Comments on Vertro 8-k Filings
We have received numerous questions from GrooveVC community participants regarding the recent 8-k’s filed by Vertro. While some of the news may be perceived as good and some as bad, we believe the common theme wound throughout these filings is that management is optimistic about the company’s prospects and that they expect to see Vertro’s stock move higher. Below we have shared our thoughts on each filing:
1) 8-K – December 21, 2009 – detailing the Nasdaq notice received due to the company’s failure to meet the Minimum Value of Publicly Held Shares requirement. This Nasdaq rule requires listed companies’ free trading (not owned by insiders or those owning more than 10% of the company’s stock) shares to have a market value in excess of $15 million. Given that the company’s current market cap is currently right at $15 million (42 cents per share at yesterday’s close) and approximately 15 – 25% of the company’s shares are held by insiders or larger shareholders that are in the 10% range, it seems that our market cap needs to climb to the $18 – $20 million range for at least 10 trading days. We believe that Vertro management is confident that either the stock will trade to the necessary range before the Nasdaq process is complete or that the company will be able to transition from the Nasdaq Global Market to the Nasdaq Capital Market. VTRO shareholders would see little to no change if the stock were traded on the Nasdaq Capital Market instead of the Global market and the MVPHS threshhold requirement for continued listing is only $1 million.
In the same 8-k, the Vertro management announced that they do not intend to implement a 1 for 10 reverse split. We view this as quite bullish, perhaps a even the “signaling effect” from Vertro management that they believe that the stock price will maintain a price range that would make a one for 10 reverse split unnecessary. While they did allude to an “alternative” stock split, it is most likely that they will seek approval from shareholders to give the Board authority to do a smaller split (ie 1 for 5) with a sliding scale that can be adjusted by the board depending on the stock price at the time it is implemented. This again suggests that management sees Vertro stock moving higher in the weeks and months ahead.
2) PR – December 22, 2009 – Announcement of Summary Judgement Ruling in Securities Class Action Lawsuit – We believe this is a very big deal in that it will likely take a potential seven figure judgement/settlement off the table. This ruling that is dismissive of the merits of the Plantiff’s claim will likely make Plaintiff’s counsel (who probably has mid six figures in expenses already tied up in this case) more aggressive in seeking some settlement that will allow them to recover some of their sunk costs. Given that the Plaintiffs must now look only to procedural issues in their appeal it is possible that Vertro may be able to put this issue to rest soon without significant additional expense.
3) 8-K December 23, 2009 – Vertro Obtains Line of Credit from Bridge Bank – in the midst of a credit market that has essentially dried up for all but the bluest of the blue chips, Vertro was able to secure a line of credit of up to $5 million. This is no small feat and we believe this may be the first third party affirmation of Vertro’s business model. While the predecessor company was able to obtain a line of credit through Bridge Bank, it was done only a few months before the final sale of the Miva operations was completed and it certainly contemplated the near term infusion of cash ($11.2 million) that would result from the sale of the Miva Media operations. We do not believe that Bridge Bank would extend a $5 million line of credit in the current environment to a company if they thought it would not be able to consistently generate positive cash flow.
4) 8-K – December 24, 2009 – Amendment to Vertro’s office lease in Fort Myers, Florida. Prior to this amendment, Vertro was “on the hook” as the lessee of nearly 20,000 feet of office space under a long term lease executed during the Miva days. Though management had procured a sublessee, the short term nature of the sublease and the current malaise in the real estate market left many investors concerned that Vertro might soon get stuck paying the nearly $400,000 per year cost of this lease. This amendment removes Vertro as a party to the lease altogether, thus removing any potential for financial impact related to that office space.
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