Initial Plan for DDE:
I am proposing a multi-phased approach to winding down DDE operations and providing shareholders with the opportunity to choose from among a number of options to cash out of DDE. These plans basically involve a buyback strategy and there would be no expectations of additional dividends from DDE, with the ultimate goal of my acquiring total ownership of all DDE assets. However, there is still the possibility of a liquidation and one-time payment for shareholders, as outlined below.
First, a bit of background.
DDE was formed in April 2006, with the purchase of my first sim in Second Life. It operated privately for almost a year. DDE went public in march 2007 with an initial public offering of 1,000,001 shares - of which 500,000 were offered for sale at 1L per share. Anyone lucky enough to have bought shares at that time would have made an equal amount in dividends per share, plus 10% - DDE disbursed 1.1L per share in 12 months, which represents over 3,000,000L in dividends alone. Subsequently, DDE made two secondary offers. the first, of 1,000,000 shares in June 2007 at a price of 2.50L per share, and the second of 2,000,000 shares in November of 2007, at a price of 2.75L per share. Finally - DDE acquired Delicious Skins in December, 2007, and all shares of DSE were rolled into DDE at a conversion rate of 3:1, leaving DDE with a total of 4,432,439 shares.
The DDE share price has moved between 1.75 and 4L per share during the history of its trading, with a NAV of between 2L and 6L per share - depending on the month and the value of land in SL at the time, and the number of shares outstanding. The overall average price of DDE trades is in the neighbourhood of 2.75L per share.
My foremost aim in all of this is to be fair, and i need my shareholders' feedback about what is the fairest way to deal with the delisting of DDE and the subsequent winding down of the public operations of the company. I have always posted financial reports of assets based on the purchase price of estates, and the prevailing price of mainland. Financial reports were not posted as liquidation value. In order to provide shareholders with a fair liquidation value of DDE - i provide the following:
Shares outstanding: 4,432,439
Estates owned: 23 (19 regular and 4 low-prim sims)
Liquidation value per sim: $1300 USD per regular, $350 per low-prim sim
Cost of island transfer: 100x21 = 2100 USD
Total estimated liquidation value: $24,000 USD = approx 6.500,000L
Mainland owned: 94,412m
Estimate value on disposition: 850,000L
Other assets held in trust, but not liquid:
WSE assets: approx 500,000L in cash and HCL & WTF shares
Available cash on hand - 0L - current cash balance (662,000L) must be used kept in reserve and used to pay tier and transfer fees on estates and mainland during a possible liquidation - if I default on tier payments - everybody loses ;-)
Total liquidation value of DDE: 7,350,000L
Total liquidation value per share: 1.66L per share.
This assumes rapid liquidation of all assets at a lower price than normal in order to expedite sale, and may be slightly higher or slightly lower depending on how the sale of assets proceeds.
In terms of operations, in broad strokes, DDE takes in approximately 2.5 - 3.0 million Lindens per month in revenue and has costs of approximately 2m Lindens per month - for an estimated monthly profit of between 500,000L and 1,000,000L per month.
So, I guess the first question to ask is - should DDE liquidate and provide the maximum possible to shareholders in the short term (within a month in all likelihood). This would not be my preferred approach - selling what i have built over two years in a fire-sale is not an appealing prospect to me. But if the majority of shareholder votes want this option then I will consider it seriously.
My preferred approach would be to offer shareholders two options to cash out of DDE. For those that wanted to cash out immediately - i would sell off some parts of my holdings in order to provide a buy-out of 1L per share within the next two weeks, if at all possible - of course it depends on the number that want to take this option - but at any rate as quickly as possible. Although this is less than the liquidation value - it is not much less, and would provide any investors that need to cash out quickly at least an option. For those that wish to remain shareholders in order to receive a higher value for their shares, I would propose to use most of my operating profits to buy back shares at 3L per share as cash becomes available. I would expect this to take about 12 months – but it would provide shareholders with ongoing payments over that time. It is all dependent, of course, on the continued cooperation of Linden Research in not changing land policies dramatically.
This would also provide shareholders that bought shares in the initial or a secondary offer at either 1.00L per share or 2.50L per share or 2.75L per share the chance to make a profit on the shares, in addition to the dividends that they have already received. It is also higher than the last market price of DDE (2.84L per share on January 6th, 2008, when the WSE closed)
Shares would be bought back in proportion to the number of shares owned. For example, in a fictional company with 5 shareholders holding 500,000 shares, and a monthly profit of 120,000L:
Fictional Unlisted Company (FUC - lol): total shares: 500,000
A 250,000 shares: 50%
B 150,000 shares: 30%
C 50,000 shares: 10%
D 40,000 shares: 8%
E 10,000 shares: 2%
Total: 500,000 shares: 100%
Profit for buyback: 120,000L at 3L per share
shares would be bought back as follows:
A 20,000 shares bought, 60,000L received
B 12,000 shares bought, 36,000L received
C 4,000 shares bought, 12,000L received
D 3,200 shares bought, 9,600L received
E 800 shares bought, 2,400L received
Total: 40,000 shares bought, 120,000L received
New share totals:
A 138,000 shares: 30%
B 46,000 shares: 10%
C 230,000 shares: 50%
D 9,200 shares: 2%
E 36,800 shares: 8%
Total: 460,000 shares: 100%
It may be possible during the approximately 12 months to make "one-time" offers to buy back shares at somewhere between 1L per share and 3L per share depending on when the buyout would be requested, but I cannot promise this. I would also prefer to buyout all small shareholders (<1,000 shares first) simply to keep managing the books easier. There are a total of 309 DDE shareholders, of which 200 hold fewer than 1,000 shares. It would be far easier for me if I could buy out all of these shareholders first, at a total cost of under 100,000L at 3L per share.
I am open to other models - but this is the one I am proposing now as a way to ensure that shareholders receive a decent return, and I am not forced to lose everything i have built during the two years i have been building DDE. Hopefully shareholders think this is a fair offer.
Other possible options include a graduated buyout. I have not thought this through entirely, and would need to model the numbers more exactly – but I want the idea out there for discussion:
Tier 1, immediate: 1L per share
Tier 2, within 3 months: 1.50L per share
Tier 3, within 6 months: 2.0L per share
Tier 4, within 9 months: 2.50L per share
Tier 5, within 12 months: 3L per share
In addition, I might consider retaining a SMALL number of large investors in DDE moving forward (fewer than 10 would be ideal). If anyone is interested in this – please let me know – but I would expect each to have no less than 200,000 shares, and it would have to predicated on a plan that allows for me to control at least 50% +1 of DDE shares.
I would like to keep everything transparent and open by posting details of all transactions - I am considering options for creating a web page to do that - but i am not very technical - lol - so we will see what i come up with. I will need all investors that are participating in this to join the Delicious Demar
Enterprises group - since this will be the only inworld method of communication. Details will also be posted on the blog - and possibly on the new web page mentioned above.
So... hang on to your hats, people, it's going to be a fun ride - I really want to provide you all with fair value for your trust in me, and am happy to answer any questions of concerns that you might have. Please feel free to IM me inworld, or leave a comment on my blog at http://deliciousdemar.blogspot.com . This is also listed on my profile. It may take me a little while to answer – I have been, and expect to be, a little swamped with messages.
I will be calling a few shareholder meetings – but since they are typically very poorly attended, i think we will have to rely on email, offlines messages, etc.. to do this.