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Archive for the ‘Net Net Stocks’ Category

Aspen Exploration Corporation (OTC:ASPN) has filed its definitive proxy statement for its November 30, 2009 general meeting and included is a proposal seeking authority for ASPN’s board of directors to dissolve the company

We’ve been following ASPN (see our ASPN post archive) because it’s trading at a discount to its $1.17 per share liquidation value and there are several potential catalysts in the stock, including a 13D filing from Tymothi O. Tombar, a plan to distribute substantially all of the net, after-tax proceeds from the completion of the Venoco sale to its stockholders ($5M to $5.5M), and the possibility that the company will dissolve. The stock is up 6.6% since we initiated the position to close Friday at $1.05.

The relevant portion of the definitive proxy statement is set out below:

10. Why is the Board of Directors submitting a proposal to the stockholders to grant the Board authority to dissolve Aspen?

In connection with preparing for and conducting the May 22, 2009 meeting of stockholders, one stockholder submitted a request that Aspen include a dissolution proposal to be considered at the same time that the stockholders were being asked to consider the sale of Aspen’s oil and gas assets to Venoco, Inc. The Board of Directors had previously considered that possibility, but had determined that presenting the dissolution proposal at the same time as the asset sale proposal would add a significant amount of complexity and risk stockholder consideration of the asset sale. Consequently, Aspen advised the stockholder that Aspen would offer stockholders the opportunity to consider dissolution of Aspen at the next meeting. In response to that statement, the stockholder withdrew his proposal and the Securities and Exchange Commission was able to complete its review of the proxy statement for the May 22, 2009 meeting.

11. How does the Board recommend that I vote with respect to the proposal that would grant the Board of Directors the discretion to dissolve Aspen?

The Board of Directors proposed dissolution of Aspen for consideration of its stockholders because of commitments made in March 2009. The Board, however, has not determined by majority vote what recommendation should be made to stockholders in connection with the vote:

* One director, R.V. Bailey, believes that the prospective value of Aspen as a public corporation with a continuous filing record and clean financial statements exceeds the value of the remaining net assets, and believes that stockholders may benefit by the possibility of making a business acquisition (including a reverse takeover) that could offer Aspen’s stockholders potential long term value.

* Three directors, Robert A. Cohan, Kevan B. Hensman and Douglas P. Imperato are continuing to evaluate whether they believe the Company can identify and execute on a business opportunity that may offer long term value to the Company’s stockholders and as such none have yet authorized the Board to make a recommendation for or against approval of Proposal No. 2.

Although the Board did not determine whether dissolution is in Aspen’s best interests at the present time, the Board did determine it is appropriate to submit the proposal to its stockholders at the Annual Meeting. As such the proposal is being submitted to the stockholders without any recommendation from the Board of Directors. For further discussion on this issue see page 30 of this Proxy Statement.

It’s worth noting that R.V. Bailey, the director opposed to the liquidation, holds 19.17% of the outstanding stock.

[Full Disclosure:  We have a holding in ASPN. 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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Cadus Corporation (OTC:KDUS) is an interesting play, but not without hairs on it. First, the good news: It’s trading at a discount to net cash with Carl Icahn disclosing an activist holding in 2002, and Moab Capital Partners disclosing an activist holding more recently. At its $1.51 close yesterday, the company has a market capitalization of $19.9M. The valuation is straight-forward. We estimate the net cash value to be around $20.6M or $1.57 per share and the liquidation value to be around $23.2M or $1.77 per share. The liquidation value excludes the potential value of federal and New York State and City net operating loss carry-forwards. It’s not a huge upside but it’s reasonably certain, and we think that’s a good thing in this market. The problem with the position is the catalyst. It’s a relatively tiny position for Icahn, so he’s got no real incentive to do anything with it. He’s been in the position since 2002, so he’s clearly in no hurry. That said, he’s not ignoring the position. He last updated his 13D filing in March this year, disclosing an increased 40% stake. He’s also got Moab Capital Partners to contend with. Moab holds 9.8% of the stock and says that it “has had good interaction with the CEO of Cadus, David Blitz, and feels comfortable that he will structure a transaction with an operating business that will generate significant long-term value for Cadus holders.” KDUS could end up being a classic value trap, but we think it’s worth a look at a discount to net cash, and two interested shareholders.

About KDUS

From the most recent 10Q:

The Company was incorporated in 1992 and until July 30, 1999, devoted substantially all of its resources to the development and application of novel yeast-based and other drug discovery technologies. On July 30, 1999, the Company sold its drug discovery assets and ceased its internal drug discovery operations and research efforts for collaborative partners.

At June 30, 2009, the Company had an accumulated deficit of approximately $34.9 million. The Company’s losses have resulted principally from costs incurred in connection with its research and development activities and from general and administrative costs associated with the Company’s operations. These costs have exceeded the Company’s revenues and interest income. As a result of the sale of its drug discovery assets and the cessation of its internal drug discovery operations and research efforts for collaborative partners, the Company ceased to have research funding revenues and substantially reduced its operating expenses. The Company expects to generate revenues in the future only if it is able to license its technologies.

The value proposition

KDUS is a relatively simple value proposition. It’s $21M of cash, and $3.1M in Bank of America Columbia Strategic Cash Portfolio (more on this below) against total liabilities of around $0.03M (that’s ~$27,000). We’ve set out the valuation below in the usual manner (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):

KDUS Summary

Bank of America Columbia Strategic Cash Portfolio

We are not treating the Bank of America Columbia Strategic Cash Portfolio as cash. The asset has some issues, best described by this passage from the 10Q:

On December 10, 2007, the Fund notified the Company that conditions in the short-term credit markets had created a broad based perception of risk in non subprime asset-backed securities causing illiquidity across the market which led to extreme pricing pressure in those securities. The Fund also notified the Company that it is primarily invested in such securities, that it will begin an orderly liquidation of such securities, that unitholders would no longer be able to redeem their units in the Fund and that the Fund would redeem its units as it liquidated its investments. The Fund also began to value its securities based on market value rather than amortized value for purposes of determining net asset value per unit. The Fund has continued to pay interest monthly. The Company reclassified its investment in the Fund from cash equivalents to short-term investments. Through December 31, 2008, the Fund redeemed 19,445,459 units held by the Company for $18,787,142, which redemption was $658,317 in the aggregate less than the cost of such units. From January 1, 2009 to June 30, 2009, the Fund has redeemed an additional 2,314,849 units in the Fund for $1,934,798 which redemption was $380,051 in the aggregate less than the original $2,314,849 cost of such units. At June 30, 2009, the Company still owned 3,793,032 units in the Fund which was recorded on the balance sheet at $3,135,321. Such 3,793,032 units had a net asset value of $3,306,385 at June 30, 2009. The Fund has advised the Company that the balance or most of the balance, of the Company’s investment in the Fund will be redeemed by December 31, 2009. However, there can be no assurance as to when the redemption will take place or as to the net asset value at which the Company’s investment in the Fund will be redeemed.

We’ve applied a 20% discount to the Strategic Cash Portfolio, which is an additional discount to that applied by KDUS. This may be too conservative, but that is the only way that we feel comfortable.

The catalyst

Carl Icahn filed an amended 13D notice on March 12 this year, indicating an increased 40% holding in KDUS. Moab Capital Partners also holds around 9.8% of KDUS. Said Moab of its KDUS position in the August 16, 2007 13D:

The Reporting Persons have purchased the Shares in open market transactions because in their opinion, the market has not given full appreciation to Cadus’ cash balance, net operating loss carry-forwards and future prospects. Based on publically available information, as of 8/16/07, the company currently holds cash, equivalents and investments in marketable securities of $25.4 million and has significant federal and New York State and City net operating loss carry-forwards. The current market capitalization stands at $23.1 million, a 9% discount to the cash and investments on Cadus’ balance sheet. Moab feels the loss carry-forwards should also be ascribed market value. Cadus is cash flow positive and the share count has not increased in over five years. Moab has had good interaction with the CEO of Cadus, David Blitz, and feels comfortable that he will structure a transaction with an operating business that will generate significant long-term value for Cadus holders.

Moab’s purchase prices – between $1.86 and $1.76 – are higher than the current trading price of KDUS.

Despite these promising sentiments, a catalyst in KDUS is probably not imminent. We believe the position will require some patience for the following reasons: First, KDUS is controlled by Icahn and represents a very small part of his empire. He’s got no real immediate impetus to unlock the value. The play is probably Icahn selling his stake to another investor looking for a shell, or Icahn vending into KDUS some other business. You’d have to be brave / insane / a little of both to buy from Icahn usually, and doubly so in this instance given that he’s got no reason to sell. Second, it’s illiquid. Average volume is close to nada: 900 shares were traded on Friday and 6,500 were traded on Thursday. Even a small retail investor could make the entire market for a day or so. Finally, KDUS is a fairly well known position in the industry. It’s viewed as a stock that has been stagnant for years and unlikely to go anywhere because Icahn is too rich to care. We’ve heard that investing in KDUS is a “right of passage for would-be shell buyers.” Consider yourself warned.

Conclusion

Despite the foregoing misgivings, we’re reasonably comfortable with a position in KDUS for several reasons:

  1. The value. We’re primarily attracted to KDUS’s cash and liquidation values. While it’s not a huge upside from here, it’s downside is very limited. With slightly higher interest rates, KDUS will also likely return to cash flow positive territory.
  2. While Icahn is obviously not seeking an immediate resolution of the position, he controls an asset with a value not yet fully recognised by the market. If a worthwhile transaction materializes like Marley’s ghost before Scrooge’s eyes, we’re prepared to bet that Scrooge will buy us the biggest turkey in the poulterer’s shop. But it won’t happen this Christmas.

KDUS won’t ever be a 10 bagger, or even a double, but it’s got 20 – 30% in it. In an overheated market, that’s good enough for us. For these reasons, we’re adding it to the Greenbackd Portfolio.

KDUS closed Friday at $1.51.

The S&P500 closed Friday at 1,044.38.

[Full Disclosure:  We have a holding in KDUS. 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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We were going to stay away until after Labor Day, but this is too good to miss. From reader MCN1 on Aspen Exploration Corporation (OTC:ASPN):

Company Name: Aspen Exploration Corporation

Ticker: ASPN

Market Cap: $6.53M (as of 9/2/09)

Stock Price: $0.90 (as of 9/2/09)

Company Overview: Aspen Exploration Corporation is engaged in the exploration and development of oil and gas properties in California and Montana.

Situation:

Being a micro cap stock the management acknowledged in a press release in Sept 2008 that it would begin exploring strategic alternatives for Aspen “including the possibility of selling Aspen’s assets or considering another appropriate merger or acquisition transaction (from press release dated 9/4/08).” The motive behind pursing “strategic alternatives” was three fold: (1) the cost of being a public company for a company their size, (2) the belief the market price did not reflect the true value of ASPN’s assets, and (3) the president’s health issues (had a stroke in Jan 2008).

In Feb 2009, ASPN announced it had entered into an agreement with Venoco, Inc (VQ) to sell its California assets for approximately $8.425M (approximately because it was subject to adjustments). It was a good strategic fit for Venoco who has operations close to Aspen’s. On June 30, 2009 the transaction closed with Aspen receiving $7.6M (net of fees). Additionally, during this time period, Feb 09 – Jun 09, Aspen also sold its interests in Montana for $1.2M. Thus, the total sale proceeds to the company were $8.8M between the two transactions.

The company is trying to decide what to do with its liquid assets, either liquidated and payout to stockholders or pursue new business opportunities. Now management has stated it has reviewed some business opportunities, and thankfully, and has passed on those opportunities. Especially when you take into account that management is willing to look at opportunities outside of oil & gas – which was the company’s core business.

In either late October or November of this year, the company is going to “propose a resolution to consider the possibility of dissolution of Aspen to our stockholders at a meeting of stockholders….If Aspen were to dissolve, it would not enter into another business opportunity but would wind up its operations and distribute its remaining assets to stockholders (from 8-K filing dated 6/30/09).” This is what I and others are betting will happen.

Financials & Valuations:

Here is a look at the post transaction balance sheet (pro forma) as of 3/30/09. The numbers below are taken from a SEC 8-K filing dated 7/2/09.

ASPN SummaryComments on Valuation:

Cash – I margined it at 95% to account for ongoing overhead the company still has to pay.

Deposits – not sure what that figure represents, could be overstating liquidation value here. 50% is arbitrary though amount is insignificant to the whole deal.

Valuation – Estimated net liquidation value of $1.38/share, the majority of which, represents cash and marketable securities at $1.26 compared to market price of $0.90.

Other:

The company also has joint venture, which they entered into in January 2007, with a company called Hemis Corporation where Hemis is the operator and is permitted to explore for commercial amounts of gold. Because Hemis is the operator, Aspen is not obligated to pay for any of the exploration and production costs, instead, Aspen retained a 5% gross royalty on production. As part of the agreement, Hemis paid Aspen $50k in Jan 07, $50k in Aug 07, was obligated to pay another $50k in Sept 08 (which hasn’t been received), and $50k on each anniversary date until production begins. Since the Sept 08 has not been received (and no updates have been provided), the agreement could have been terminated as non-payments was grounds for termination. I have assigned no value to this joint venture.

The stock is thinly traded, usually a couple thousand shares trade everyday. Since my purchases in July 09, the stock has ranged from $0.87 – $0.97.

Catalyst:

Catalyst one – the stockholder meeting in late October or November with stockholders voting to dissolve the company and proceeds are paid out.

Catalyst two (which helps ensure catalyst one occurs) – during May 09 – June 09 an individual (I’ll spare the name, you can refer to the SEC 13D filing, just look it up under Aspen’s filings on the SEC website) acquired $422.7K of stock in the company for an approximate 5% stake. In the 13D filing the individual states his intent which is “As Aspen currently has no active business operations and a significant amount of liquid assets, (individual name) believes that there is broad shareholder support for the implementation of a plan of liquidation and distribution of substantially all the proceeds from the Sale and Aspen’s additional liquid assets to Aspen’s shareholders. (individual name) is considering several stockholder resolutions…for inclusion in Aspen’s proxy statement for its next meeting of stockholders”

Disclosure: I am long ASPN. The information presented is obtained from public filing, please perform your own due diligence as this is neither a recommendation to buy or sell.

[Full Disclosure: We do not have a holding in ASPN. 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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Forward Industries Inc (NASDAQ:FORD) has filed its quarterly report for the period ended June 30, 2009.

We started following FORD (see our post archive here) because it was trading at a discount to its net cash and liquidation values, although there was no obvious catalyst. Management appeared to be considering a “strategic transaction” of some kind, which might have included an “acquisition or some other combination.” Trinad Management had an activist position in the stock, but had been selling at the time we opened the position and only one stockholder owned more than 5% of the stock. The stock is up 17.4% since we opened the position to close yesterday at $1.69, giving the company a market capitalization of $13.4M. Following our review of the most recent 10Q, we’ve slightly reduced our estimate of the liquidation value to $19.5M or $2.47 per share.

The value proposition updated

FORD continues to face difficult trading conditions, writing in the most recent 10Q:

Trends and Economic Environment: We believe that the deteriorating economic conditions, rising unemployment, tight credit markets, and heightened uncertainty in financial markets during the past 18 months have adversely impacted discretionary consumer spending, including spending on the types of electronic devices that are accessorized by our products. We expect this challenging business environment to continue in the foreseeable future.

The company had a slightly better quarter than the preceding one, but still burned through nearly $0.3M of cash (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):

FORD Summary 2009 06 30

Summary balance sheet adjustments

We’ve made the following adjustments to the balance sheet estimates (included in the valuation above):

  • Cash burn: We’ve got no real idea about FORD’s prospects. Its cash burn over the last quarter was around $0.3M. That was made up of $0.2M of cash used in operations and $0.1M cash used in investment activities. If we assume, as management has, that the company will face a similarly tough operating environment over the next 12 months, we estimate cash burn of around $0.7M.
  • Off-balance sheet arrangements: According to FORD’s most recent 10Q, it has no off-balance sheet arrangements.
  • Contractual obligations: FORD’s contractual obligations are minimal, totalling $0.9M.

Possible catalysts

FORD’s President and Acting Chairman, Mr. Doug Sabra, said in the letter to FORD shareholders accompanying the notice of annual shareholders’ meeting, that in 2008 “management began to implement operational and strategic initiatives in order to put [FORD]’s business on a stronger, more sustainable footing. …  This past August we retained an outside consultant to assist us in vetting possible partners for a strategic transaction.” It seems that the “strategic transaction” might include a “possible acquisition or other combination that makes sense in the context of [FORD’s] existing business, without jeopardizing the strong financial position that we have worked so hard to build.” FORD’s focus on a “strategic transaction” is a positive, in our view, although our vast preference is for a sale of the company, buyback, special dividend or return of capital over an acquisition.

Any transaction will require the consent of FORD’s board. While it has a free float of around 92%, the company’s so-called “Anti-takeover Provisions” authorize the board to issue up to 4M shares of “blank check” preferred stock. From the 10Q:

The Board of Directors has the authority and discretion, without shareholder approval, to issue preferred stock in one or more series for any consideration it deems appropriate, and to fix the relative rights and preferences thereof including their redemption, dividend and conversion rights.

Conclusion

At its $1.69 close Friday, FORD is trading at a substantial 46% discount to its $2.47 per share liquidation value and $2.07 per share net cash value. While there’s no obvious catalyst in the stock at this stage, management’s consideration of a “strategic transaction” is a positive. The risk to this position is management spending the cash on an acquisition. We think a far better use of the company’s cash is a buyback, special dividend or return of capital. Another concern is Trinad Management exiting its activist position in the stock. Those concerns aside, we’re going to maintain our position because still looks cheap at a discount to net cash.

[Full Disclosure:  We have a holding in FORD. 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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VaxGen Inc (OTC:VXGN) has released its quarterly report for the period ended June 30, 2009.

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. One concern of ours has been a lawsuit against VXGN by its landlords, in which they sought $22.4M. That lawsuit was dismissed in May, so the path for VXGN to liquidate has now hopefully cleared.

VXGN has now also attracted the attention of BA Value Investors, which has disclosed an activist holding and 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.”

At its $0.50 close yesterday, VXGN has a market capitalization of $16.6M. We last estimated the company’s liquidation value to be around $26.5M or $0.80 per share. Following our review of the most recent quarterly report, we’ve slightly reduced our estimate to $25.4M or $0.77 per share. VXGN has other potentially valuable assets, including 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.

The value proposition updated

VXGN has taken steps to minimize its cash burn, reducing its workforce to three employees, terminating its anthrax and smallpox development activities and selling the assets related to its anthrax product candidate. The company’s value rests on its vestigial holding of cash and equivalents (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):

VXGN Summary 2009 6 30 v2Balance sheet adjustments

We’ve made the following adjustments to the balance sheet estimates above:

  • Cash burn: The company used $1.1M in cash in the second quarter, down from $2.1M in the first quarter. We have included cash burn of $4M in our estimate for the year. We have also assumed professional fees and termination payments of $1.1M.
  • Off-balance sheet arrangements and contractual obligations: According to VXGN’s 10Q, it has no off-balance sheet arrangements.

The lawsuit against VXGN by its landlords, in which they sought $22.4M, has been dismissed:

In February 2009, a lawsuit was filed against us in the Superior Court of California for the County of San Mateo by plaintiffs, Oyster Point Tech Center, LLC. The plaintiffs generally allege that we defaulted on our lease for our facility located at 349 Oyster Point, South San Francisco, California. The complaint seeks possession of the premises and the balance of the lease plus unpaid rent and expenses totaling $22.4 million, as well as an award of plaintiffs’ attorneys’ fees and costs. Our 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. In May 2009, the lawsuit was dismissed.

Conclusion

At its $0.50 close yesterday, VSGN has a market capitalization of $16.6M. We estimate the net current asset / liquidation value to be around 74% higher at $25.4M or $0.77 per share. VXGN has other potentially valuable assets, including rights to a portion of future net sales on its anthrax technology and a state-of-the-art biopharmaceutical manufacturing facility. One concern has been a lawsuit brought by the landlord against the company, so it is encouraging that the lawsuit has been dismissed. With its stock at a substantial discount to its net current asset / liquidation value, its cash-burning product development activities at an end and a proposal to identify and complete an alternate strategic transaction or liquidate, we think VXGN is still a good prospect, and we’re going to maintain our position.

[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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Soapstone Networks Inc (NASDAQ:SOAP) closed Friday at $0.495 following the payment last week of a $57.5M or $3.75 per share special dividend. The company estimates the final distribution at between $0.25 and $0.75 per share. The higher end of the distribution range represents a ~50% upside from Friday’s close, so we’re going to do some work now to determine whether we hold on to the stub, buy some more or close out the position.

We opened the position in SOAP on February 2nd (see our post archive here) because it was trading well below our estimate of its net cash value. An activist investor, Mithras Capital, had disclosed an 8.7% holding and called on the company to liquidate. After some urging on Mithras Capital’s part, management acceded to the request and announced a liquidation. SOAP stockholders approved the liquidation of the company last week and were paid a special dividend of $3.75 per share. Based on our $2.50 purchase price, the $3.75 per share special dividend returns our initial capital plus 50%. At the Friday close, the $0.495 stub represents an additional 20% on our initial purchase price for a total return to date of 70%. Management estimates the final distribution will be between $0.25 and $0.75 per share, which means the stub is trading at a fraction under the midpoint of the distribution range.

The value proposition for the SOAP stub

Following the payment of the special dividend, SOAP has cash of around $17.5M or a little over $1.00 per share. The basis for SOAP management’s calculation of the $0.25 and $0.75 per share distribution is set out below (extracted from the Preliminary Proxy Statement):

SOAP Estimated Liquidating Distributions

(The table above has been modified from the original to fit this space)

(1) Estimated balance is net of cash used for the period April 1, 2009 through June 30, 2009 for estimated operating expenses ($4.2 million), severance costs ($1.7 million) and accounts payable and accrued liabilities ($1.5 million), partially offset by interest income ($0.1 million).

(2) Estimated Extraordinary Dividend payments of $55.8 million are associated with 14,886,107 shares of our common stock outstanding as of June 16, 2009 and Extraordinary Dividend payments of $1.7 million are associated with 460,828 shares of our common stock subject to currently vested options that are in-the-money at $4.13, the per share closing price of our stock on the Nasdaq Global Market on June 16, 2009, which options are assumed to be exercised prior to the dividend payment.

(3) Estimated proceeds from the exercise of currently vested options for 460,828 shares of our common stock that are in-the-money at $4.13, the per share closing price of our stock on the Nasdaq Global Market on June 16, 2009, which options are assumed to be exercised prior to the dividend payment.

(4) Estimated range of cash proceeds from sale of assets, including technology, intellectual property, furniture, fixtures and equipment.

(5) Estimated operating expenses for the period of July 1, 2009 through June 30, 2010 for personnel, facilities and other expenses to conduct our wind up operations but exclusive of all other line items specifically allocated in the table above.

(6) Estimated severance costs for remaining employees involved in the wind up operations.

(7) Estimated accounts payable and accrued liabilities as of June 30, 2009.

(8) Estimated range of cash payments associated primarily with lease and lease related commitments for our headquarters facility.

(9) Estimated range of cash use for the purchase of insurance, including Directors and Officers liability insurance covering the six years from the date of stockholder approval of the plan of dissolution.

(10) Estimated range of cash use for professional fees related to our liquidation and dissolution, as well as ongoing SEC reporting requirements.

(11) Estimated range of cash use for unanticipated claims and contingencies, including potential deductibles and retentions associated with potential insurance claims.

Set out below is an analysis of SOAP management’s estimates, showing the differences between the upper and lower estimates:

SOAP Estimated Liquidating Distributions 2

It becomes clear from the preceding table that two categories account for the majority (80%) of the difference between the upper and lower estimates of the final distribution:

  1. Real Estate and Equipment Lease termination costs: Around $3.8M or $0.25 per share.
  2. Proceeds from the sale of Assets: Around $2.2M or $0.14 per share.

We’ve got no real idea about the likely final figures in either of these categories, which means we won’t be buying any more at this stage. Given that the stock is trading at a fraction under the midpoint of management’s estimate of the final distribution, we’re going to hold on to our remaining stock for the time being and see how it plays out.

[Full Disclosure:  We have a holding in SOAP. 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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Autobytel Inc (NASDAQ:ABTL) has filed its 10Q for the quarter ended June 30, 2009.

We last estimated ABTL’s liquidation value at $24.3M or $0.54 per share. Following our review of the 10Q, we’ve reduced our estimate to$21.8M or $0.48 per share. The stock closed yesterday at $0.48, which means it’s trading at our estimate of the liquidation value. On that basis, we’re exiting. We opened our position at $0.43, so we’re up 11.6% on an absolute basis. The S&P500 closed yesterday at 979.62, and was at 899.24 when we started following ABTL in December, which means we’re up 2.7% on a relative basis.

Post mortem

We started following ABTL (see our post archive here) because it was trading at a substantial discount to its liquidation and net cash values and Trilogy had filed a 13D notice disclosing a 7.4% holding. Trilogy had also launched a tender offer for ABTL at $0.35 per share. When Trilogy launched its offer, we wrote that we believed that $0.35 per share was only the opening salvo and a higher price was possible if the board terminated the rights plan poison pill. The board rejected the offer out of hand and Trilogy did not make a further offer before the initial offer expired. On expiry of the offer, Trilogy sent a letter to the board saying that it would “continue to evaluate [ABTL’s] business, its cash position, and its operating performance” and called on the board to communicate to its shareholders the break-up value of Autobytel, such that shareholders can determine if that is the best course to maximize value.” That did not eventuate.

ABTL has consumed a great deal of cash over the last years. Its principal sources of liquidity are from proceeds from dispositions of non-core businesses and the patent litigation settlement payments. Our estimate for ABTL’s liquidation value is set out below (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):

ABTL Summary 2008 6 30

Conclusion

Our position in ABTL has been a disappointing one, and has dragged down the performance of the portfolio. That aside, we can’t be too unhappy with a slightly positive result in a declining company.

[Full Disclosure:  We do not have a holding in ABTL. 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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