Sailor - break up analysisHi Sailor
You have made a number of very thoughtful points and I am sorry that you have lost money on this investment, however the writing was on the wall in the last couple of quarters of financials as you acknowledged.
In terms of break up value, I think it is a lot less than most here are speculating:
For the patents, the management said in the last quarterly report that revenues from patents weren't expected to pick up for the next 18-24 months due to a slow down in the 3D consumer market and licensing income in the August quarter was around $50-$60K from memory. The deal with WiLan evidently related to the issued and pending applications for the patents which they already have a licensing/revenue share agreement with, so presumably there has already been some advance consideration paid for these rights when the original deals were signed which WiLan will take into account in the LOI together with the 18+ month window before they'll see any material value from them plus they'll add in an 'uncertainty factor' that they will be able to get the future value from them at all. WiLan's management isn't stupid and knows that SIO is now in a pre-bankruptcy state so they will likely negotiate hard to get the best deal possible. Without seeing the letter of intent that the Quebec Courts are asked to approve (presumably a requirement of the NOI) it is difficult to comment, however I'd expect something in the low to mid hundreds of thousands of dollars, not millions.
The $100K loan from Routhier is also indicative that the company was close to trading insolvent (ie cash resources at less than levels needed to cover short term expenses like payroll etc.) and even after they get the deal with WiLan done, there is the issue of what remains. While they offloaded some of the operating expense with the departure of LaBerge, they now have the added expense of Deloitte advising on the best way to proceed and this won't be cheap as these professional advisors want to cover their buts in delicate situations like this (and I suspect Deloitte is on board in this capacity as the board also needs a cya given the present circumstances).
In terms of 3DGo, the cost of acquiring the content from the studios and sharing the streaming revenue with Samsung and LG for the use of their smart TV platforms makes it a very cash intensive business until there are probably 10-20x the number of subscribers that were reported in the August quarter (50K) at the margins it generates. There is also the issue of continuing to secure content from the studios when the company is operating under an NOI since I'd expect that the content agreements have provisions that allow the studios to claw back their rights if the 3DGo files for bankruptcy or enters administration. I'd expect that SIO management has been in contact with the studios in the past few weeks making sure that this doesn't happen so 3DGo can continue to function during the next few weeks, however it does raise a big question as to whether the expiring rights can be renewed in early 2016. Additionally there was a note in the last financials about some significant payables that seemed to be related to 3DGo content rights that were due before the May 2016 year end. So if there isn't enough cash from the patent deal to renew the content licenses and cover the current obligations, it doesn't seem that 3DGo would continue to be viable.
I think you also make a good point about severance obligations to LaBerge. Reading the press release again, it seems like it was hastily put together since the version I read had the word 'draft' next to the date and the paragraph about LaBerge seemed that it had been edited in a hurry and seemed as if a sentence at the beginning had been deleted without then re-reading what was left (unless it was just a bad French-English translation). It is possible that some of the cash from the WiLan patent deal will go to paying the obligations to employees and creditors as well as to paying down the loan to Routhier as well as to the new advisors for the bankruptcy.
Finally, I know you have been critical of Ralph and Bruce however they don't only have the comments from the management to rely on. It is suprising that they didn't take the time to read the last set of financials like some others did and ask the hard questions like 'how are you going to fund the ongoing operations of the business?'. It wasn't rocket science to look at their cash & receivables at the end of August, their monthly expenses and revenues and conclude that they had about 4 months worth of cash left and a growing pile of accounts payable.