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Only part of the operations were stopped
The company stopped the mining part of the operations. There is ore on the leach pads and the Merrill-Crowe processing plants that will allow the company to extract gold/silver to sell for months to come.
The problem is that this will make a gap in their production in the future if the ore on the pads runs out and nothing is being mined for a long time.
There is another problem in that this step implies there is not enough coming in from selling the gold/silver to also keep mining operations running to keep the leachs pads going.
Louis J. Desy Jr.
May 2015 operating report, document 149
They filed document 149 on 06/22/2015. It is the May 2015 operating report. That report shows negative stockholders equity of about $13 million; meaning the shares are wiped out. Revenue for the month was $2.1 million and they paid out $1 million, so at least that is not declining, but that may only be because they do not pay interest on the bonds while in Chap 11.
Unfortunately, even from the information on the 05-31-2015 balance sheet, the common shares are wiped out.
Louis J. Desy Jr.
Unbelievable trading today
I agree. It is even more unbelievable when you look at things like RSHCQ (Radio Shack liquidation company). Those shares are UP 20% to $0.071; in spite of the fact that they are going to be delisted and stop trading.
Meanwhile, here, where WDDD just moved another step towards a trial on the patents, is trading down, while we wait for a trial date, for a trial that we expect to win.
Louis J. Desy Jr.
May 2015 operating report shows losing cash
https://cases.primeclerk.com/alliednevadagold/Home-DownloadPDF?id1=MTUyODI4&id2=0
I question if the assets of the company are worth anything after looking at the May 2015 operating report.
May 2015 gives use about three months of operations of the company while in Chapter 11.
The cumulative for the filing shows the following:
1: Cash taken in of $79 million, of which $35 million was DIP.
2: Disbursements of $75 million. of which $4 million was professional fees and trustee fees.
3: Cash went up $4 million. If you added back in the $4 million professional fees and trustee fees then cash could have gone up $8 million if the company did not have the costs of bankruptcy. The problem is that the company also would not have gotten the $35 million in DIP, so cash flow without the Chapter 11 would have been +8 and -35 for a net change of negative $27 million. It appears that operations are unable to support the cash required and the company, on a cash basis, looks like it is losing a few million per month.
4: Stockholders equity is now $160 million, but I question if the assets are worth what they are on the book, since the first three months show a cash loss from operations. It looks like the company can not even break even on operations. Based on this, once the assets are valued or sold, I would expect large losses from the carry value on the books.
Louis J. Desy Jr.
Louis J. Desy Jr.
USEG value if liquidated
The more I look at USEG, the more I think they should liquidate.
So far in their corporate life, as of 2015 Q1, they have:
1: Raised $124 million in capital and additional paid in.
2: Lost $40 million.
3: Are on track to generate revenue of only $10 million per year.
4: Are on track to lose $11.2 million per year.
If they were able to sell everything off now for maybe 50% of what they paid for it (equity of $83 million x 50%), they could distribute a liquidating dividend of $1.49/share, and everyone could get out with something, and the creditors get paid in full.
I expect that if they continue to operate, the value will go down over time and even the creditors will lose out.
Louis J. Desy Jr.
Shelf financing may not help
The $100 million in shelf financing may not help. Who would want to invest in a company that can not even run a positive gross margin? Anyone who puts up $100 million for a company that is on track to lose money every quarter would have to be out of their mind.
Think of it this way, if someone had $100 million they could either:
1: Buy 10 year US treasury bonds that yields 2.4% and get $2.4 million every year with no worry, plus get the $100 million back in ten years.
OR
2: Invest it in USEG for the right to have a piece of $12 million in losses per year, and run the risk that all of the money will be spent within a decade with nothing to show for it.
I expect that they will have to sell off land. No one is going to let them run $100 million of their money into the ground.
Louis J. Desy Jr.
Lights out? Maybe not yet but still not good
10Q report for Q1 2015:
http://www.sec.gov/Archives/edgar/data/101594/000010159415000012/form10_q.htm
Current assets $5.6 million
Current liabilities $9.5 million
Q1 gross income of negative $2.8 million, so it is making problems worse for the company.
There is 83 million in equity, with 68 million in oil and gas properties (net of depreciation) plus 21 million in undeveloped properties. The problem is that all of this land is probably being carried as an asset at its purchase price, which is not what it is worth on the market today with the decline in oil and gas prices.
I am expecting that in order to stay in business, USEG will need to sell off large amounts of their land in order to stay in business.
I estimate that with the shortfall in current assets to current liabilities of $3.9 million plus losing another $2.8 million each quarter for the next three quarters, they will need to raise $12.3 million before the end of the year to stay keep current on their bills. Since the only place they can get money is from selling land, and the land is probably not worth what they paid for it, I expect they will need to sell at least $25 million worth of land from the balance sheet to get the $12.3 million in cash they need to survive.
That would mean I expect equity to be $58 million (or less) when they file the 10K report for 2015.
At this time, I do not expect they will end up bankrupt, as long as the land can be sold in this low oil price environment.
Louis J. Desy Jr.
Price seems to be recovering today, 07/01/2015, as of noon
I am not sure, but I think the problem yesterday was that email blast sent out by some firm in Europe.
Of course, I still can't explain why volume on 06/29 would be 3 million shares, and then the next day drop to 10% of that.
Louis J. Desy Jr.
More DIP financing
If they need more DIP financing, I would take that as a sign that they are really losing money, otherwise why would they need more cash? How come they can't at least 'stay even' with their cash even after not having to pay interest on the debt while the Chapter 11 is in place?
The other problem is that if operations are not generating any cash, what are the assets really worth? If cash flow per year is zero or minimal, why would anyone pay up for an asset like that.
As an example, if interest rates are 10%, and an asset generates $1 million per year in profit each year, people should be willing to pay as much as $10 million for it ( 1/.1 = 10 ).
But if the same asset generates zero, it is of no use to anyone.
Louis J. Desy Jr.
Correction to possible way to value
The low end of the stock price should be $0.81, not $0.66.
I made a mistake on the forulma for the low end stock price with the 90% x 90% x 90%.
5: Each of the three steps to go in the progression through the court has an expected rate of success of 90%, so multiple the dollar range by 90% x 90% x 90% and you get an expected dollar range of $89 million to $268 million.
With 110 million shares outstanding the present value of the shares today would be in the range of $0.81 to $2.44.
Louis J. Desy Jr.
Possible way to value what the stock is worth today
The way I look at it, here are the factors in the value of the stock price:
1: Expected a royalty rate of between 1% to 3%.
2: Patents cover 3.3 years
3: The sales of the covered products are $3 billion per year in the current lawsuit.
4: The case to the final end will take 5 years.
5: Discount rate of 10% per year
6: Each step in the case (trial, appeal, and Supreme Court submission for an appeal) has a 90% chance of success.
With those at the inputs, here is the calculation of the present value of the stock price.
1: $3 billion in revenue per year times 3.3 years is $9.9 billion in revenue.
2: The royalty rate could range from 1% to 3% so those times $9.9 billion revenue is $99 million to $297 million is royalties.
3: Since it is clearly willful infringement, there could be triple damages, but assume at least double as a part punishment so times two on the royalty rate gives a range of $198 million to $594 million.
4: The case will take at most five years and the discount rate is 10% so $198 to $598 discounted for five years at 10% gives a present day value of $122 million to $368 million.
5: Each of the three steps to go in the progression through the court has an expected rate of success of 90%, so multiple the dollar range by 90% x 90% x 90% and you get an expected dollar range of $72 million to $268 million.
With 110 million shares outstanding the present value of the shares today would be in the range of $0.66 to $2.44.
There are a number of items that would change this range. These are
1: There are more infringing products than just the ones in the current lawsuit with Activision. A success in this case would open the door to those other products and have the company in a much better position to win since there would be cash in the bank.
2: The calculated price does not take out any lawyer fees, which could be up to 33% since the case is on contingency.
3: The is no accounting for taxes but there are about 40 million in loss carry forwards that would offset that.
4: As each step is passed in the case, assuming the company wins, the numbers would improve. As an example, I expect triple damages but only used double for my calculations. Another example is one the company wins at trial, there would only be two 90% events instead of three and the per share price would go up.
5: Dilution will lower the stock price but I expect that it is more than offset by the potential other products that could be gone after once there is a win in the current case.
Louis J. Desy Jr.
Can't get over $0.20
That is what I find strange. Even though the trail has not been formally scheduled yet, the results at trial are directly dependent on the rulings in the Markman case, and they rulings did, on balance, go in favor of WDDD. If everything had gone against WDDD, the case would have probably been dead. I had expected that WDDD was going to win on all of the disputed claims, but WDDD won the most of the disputed terms and also the most important ones. I am expecting the ATVI will lose the case.
Louis J. Desy Jr.
Hudson done selling? Wall at $0.18?
Maybe, vol is over3 million shares, so they could have gotten rid of the one million per month that are allowed to sell for July into day's market. (sell today and settle in three days in July)
That could explain why the initial jump, then the slump and now the stock is rising without them dumping at market into the run up.
If that is the case, as more outlets reports the decisions and a few articles appear, the stock price should keep rising.
I also seem to remember that Hudson's limits on selling 'went away' if the stock made it over $0.18, is that correct? I think the high for the day was $0.18.
Louis J. Desy Jr.
WDDD @ $0.15
What is going on?
All day WDDD 'faded' after opening strong and looked like it was going to continue the rally from Friday. Then WDDD faded and eve went red a little. Now WDDD has jumped up again in the last 15 minutes of trading.
Louis J. Desy Jr.
WDDD v ATVI Markman decision issued last Firday
http://finance.yahoo.com/news/worlds-receives-favorable-markman-ruling-123000252.html
The court finally issued its decision in the WDDD v ATVI patent case. ATVI did get some of the claim constructions that they were looking for, but it looks like the more important claims were allowed as WDDD proposed.
The next scheduled event on the calendar is a July 30 hearing where it is expected that a trial date will be set.
A oopy of the decision is at:
http://www.worlds.com/text/2015-06-26_Worlds-Blizzard_Dkt_153_ClaimConstructionOrder.pdf
Louis J. Desy Jr.
DNRG compairson to HDSI
I do think DNRG can be compared to HDSI, but not for the reasons you would expect.
1: I see that DNRG has had not revenue for the past three years, same as HDSI.
2: I see that DNRG has few assets to be able to do anything with, they only have $15K in 'other assets', show zero cash and over one million in liabilities. HDSI only has shown $515 in cash.
3: With no assets, I would not expect DNRG to be able deliver on anything, same as with HDSI.
Louis J. Desy Jr.
Another possible reason to file SEC reports
Even though HDSI may not be required to file SEC reports, I can see a reason that they would want to do so. The reason is that if they file 8K reports every time there is an event, like debt conversion, it lessens the chance of a derivative lawsuit since the company is disclosing what is going on.
I remember one commentator in Barron's saying that one of the problems with the whole SEC filings is that under out current system, you could be planning on stealing the company and as long as you disclosed it in reports then the company would be ok.
Louis J. Desy Jr.
I can't believe it
One of the major decision points is now past, but only a few news releases, no analysis on the case with the Markman results, and EDVA does not even seem aware that the decision was issued. seeking alpha only shows a few little notes, one that the decision came out and another that the price was up on Friday.
It does not make sense that there were all kinds of postings on places like Seekingalpha while waiting for the Markman decision, and now that it is out, almost nothing as followup.
Louis J. Desy Jr.
Brief mention on seekingalpaha
http://seekingalpha.com/news/2604665-worlds-comments-on-activision-markman-ruling-shares-plus-5_4-percent?uprof=45#email_link
Only mentions that the decision got issued and a link to the decision.
Louis J. Desy Jr.
Over 500,000 shares already, 9:36am
The opening was so messed up that I even saw at one point the asked was under the bid.
Louis J. Desy Jr.
If only WORX would get going
If WORX would get going, then it could add to the effect from the Markman.
Louis J. Desy Jr.
Its trading
Shares are crossing the tape, now at $0.16 at 9:18
I didn;t think that premarket trades were available for WDDD.
Louis J. Desy Jr.
Hope it reverses the sentiment on WDDD
I just hope the decision results changes the sentiment on WDDD. It was strange watching the stock trade down to almost the same level as when the motion for a summary judgement was released. Those headlines made it look like the patents were dead and the stock briefly got down to $0.05; here just before everyone was expecting the Markman decision results the stock got as low as $0.07 and couldn't get above $0.09.
Louis J. Desy Jr.
Range moved up 9:12am
Moved from $0.14/$0.15 to $0.145/$0.15
Louis.
Only AP press release so far
http://finance.yahoo.com/news/worlds-receives-favorable-markman-ruling-123000252.html
I am baffled at the lack of any articles and only the one AP announcement about the Markman decision being issued. I would have expected at least one instantblog on seekingalph, but nothing.
Even EDVA seems to have nothing about WDDD on his web site. http://edvadaily.com/
Louis J. Desy Jr.
Premarket
I think that is just how it is setting up for the open for trading at 9:30am, I do not think any shares have trade since the close on Friday.
I do see the bid/ask at $0.14/$0.15; so with 25 minutes to go to the start of the trading day, I expect the first trade will go off at $0.15; an then run from there for the rest of the day.
Louis J. Desy Jr.
My Motivation
If you look at my postings on earlier bankrupt plays, I am looking, at best, for a repeat of SGER and RNCH. Those companies actually were trading for less than net assets (usually cash) while they were in bankruptcy. I would still be willing to buy in if it looked there was value plus a margin of safety.
When I don't see that, and I see there are some people who 'wonder what is going on', I can add what I know to the discussion and help people to not lose money. There have been times where there were things I missed but someone else was able to point them out to me because I posted what I saw and you will see that in past discussions that I have been in.
In one respect, you guys are lucky here in that they are using PrimeClerk.com to post the documents. Usually, you would have to pay $0.10 per page to get documents for pacer (limited to charge of $3.00 per document) plus sharing of documents would only be possible thourgh email instead of posting a link.
I remember with Americas Energy Company, Inc.(fka AENYQ) that I thought it might be good, and then started to look more and more at it. I spent a few hundred dollars on pacer fees and hours looking at things. As time went on, it was clear that it was hopeless. Things were so bad there that it got converted to a chapter 7 plus there were other problems. One problem is that the first lawyer in the bankruptcy filing is that it was his first case. The lawyer messed up in that he did not do things that needed to be done, like a first day motion for the company to be allowed to access its cash. The judge even commented that maybe for his first bankruptcy case that maybe the lawyer should not have taken a public traded company. The other problem is that he used someone else's copy of Bestcase; a software program for bankruptcy filings. The problem is that the lawyer didn't realize it didn't change the firm name for the electronic filing and transmitted into the ECF system with the wrong name as representing the company.
Louis J. Desy Jr.
OTC Pink
Even though HDSI may not be required to SEC reports, I think HDSI may do it to get OtC Pink level of market access and quoting.
http://www.otcmarkets.com/marketplaces/otc-pink
One of the requirements is that they do file SEC reports and are current on the filings.
While they could elect to not do any of that, it could hurt their ability to sell shares into the open markets to retail investors.
Louis J. Desy Jr.
8Ks may have been required
I believe that the company, by SEC rules, was required to file an 8K each time a conversion took place. I don't think they were allowed to waiting until an 10Q/K report to disclose that the debt got converted into shares.
Louis J. Desy Jr.
Got as high as $0.1301 when the bell rang
WDDD got as high as $0.1301 just before the end of the trading day at 4pm, and in the last few minutes it looked like it was breaking higher from the $0.12 to $0.125 that it had been stuck in for the prior hour.
The bid/ask at the end was 30000/10000 at $0.13/$0.14.
I think if the decision had come out earlier in the day that it could have hit $0.14 and more.
Louis J. Desy Jr.
I was expecting a 'sweep' for WDDD but ok with results
I had hope that WDDD would have swept on the ruling, but I am still good with how it went.
Louis J. Desy Jr.
Reading the ruling
The important part is to see if WDDD or ATVI won on each contested point. I would suggest looking at the summary box to see what each company wanted, and then go to the end of that section to see how the court ruled. The rest is just explanation as to why.
I had hope for more of a jump in price but probably since it got released so late in the day many people will not even know the ruling happened. I was taken by surprise since on a Friday afternoon, I would have not expected anything released until Money.
SO far to it look like WDDD and ATVI each got some of what they wanted, but with a patent case, only one needs to be imfringed on to win. ATVI has to be found to not infringe on all claims to win the case in the end.
Louis J. Desy Jr.
Time for auction
I think the problem is that with the extended deadlines filed for the auction can't happen any earlier. I think the company made a big mistake asking for so much extra time since now the court may hold the company to that extra time and not allow a sale prior to that. In order to shorten the time period, the company has to ask for permission, plus there are delays while other classes have to be given an opportunity to object.
The other problem is that the company is burning through its equity every month.
Louis J. Desy Jr.
Maybe $0.27/share but I expect zero
Here is what I see in the 'best case'. The company in the Monthly Operating Report for May 2015, reports equity of $36 million at the end of May 2015. It looks like the company is losing around $2 million per month in equity. The bankruptcy case is probably going to go on through Jan 2016 since that is one of the deadlines that got extended. June 2015 through Jan 2016 is another 8 months, and losing $2 million per month, that is another $16 million in equity lost, leaving equity at around $20 million on Jan 31, 2016. There are 74 million shares so $20/74 give us $0.27/share.
The BIG problem, the thing that I do not trust, is that in order to realize that value is the assets need to sell for almost 100% of what they are being carried for on the books. Considering how things have been going, I would not be surprised to see a cut of at least 10% on those assets. The net of the property from the Sept 2014 10Q was $211 million. Even a 10% loss on that would take equity down by $21 million and wipe it out, leaving the common shares with nothing.
I am expecting that the properties will take a loss of 15% or more since the company is in bankruptcy and oil prices are still not where they use to be.
Louis J. Desy Jr.
Squelched momentum
My impression of what hurt the momentum is that either an 8K came out showing that a few hundred million shares had just converted or that it was the converted shares hitting the market in such volume that the retail investors couldn't buy them all. There was just no way the stock could move up with all of the shares being converted.
I think there may be a jump after the reverse split as some retail gets confused, and thinks that something must have happened with the stock. i.e. As an example, post R/S, someone sees the stock at $0.0025 and 'piles in' because they think the stock just went up 2500%, not realizing that the stock is really down 16%.
Of course, if the convertible debt holder mistime it and all start to dump, maybe the shares will just 'min out' at $0.0001 post split also.
Louis J. Desy Jr.
Warrants are trading too high
It looks like the only people that can benefit are ones who already got warrants. The warrants are trading around $0.30, and the stock is around $1.40, so buy a warrant at $0.30 in order to exercise the warrant at $1.00 is not better then just buying the common shares.
Louis J. Desy Jr.
SD shot themselves in the foot, more like the head
I think as time goes on, it is going to look more like they shot themselves in the head. If oil prices had not gone down, I think they had a chance, but the new debt offering seems to me that they hope to somehow make it long enough for higher oil prices to save them.
I think the problem is that everyone is pumping oil as fast as they can because it is the only way to try to stay in business, whioh of course just makes the supply/demand situation and oil prices worse.
Louis J. Desy Jr.
Not do the R/S?
Why would they want to not do the R/S? The R/S is required so the convertible debt can convert into common shares that will be sold to retail investors. Plus they are going to make all kinds of money doing the R/S, since the convertible debt converts into common shares at a discount, usually 50%. Who wouldn't want to make 100% (or more) on money owed to them in only a few months? The fact that people even think the company still cares about how it is run means there is retail demand, which is needed to buy the truckloads of converted common shares.
Why would the convertible debt holders not convert and sell common shares? It is the only way they will ever get cash for their convertible debt. The cash can't come from revenue because so far there has been ZERO revenue for the company.
Louis J. Desy Jr.
Transfers the intellectual property over to the shell
You are correct. I was one of the people that believed that HDSI would never get the intellectual property because HDSI was a shell with no assets and no value. I assumed that HDSI would not be able to pay for it.
What I did not account for is that, if you assume or realize the product also has no value, why not transfer it to a shell? Once you do that, you have all kinds of shares (or preferred that converts to shares) that you can sell off for cold hard cash. Paul still had the potential to make hundreds of thousands of dollars, if not millions, depending on how many times he can reverse split this and convert preferred shares into common shares. With total voting control, he can just create higher and higher super preferred classes that have voting control, and then convert the lower classes of preferred. It is like a 'perpetual motion machine' that keeps printing money for him and his financiers.
Louis J. Desy Jr.
Marketing acumen
I think the company has done a remarkable job of marketing. I have never seen such a remarkable marketing campaign that was so enthusiastically supported by the retail shareholders.
The problem is that it was not the SGPS product the company was marketing. The marketing was for selling decorative common stock shares to the retail public. This was accomplished in the face of financial numbers that can only be described as ridiculous. At one point assets were $515 in cash as the only asset and people wonder what went wrong?
The marketing campaign the company ran was so good that some retail investors compared HDSI to being 'the next facebook', and this was after it was known that SGPS only had a few hundred downloads at best.
Louis J. Desy Jr.