of the MATH’s existing inventory of field programmable object array chips or its FPOA technology.

Tiberius Capital’s letter to shareholders is set out below:

An important message regarding your MathStar common shares

OFFER TO PURCHASE FOR CASH

All of the Outstanding Shares of Common Stock

of

MathStar, Inc.

at

$1.25 Net Per Share

pursuant to the

Offer to Purchase dated June 1, 2009, as amended,

by

Tiberius Capital II, LLC

THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE

AT 11:59 P.M., NEW YORK CITY TIME, ON JULY 20, 2009,

UNLESS THE OFFER IS FURTHER EXTENDED.

July 8, 2009

Dear Fellow Shareholders:

My name is John Fife, and I am a principal of Tiberius Capital II, LLC (“Tiberius”), a value-opportunity fund located in Chicago that, like you, is a MathStar, Inc. shareholder. I am sending you this letter to make sure that you are aware that Tiberius is offering to purchase all outstanding shares of common stock of MathStar, Inc., a Delaware corporation, (“MathStar” or the “Company”), par value $0.01 per share (the “Shares”), at a net price per share equal to $1.25 in cash (without interest and subject to applicable withholding taxes), upon the terms and subject to the conditions set forth in the Offer to Purchase (the “Offer to Purchase”) and the related Letter of Transmittal (the “Letter of Transmittal” and, together with the Offer to Purchase and any amendments or supplements thereto, the “Offer”). The Offer to Purchase and the Letter of Transmittal are attached as Exhibits to our Tender Offer Statement on Schedule TO filed with the SEC on June 1, 2009, and subsequently amended. References in this letter to “Purchaser”, “we”, “us” or “our” are to Tiberius.

IF YOUR BROKER IS THE HOLDER OF RECORD (DIRECTLY OR INDIRECTLY) OF MATHSTAR SHARES HELD FOR YOUR ACCOUNT, THEN A TENDER OF SUCH SHARES CAN BE MADE ONLY BY YOUR BROKER (OR YOUR BROKER’S NOMINEE) AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. PLEASE SEND YOUR BROKER THE FORM ACCOMPANYING THIS LETTER IN ORDER TO INSTRUCT YOUR BROKER (OR YOUR BROKER’S NOMINEE) TO TENDER MATHSTAR SHARES HELD FOR YOUR ACCOUNT, SUBJECT TO THE TERMS AND CONDITIONS SET FORTH IN THE OFFER.

WE URGE YOU TO INSTRUCT YOUR BROKER TO TENDER YOUR MATHSTAR SHARES TO TIBERIUS FOR SEVERAL REASONS:

1. MathStar curtailed business operations in the second quarter of 2008, and since that time no “deal,” merger partner, or technology licensing has materialized;

2. In Tiberius’ opinion, MathStar’s Board of Directors (the “Board”) is only interested in entrenching themselves and not in enhancing or preserving shareholder value. CEO Pihl’s total compensation for 2008 was $463,331 (although he apparently repaid $119,441 in 2009). The four other MathStar directors received total 2008 compensation of $141,035;

3. In Tiberius’ opinion, the Board’s articulated desire to preserve MathStar’s net operating losses (“NOLs”) for a prospective business combination is unrealistic. Tiberius tried working with the Board to preserve the NOLs prior to making the tender offer, and its proposal received no response from the Board;

4. The upcoming shareholder vote on whether to liquidate MathStar is advisory only. Even if the shareholders vote in favor of liquidation, the Board might, in our opinion, be inclined to ignore the will of the shareholders; and

5. If shareholders don’t tender their Shares to us, and if we withdraw the tender offer, the value of those Shares, in our opinion, could very well decline as the Board continues to spend cash and deplete the Company’s assets. We believe our tender offer is a superior proposal for the MathStar shareholders in that it gives you liquidity for all of your Shares, without the worry that the price may decline if other shareholders decide to sell at the same time.

TIBERIUS BELIEVES IT IS OFFERING VERY CLOSE TO LIQUIDATION VALUE IN CASH TODAY, BASED ON PUBLICLY AVAILABLE INFORMATION RELEASED BY THE COMPANY

A. It its June 26, 2009 press release, the Company stated that it had “cash and securities in the amount of $14.0 million”. Subtracting from that number the total liabilities of $530,000 (as reported on the Company’s March 31, 2009 balance sheet), and also subtracting “off balance sheet” liabilities such as $806,000 in future obligations due under the “non-cancellable lease” (as reported on page 8 of the Company’s March 31, 2009 10-Q) and $216,286 due to Mr. Pihl in severance under his employment agreement, leaves cash available to distribute to shareholders of $12,447,714 or $1.36 per Share (based on 9,181,497 Shares outstanding, as reported in the Company’s March 31, 2009 10-Q).

B. However, in calculating the liquidation value, the $1.36 per Share does not include windup expenses, or the ongoing expense of operating MathStar as a public company during the windup. During the first quarter of this year (the most recently reported quarter), MathStar’s net cash used in operating activities was approximately $290,000 or 3.2 cents per Share (according to MathStar’s March 31, 2009 10-Q). If liquidating MathStar takes four months and if, during this time, the Company’s operating expenses were the same as in the first quarter of this year (adjusting pro rata for the longer period), and other expenses associated with liquidation and windup are $275,000, the liquidating value payable to shareholders would be $11,786,047 or $1.28 per share — very close to the $1.25 in cash that Tiberius is offering today.

Furthermore under the Tiberius offer shareholders get cash today rather than risking that the management of MathStar will continue to resist liquidation as they have done in the past and as they continue to do.

We also point out the following quotations from MathStar’s own 2008 10-K, filed on March 31, 2009:

•“On May 20, 2008, the Board of Directors voted to curtail research and development activities and ongoing operations.…”

•“[MathStar’s] FPOA chips are highly complex and may contain defects, errors or failures. … [MathStar] has experienced defects in the past and may experience defects in the future.”

•“[MathStar’s] technology does not have patent protection outside of the United States. This could result in the appropriation of [MathStar’s] technology outside of the United States, which could have an adverse effect on [MathStar’s] ability to sell or otherwise capitalize on [MathStar’s] intellectual property.”

•[MathStar’s] common stock is thinly traded, and [MathStar’s] stock price may be volatile, which means that purchases of [MathStar’s] common stock could incur substantial losses.”

•“If there are substantial sales of [MathStar’s] common stock, [MathStar’s] stock price could decline.”

•“[MathStar] may be at risk of shareholder litigation. … Some MathStar shareholders have informed [MathStar’s] Board that they believe [MathStar] should enter into particular transactions, including mergers and liquidation, and that they disagree with the Board’s actions to date.”

In light of the above uncertainties and risks, Tiberius urges all MathStar shareholders to tender all of their shares.

Your attention is directed to the following information about the Offer:

•The Offer price is $1.25 per Share, net to you in cash without interest and subject to applicable withholding taxes upon the terms and conditions set forth in the Offer to Purchase and the Letter of Transmittal. All shareholders who have tendered will receive this Offer price of $1.25 per Share;

•The Offer is being made for all of the outstanding Shares;

• THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 11:59 P.M., NEW YORK CITY TIME, ON JULY 20, 2009, UNLESS THE OFFER IS FURTHER EXTENDED;

•The Offer is conditioned upon, among other things, Purchaser being satisfied, in its reasonable discretion, that: (i) there have been validly tendered and not withdrawn prior to the expiration of the Offer at least 3,000,000 outstanding Shares; (ii) no takeover defenses (such as a “poison pill” shareholder rights plan, a staggered board of directors, an increase in the size of its Board of Directors from its current five members, or any issuance of preferred stock) exist for MathStar immediately prior to the expiration of the Offer; (iii) Purchaser will control MathStar’s Board of Directors immediately after the Offer is consummated (which condition has been waived by Purchaser); (iv) MathStar retains a minimum of $13.75 million in cash or long-term marketable securities immediately prior to the expiration of the Offer; (v) the restrictions on business combinations with interested stockholders set forth in Section 203 of the General Corporation Law of the State of Delaware are inapplicable to the Offer; and (vi) the total stockholders’ equity of MathStar is at least $14 million immediately prior to the expiration of the Offer. Other conditions of the offer are described in the Offer to Purchase under the caption “Conditions of the Offer.” The Offer is not subject to any financing condition; and

•Except as otherwise provided in the Letter of Transmittal, stockholders who tender Shares will not be obligated to pay brokerage fees or commissions to the Information Agent or the Depositary or stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer.

The Offer is being made solely by means of the Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares, including holders of Shares located in jurisdictions outside the United States. Purchaser is not aware of any U.S. state statute that would prohibit Purchaser from making the Offer to holders of Shares in that state. If Purchaser becomes aware of such a statute, Purchaser will make a good faith effort to comply with such statute in making the Offer. Only to the extent permitted by Rule 14d-10(b)(2), the Offer will exclude all holders of Shares in a U.S. state where Purchaser is prohibited from making the Offer by administrative or judicial action pursuant to a state statute after a good faith effort by Purchaser to comply with such statute. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by one or more registered brokers or dealers licensed under the laws of such jurisdiction.

In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) Share certificates (or a timely Book-Entry Confirmation), (ii) a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof), with any required signature guarantees (or, in the case of a book-entry transfer effected pursuant to the procedures set forth in the Offer to Purchase), an Agent’s Message (as defined in the Offer to Purchase) in lieu of a Letter of Transmittal) and (iii) any other documents required by the Letter of Transmittal. Accordingly, tendering shareholders may be paid at different times depending upon when Share certificates or Book-Entry Confirmations with respect to Shares are actually received by the Depositary. Under no circumstances will interest be paid on the purchase price to be paid by Purchaser for the Shares, regardless of any extension of the Offer or any delay in making payment.

Please instruct your broker to tender any or all of your Shares by completing, executing and returning to your broker the instruction form accompanying, this letter. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified in your instructions.

[Full Disclosure:  We do not have a holding in MATH. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Lloyd I Miller III has disclosed a 5.9% holding in Ditech Networks Inc (NASDAQ:DITC). According to the 13D filing, Mr. Miller supports Mr. Leehealey and Mr. Sansone – the director candidates nominated by Lamassu Holdings for election to the board of directors at the DITC annual meeting – as “candidates who are independent of management and he seeks to encourage greater attention to corporate governance by all members of the Board of Directors.”

We’ve been following DITC (see our archive here) because it is trading below its net cash value with an investor, Lamassu Holdings LLC, disclosing a 9.4% holding in November last year. Lamassu has previously offered to acquire DITC for $1.25 per share in cash. Lamassu says that it “anticipates its due diligence requirement will take no more than two weeks and there is no financing contingency.” Lamassu has now nominated two candidates for election to the board “who are committed to enhancing shareholder value through a review of the Company’s business and strategic direction.” The stock is up 49.4% from $0.89 to close yesterday at $1.33, giving the company a market capitalization of $35M. We last estimated the net cash value at around $32.2M or $1.23 per share and the liquidation value at around $43.4M or $1.65 per share. While the deterioration in value is a concern, Mr. Miller’s support of Lamassu Holding’s director candidates introduces a new element to the position. We’re inclined to hold on to see how the annual meeting plays out.

[Full Disclosure:  We do not have a holding in DITC. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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Ditech Networks Inc (NASDAQ:DITC) has filed its 10Q for the period ended April 30, 2009.

We’ve been following DITC (see our archive here) because it is trading below its net cash value with an investor, Lamassu Holdings LLC, disclosing a 9.4% holding in November last year. Lamassu has previously offered to acquire DITC for $1.25 per share in cash. Lamassu says that it “anticipates its due diligence requirement will take no more than two weeks and there is no financing contingency.” Lamassu has now nominated two candidates for election to the board “who are committed to enhancing shareholder value through a review of the Company’s business and strategic direction.” The stock is up 49.4% from $0.89 to close yesterday at $1.33, giving the company a market capitalization of $35M. We last estimated the net cash value to be $34.3M or $1.31 per share and the liquidation value to be around $47.5M or $1.81 per share. We’ve now reduced our estimate of the net cash value to around $32.2M or $1.23 per share and the liquidation value to around $43.4M or $1.65 per share.

The value proposition updated

DITC has continued to consume cash in its operations through the last quarter, bringing the cash burn over the last year to $22.6M. At April 30, 2009, all of DITC’s short-term and long-term investments were held in corporate notes and asset backed auction rate securities. According to the 10Q, the long-term investments are tied to auction rate securities that failed to settle at auction beginning in fiscal 2008, and for which there appears to be no near-term market. Although these securities would normally be classified as short-term, as they typically settle every 28 days, DITC has reclassified them long-term pending them settling at auction. At June 30, 2009, DITC continued to hold auction rate securities with a par value of $13.7 million. Our updated valuation follows (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):

DITC Summary 2009 4 30In the last 10Q, DITC wrote that it believed its “legacy business to be at or near cash flow break even” which would “begin to be more evident in our financial results in the coming quarters.” That rosy prognosis has not manifest itself this quarter. Maybe DITC management meant the next quarter.

Off-balance sheet arrangements and Contractual obligations

According to the 10Q, DITC has around $4.0M in contractual commitments (including $247M in operating leases and $2.7M in purchase commitments), around $2.6 of which falls due this year and the remainder falling due within the next 3 years. DITC has no other material commitments or off-balance sheet liabilities.

Conclusion

The deterioration in DITC’s value is a concern, but, for reasons we’ll discuss in the next post, we propose to continue to hold DITC in the Greenbackd Portfolio for the time being.

[Full Disclosure:  We do not have a holding in DITC. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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BA Value Investors has disclosed a 5.1% holding in VaxGen Inc (OTC:VXGN) and, in a letter to the board of directors, called on VXGN to “act promptly to reduce the size of the board to three directors; reduce director compensation; change to a smaller audit firm; terminate the lease of its facilities; otherwise cut costs; make an immediate $10 million distribution to shareholders; make a subsequent distribution of substantially all the remaining cash after settling the lease termination; distribute any royalty income to shareholders; and explore ways to monetize the public company value of the Issuer and use of its net operating losses.”

We’ve been following VXGN (see our post archive here) because it is trading at a substantial discount to its net cash position, has ended its cash-burning product development activities and is “seeking to maximize the value of its remaining assets through a strategic transaction or series of strategic transactions.” If the company is unable to identify and complete an alternate strategic transaction, it proposes to liquidate. At its $0.46 close yesterday, VXGN has a market capitalization of $15.2M. We estimate the company’s net cash value to be around $26.5M or $0.80 per share. VXGN has other potentially valuable assets, including a “a state-of-the-art biopharmaceutical manufacturing facility with a 1,000-liter bioreactor that can be used to make cell culture or microbial biologic products” and rights to specified percentages of future net sales relating to its anthrax vaccine product candidate and related technology.

VXGN’s main problem is a lease dispute with its landlord, in which the landlord seeks $22.4M. From the last 10Q:

In February 2009, a lawsuit was filed against the Company by plaintiffs, Oyster Point Tech Center, LLC. The plaintiffs generally allege that the Company defaulted on the lease on the 349 Oyster Point, South San Francisco facility. The complaint seeks possession of the premises and the balance of lease plus unpaid rent and expenses totaling $22.4 million, as well as an award of plaintiffs’ attorneys’ fees and costs. The Company’s biopharmaceutical manufacturing facility is located in the leased premises that are the subject of the dispute. At a February hearing, the court denied the writ and the temporary protective order sought by landlord. The parties are currently in discussions to achieve an amicable resolution to the matters alleged in the complaint and a negotiated termination of the lease. However, if necessary, the Company intends to vigorously defend against such allegations.

The Company may incur substantial expenses in defending against such claim, and it is not presently possible to accurately forecast the outcome. The Company does not believe, based on current knowledge, that the foregoing legal proceeding is likely to have a material adverse effect on its financial position, results of operations or cash flows. In the event of a determination adverse to the Company, the Company may incur substantial monetary liability and could have a material adverse effect on the Company’s financial position, results of operations or cash flows.

If the lawsuit is succesful, then VXGN has next to no value. We’re taking our guidance from the company, which “does not believe, based on current knowledge, that the foregoing legal proceeding is likely to have a material adverse effect on its financial position, results of operations or cash flows.”

The letter from BA Value Investors to VXGN is set out below:

BA Value Investors, LLC
1 North Federal Hwy., Suite 201
Boca Raton, FL. 33432

June 12, 2009

The Board of Directors
VaxGen, Inc.
379 Oyster Pointe Boulevard, Suite 10
South San Francisco, California 94080

Gentlemen and Lady:

BA Value Investors, LLC is the owner of more than 5% of the stock of VaxGen, Inc.

VaxGen refers to itself as a biopharmaceutical company. This may have been the case at one time. It is not the case now. The Company has burned through over $200 million in invested capital. It is burdened by a 65,000 square foot facility that sits idle. It has terminated all product development activities. It has sold or otherwise terminated its drug development programs. It experienced a $12 million net loss in 2008. Its share price has fallen by over 95% in the last five years, and it now has a market capitalization of only $16 million. Its principal remaining assets of some $36 million in cash and investment securities are steadily being eroded.

Yet, the Company continues to pay out over $60,000 per month to its board members, and close to $200,000 per year to its president and principal executive officer, as the Company purports to seek strategic transactions in the worst economic environment of the past half century. While outrageous, it is unfortunately not surprising that a board which owns virtually no shares and has almost zero economic interest in the fortunes of the Company would be making these payments and failing to act even remotely in the interests of shareholders.

BA Value Investors, LLC believes that it speaks for all shareholders when it says that this state of affairs must come to an immediate halt. Instead, the Company must act now to stop the waste and return the Company’s remaining assets to its shareholder owners.

First, the Company must–

o reduce the size of its board. Three directors are all that are needed for a company with no business and no strategic prospects;

o reduce director compensation. The Strategic Transaction Committee must be disbanded and payments to its members stopped at once. There is no justification for more than $15,000 in annual compensation to a director of the Company;

o change auditors. The Company does not need and should not be paying for a Big Four auditing firm;

o terminate the lease. The Company should settle with its landlord at a substantial discount to the remaining lease payments and vacate the South San Francisco property; and

o cut other costs. The Company should eliminate all expenses that are not absolutely necessary for a company whose activities are limited to returning remaining assets to shareholders and operating as a public shell.

Second, the Company must–

o make an immediate distribution of $10,000,000 in cash to shareholders;

o following termination of the lease and settlement with the landlord, distribute the remaining Company cash to shareholders, leaving only enough for the maintenance of the Company as a public shell; and

o distribute to shareholders any royalty payments received from the sale of the Company’s intellectual property.

Third, the Company should–

o explore ways to monetize the Company as a public shell, including, if possible, through utilization of the Company’s substantial NOLs.

There is no excuse or justification here for any delay. If the board is unwilling to undertake these steps, shareholders will have not choice but to reconstitute the board with directors who are representative of the shareholders and protective of their interests.

I am available to discuss these matters with members of the board on a non-confidential basis. I can be reached at 561-362-4199.

Very truly yours,

Steven N. Bronson, Managing Member

[Full Disclosure:  We have a holding in VXGN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]

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