Regarding upcoming Q3 earnings estimates, I've dug deeply for this and it has changed my valuation model somewhat.
From WCAP's 10-K:
"The Company's investments in restricted securities of public companies are valued at the closing price on the valuation date less a discount rate of 10% to 40%, which is determined by the Board of Directors of the Company(the "Board of Directors") based upon applicable factors such as resale restrictions, contractual agreement, size of position held and trading history of the investee company."
Relative to COOL's valuation, WCAP reported in their latest 10-Q "There was an increase in unrealized appreciation of investments of $25,064,938 for the nine months ended December 31, 1998 compared to a decrease in unrealized appreciation of $1,100,479 for the same period ended December 31, 1997, principally related to the market price of one investment in a portfolio company which made its initial public offering on July 31, 1998."
From the 10-K, WCAP has 1,330,458 shares of COOL (excluding warrants) with a basis of $1,715,040. Based on the reported appreciated, COOL was valued at $20.13 on 12/31/98. The closing price that day was about $30 (33% discount). COOL closed around 19.5 on 3/31/99.
If they elect to continue discounting COOL by 33%, then they will report ($1.89) EPS against any other gains or losses (incl. COOL warrants & ROWE). If they reduce the discount to 10% of the $19.50 3/31 closing price (which they may do as the lockup is expired) then their EPS (loss) from COOL is (0.68). If they exercised their warrants last quarter, they earned $0.45 EPS on this transaction (subject to similar discounts). In addition, based on ROWE's 3/31 closing price of $48 they earned about $1.17 which I expect they will discount for the 180 day lockup.
So worst case if they continue to recognize COOL at a 33% discount, exercized no warrants, and discount ROWE's value by 40%, they will report a Q3 loss of (1.31) and YTD $3.64 (give or take a few pennies for overhead and other investment gains).
Another possible scenario is they reduce COOL discount to 10%, exercised no warrants, and value ROWE at 40% discount, EPS will be ($0.28), YTD $4.67.
They did borrow $7M in Jan of which under $3M is accounted for in TeraStor and Modacad investments. So perhaps warrants were exercised (represents $357,050 additional basis for 134,736 shares). Best case scenario they discount COOL 10% -- including purchased warrants -- and discount ROWE 33%. Q3 EPS will be $0.40, YTD $5.35
So Tom, I concur with you that a Q3 loss of $1.50 is possible but extremely conservative. I maintain it's anyone's guess as to what they will actually report.
TJ
Sources (10-Q and 10-K): freeedgar.com |
