COSI- What's the situation and how much is it worth?

With the news of COSI's bankruptcy filing, and the influx of traders moving in to snag shares on the cheap for a quick play, many who decided to hold for a longer period than just a few hours are mezmorized by the fact that the stock price didnt just tank again. This has left many traders in a position of holding this stock longer than they normally would have, and feel optimism of a spike and/or recovery that could yield huge returns. Yet, most traders do not know the real story of whats going on behind the scenes, or what the valuation of this stock really is. This post will give you every piece of information you need to fully understand the situation, and to plan your strategy in this trade ahead of time. 

NOTE: If you just want the numbers, please scroll down to the section where the text is highlighted green.

What Is chapter 11?
Chapter 11 is a form of bankruptcy that involves a reorganization of a debtor's business affairs, debts and assets. Named after the U.S. bankruptcy code 11, Chapter 11 is generally filed by corporations that require time to restructure their debts, and it gives the debtor a fresh start, subject to the debtor's fulfillment of his obligations under the plan of reorganization. 1

What is secton 363 of the bankruptcy code?
“Section 363” refers to the portion of the Bankruptcy Code that authorizes a debtor to sell its assets “outside the ordinary course of business.” A Section 363 sale transfers the debtor’s assets to a buyer in a discrete transaction that will be approved by the bankruptcy court if the debtor can demonstrate a “substantial business justification” for the sale. Unlike a full Chapter 11, a Section 363 sale does not require the debtor to propose and gain acceptance of an overall plan of reorganization before the sale can be consummated. 2
- Typically, Section 363 sales can be accomplished in 60 to 90 days. 2
-Section 363 permits the sale of assets “free and clear” of existing liens and interests. Meaning the buyer does not assume the debts. 2
-Finally, Section 363 allows a debtor to assign to the purchaser or a third party favorable unexpired leases and executory contracts (contracts unperformed by both parties), but does not require the purchaser to assume the debtor’s obligations under less attractive contracts. For example, a buyer can acquire a brand and production facilities along with ongoing sales contracts without assuming a union contract with employees. 2
 Because of these benefits, some buyers may be willing to pay more for assets acquired with the protections offered by Section 363. More often, buyers may be unwilling to buy distressed assets without Section 363 sale protections. 2
 Because Section 363 sales are often undertaken at the behest of a creditor or potential purchaser who is supplying the debtor with cash to continue to operate, the potential purchaser or creditor will often have completed its “due diligence” in advance of the bankruptcy filing. The initiating party often serves as the initial bidder for the debtor’s assets. The initial bid establishes a floor price for the assets to be sold. The initial bidder is called a “stalking horse.” In addition to establishing the floor price and ensuring that there is at least one bidder for the assets, the stalking horse negotiates a form asset purchase agreement that can be shopped around to other potential bidders. 2

From an April 2009 Bloomberg Article describing the basics of bankruptcy Buyouts:
-With business bankruptcies on the rise, cherry-picking good businesses through a bankruptcy buyout may be a pragmatic alternative to a traditional acquisition. They are designed to maximize the value of each asset without letting it languish over the long bankruptcy process, garnering the most cash possible for creditors.
-Once you have a potential target, you'll want to claim the so-called stalking horse position. 
-If the deal goes to a higher bidder, you will be compensated for expenses and any breakup fees you've negotiated—which can be a pretty nice consolation prize. 4

What is credit Bidding?
 Distilled to its most basic level, Section 363(k) of the Bankruptcy Code gives a secured creditor the right to use up to the full amount of the debt owed to the secured creditor by the debtor as currency in a bankruptcy auction sale of the collateral securing the debt owed to the secured creditor. For example, a creditor who is owed $1 million secured by a valid and perfected lien on an asset offered for sale by a debtor in bankruptcy can credit bid up to $1 million dollars as purchase price for such asset. 3

Taking all of these factors into account may be tricky, and its best to understand some basic figures of COSI before we continue. 

COSI (Based on June 27, 2016 Filing) 5

48.24m Outstanding Shares (O/S)
$31.24m in total assets. 
-Amount being Cash and cash equivalent: $3.09m
-Amount being Goodwill: $11.63m
$19.83m in total liabilities. 
-Amount being Long term Debt: $7.07m 5
$11.41m in total Stockholder Equity. (17.85m in Dec 2015. 36% drop from December 2015. Big reason for this BK)
(Stockholder equity is Assets minus liabilities.)
$4.1m in new liabilities related to Bankruptcy. 6
= $7.31m in shareholder equity.
(Outstanding shares= Market Cap÷share price) using this formula, we can summize:
$7.31m divided by 48.24m O/S= .1515 pps (Price Per Share) 

If no bids come in (Baseline): 
Stalking horse bid essentially equals .0559 pps. (Approx .056 pps)
This is due to the fact that $4.1m of the $6.8m bid is a credit bid. 6
$6.8m minus $4.1m= $2.7m bid.
$2.7m divided by 48.24m O/S= .0559 pps (The baseline, stock price essentially guaranteed to be worth this much)

NOTE: The Main issue with pricing is $11.63m in assets are based on goodwill (aka the "Brand") of the company, which is intangible and subjective. The Goodwill includes the intrinsic value such location of stores, solid customer base, good customer relations, good employee relations and any patents or proprietary technology. 7

If a minimum bid comes in:
-A Minimum overbid of $7.365m is required to beat stalking horse bid. 6 
If this minimum is achieved, then Stalking horse bidder is entitled to Break-up fee and Exspenses occured ($315,000+up to $150,000, respectively)= $465,000 6
$7.365m bid subtract $0.465m fee= $6.9m. $6.9m divided by 48.24m O/S= .143 pps.* 
*Remember that outside bidders do not assume the debt. 2

If an average company or firm were to make a bid:
We will look at a bid of $9.316m for this instance, as this would be 37% above the stalking horse bid, and 26.5% above the minimum of a rival bid. An article posted in May 2014 states an average of a 37% premium on bids in a buyout. 8
$9.316m bid subtract $0.465m fee= $8.851m bid. $8.851m divided by 48.24m O/S= .183 pps.

Assuming goodwill $11.63m is taken out of equation (bidder finds 0% intrinsic value in brand):
$31.24m assets minus $11.63m goodwill= $19.61m
$19.83m liabilities minus $7.07m long term debt (Buyer does not assume debt in this scenario according to section 363 of bankruptcy code) 2 = $12.76m
$19.61m minus $12.76m= $6.85m divided by 48.24 O/S= .142 pps.

Assuming Full Value of Goodwill is assumed (100% intrinsic value in brand):
$31.24m assets
$19.83m liabilities minus $7.07m long term debt (Buyer does not assume debt in this scenario according to section 363 of bankruptcy code) 2 =$12.76m
$31.24m minus $12.76m= $18.48m divided by 48.24m O/S= .383 pps.

Taking a look at the Panera Bread model of business (rumoured a possible bidder):
$698.9m Revenues 9
$506.578m Total Expenses 9
=$192.322m net total 
As of March 29, 2016, there are 1,997 bakery-cafes in 46 states, the District of Columbia, and in Ontario Canada operating under the Panera Bread®, Saint Louis Bread Co.® and Paradise Bakery & Café® names. 10
$192.322m divided by 1997 stores= $0.0963m per store. 9
Goodwill- $122.377m divided by 1997 stores= $0.06128m per store. 9
$0.0963m plus $0.06128m equals $0.1576m (or $157,600 per store.)

Cosi Locations: 105 11
$22.819m Revenues 5
$21.221m expenses 5
= $1.598m net total
$1.598m divided by 105 stores= $0.01521m per store. 
Goodwill- $11.63m divided by 105 stores= $0.1107m per store. 5
$0.01521m plus $0.1107m equals $0.1259m or $125,900 per store

$157,600 per store would be the what Cosi stores would value at based on Panera Results. 9 
$157,600 ($0.1576m) times 105 stores= $16.548m
$16.548m divided by 48.24 O/S=  .343 pps

An article posted in May 2014 states an average of a 37% premium on bids in a buyout. 8
$16.548m increased by 37%= $22.670m
$22.670m divided by 48.24 O/S= .4699 pps (about .47)

This gives us three key points: .0559 being the minimum price, .1515 being the fair value currently, and .4699 being the optimum price for a larger company to pay. 

Levels:

Conclusion:
Cosi management is very proactive and is trying to facilitate a buyout as quickly as possible.
bids to be submitted no later than November 14, 2016 with an auction to be held (if there are alternative qualified bids) no later than November 18, 2016, entry of order(s) approving transactions relating to the sale of all or substantially all of the assets of the Debtors no later than November 22, 2016 and (vi) closing of transactions relating to sale of all or substantially all of the assets of the Debtors no later than November 28, 2016.
Bids must be submitted before November 28. (edited based on 10/20/16 PR) 
Auction held before November 30.(edited based on 10/20/16 PR) 
Decision before December 8.(edited based on 10/20/16 PR) 
Completion shortly after. (edited based on 10/20/16 PR) 
COSI is using chapter 11 BK and section 363 to maximize the value of assets.
Rememeber that COSI has $31.24m in assets and $19.83 in liabilities. Net Positive of  $11.41m (Assuming Goodwill value of $11.63m stands as valid.)
Bidder outside of Stalking Horse bidder will be relieved of debts on assets they are bidding on, therefore increasing interest. 
Without another bidder in play, this stock has value at .0559 pps.
Stalking bid counts as our baseline, if dipping below this value, it would be considered undervalued according to my calculations.
COSI has already tapped into the lender loan for $1.8m, to continue operations in its core stores while its looking for a buyer.
Typically Chap 11 Section 363 scenarios are ones M&A companies snoop for for many years now.

Recommendation:
Under .0559 is buy level.
.0559 to .09 is speculation buy.
.142 to .1515 is a middle of speculation and facts. 
.15 is a major sell level (.016 according to TA)
.343 is a major sell level with optimistic results.
.4699 is at the cusp of a breaking point to a major reaction to the optimal. if you see this PPS then It would count more as a buy than a sell. 

My Strategy: Buy at .056 or below (Current  entry is at .073), and sell .09 unless news progresses the time table.

If you have any questions as to this analysis, feel free to ask. 

Disclaimer: I am not affiliated with anyone involved in the inner workings of this stock. I currently own 28.5k shares at an average of .073. This post is in no way a solicitation, recommendation, or otherwise manipulation of the stock ticker. I simply am here to present facts, and my math b ased upon the facts found, and it should not be construed as anything more than entertainment. I am not liable for any decisions made by reading this post, or any decision not taken by reading this post.

Sources

1:http://www.investopedia.com/terms/c/chapter11.asp
2: http://www.lawmoss.com/content/uploads/2013/09/MBNews-2013-8-Section-363.pdf
3:http://www.metrocorpcounsel.com/articles/13578/nuts-and-bolts-credit-bidding-primer-traditional-lenders-and-distressed-debt-investor
4:http://www.bloomberg.com/news/articles/2009-04-03/basics-of-bankruptcy-buyouts
5:http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=11540109&RcvdDate=8/11/2016&CoName=COSI%20INC&FormType=10-Q&View=html
6: http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=11611593&RcvdDate=9/28/2016&CoName=COSI%20INC&FormType=8-K&View=html
7: http://www.investopedia.com/terms/g/goodwill.asp
8: http://merger.com/ma-question-dont/
9:http://secfilings.nasdaq.com/filingFrameset.asp?FilingID=11506450&RcvdDate=7/27/2016&CoName=PANERA%20BREAD%20CO&FormType=10-Q&View=html
10: https://www.panerabread.com/en-us/company/about-panera/our-history.html