here is TS update in its entirety to look over-
DAY OF DECISION
As we were going to press last week, MobilePro reported in an 8-K filing that it had finally made a long-awaited move on its mobile broadband business, Kite Networks. Unfortunately, the result was well below our expectations. It's not news to anyone that municipal wireless didn't live up to its promise.
The buyer of Kite, Gobility, is a private company of small stature. Once the deal is sealed (premised on Gobility raising $3 million) MobilePro will own 10% of Gobility. Gobility then intends to raise another $5 million through its venture capital sources. After Gobility raises this money, MOBL will be subject to future dilution, just like any other shareholder.
The likely path for Gobility will be a reverse merger into a public shell.
The sale of Kite follows MOBL's recent sale of its CLEC division to privately-held USA Telephone, which is also a small, private outfit. Assuming both the Gobility and USA Telecom deals go through without a hitch, MobilePro will look like this:
* 10% ownership of Gobility
* Ownership of $8.1 million of convertible preferred stock in USA Telephone
* ProGames Internet games unit
* Davel (pay phone unit) with an estimated value of $5 million
* Cash position of about $4 million
* Debt-free
MobilePro's CEO Jay Wright anticipates the company will be able to complete the sale of Davel (which has to be done in several regional pieces) by the end of its fiscal year (March 31, 2008). If successful, this should net MOBL at least $4 million.
MobilePro management also intends to divest the company of ProGames, and will look for the right time and situation to either merge the unit into another company or pursue some other alternative.
Once Davel and ProGames are off the table, MobilePro will be left as a publicly-traded holding company with stakes in Gobility and USA Telephone, and $9 million of cash (less whatever cash is burned between now and early 2008). At this point, it's very difficult to gauge the upside for either of these companies.
Of course, this scenario only works if the USA Telephone and Gobility deals are consummated without problems, and the Davel sales happen as well. ProGames is a wildcard, so it's impossible to assign it much value today.
MobilePro's current market value of about $17 million is not unreasonable given how the chips have fallen. Of course, once MOBL's slate is clean, Wright intends to get back on the horse and look for new acquisitions (not necessarily in the telecom/wireless space) to take advantage of the clean, publicly-traded vehicle.
As for us, we're removing MOBL from our Buy List. We suggest subscribers apply the tax loss against one of your microcap gainers. If you're so inclined, you can hang in for while and then look to sell the shares later this year at a little better price -- or really roll the dice and see where this all ends up further down the road.
While we won't report on it, we'll continue monitor the ups and downs of MobilePro. If it ever looks like it's ready to gallop again, we'll consider another ride. But for now, we're moving on.
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