Cheap Stocks, 11/25/2011 Update

Well our winning streak ended last week. We were down 5.3%, just a bit worse than the market averages. NASDAQ is down over 9% over the last 2 weeks.

Some of our stocks are just stupid cheap—compared to their cash on hand. Check this list:

Cash as % of Stock Price

RIMG 65%
EXTR 54%
PTIX 57%
GRVY 152%
BVSN 154%
CCUR 97%
MTSL 57%
SIGM 82%
ASTX 86%
CTIG 88%

Plus EXTR, RIMG, VTRO and MRVC.PK are all in “play” with activist shareholders either trying to get them to pay out special dividends or take them over.

AEZS, ASTX and SPNC all to present at the Piper Jaffray healthcare conference on November 29th and 30th and AEZS will also present at the Oppenheimer conference on December 13th.

We are now down 6.1% for the year. All of the damage comes from LTUS. Hopefully this will turn around in 2012.

The DOW was down 4.8% last week, NASDAQ was down 5.1% and the S+P 500 was down 4.7%. The Russell 3000 was down 4.9%.

RWWI, BVSN, EXTR, MTSL, GRVY and MITL are our favorites.

For the year, the DOW is down 3%, NASDAQ is down 8%, S+P 500 is down 7.9%, the Russell 3000 is down 8.8%

Last week we went 3 stocks up, 17 down and 2 unchanged. Since inception we are now 49 stocks up and 21 down for a 70% winning percentage (80% is our target win %).

Since our beginning, we have closed out the following positions:

2006-NTCT +44%
2006-ONXS +11% (Buyout offer)
2006-DTLK +41%
2006-CAW +21% (Buyout offer)
2007-IYXI.ob +44% (Buyout offer)
2007-MOBI +47% (Buyout offer)
2007-INFT +11% (Buyout offer)
2007-RITT +62%
2007-MIVA +55%
2007-DTLK +25% (2 weeks)
2007-PDLI + 3%
2007-QADI +25%
2007-CIMT +50%
2007-BDR +19%
2007-LINN.ob -57% (mortgage business bust didn’t help here)
2007-TISA -39% (take some tax loss for 2007 due to disappointing results.
2008-ANGN +26%
2008-OPTO.ob +40% (Buy-out offer)
2008-PDLI +9% (company split, and special dividend)
2008-BDAY -39% (long overdue takeover offer-or “take-under”)
2008-DTLK +40% (third trip on this one)
2008-ILOG +26% (Buy-out offer from IBM)
2008-PARL +56%
2009-MBRK +67%
2009-SNWL +14%
2009-CYNO +25%
2009-DTLK +33%
2009-NED +46%
2009-CUTR +13%
2009-HSTM +67% (continued good earnings)
2009-RNWK +36%
2009-OPK +116%
2009-CLZR -32% (a loser even on a buy-out)
2009-DTLK +28% (our 5th profitable trip on this one)
2010-HPOL +110%
2010-DIVX +25%
2010-CHRD +37% Buyout (2 weeks after we recommended it)
2010-HPOL +30%
2010-MGIC +82%
2010-GSL +78%
2010-CCEL +49%
2010-HPOL +27%
2010-CAW EVEN (excluding 2.5 years of dividends)
2011-DWCH +116%
2011-IPAS +15%
2011-PRM +56% Buyout (1 week after we recommended it)
2011-RST +12%
2011-NINE -10%

The model portfolio assumes $10,000 invested in each stock (unless we double-up–then it is $20,000), less $10 commission each way (TD Ameritrade rate).

For the 48 stocks that we closed out since 2006 (43 were winners) the average net gain was 37%.

MRV Communications (Pink Sheets-MRVC.pk)
Valuation $2.45 (after $.0475 special dividend)-(Was $2.92, $3.09)
Buy Price October 7, 2011-$1.27
Closed down $.09 at $.81
Earnings announced in November. Revenue was $62.5 million down from $66.1 million last year. Net income was $2.1 million or $.01 per share comparer to $3.6 million last year ($.02 per share). Cash before the $75 dividend dropped slightly to $150 million or $.90 per share. Our valuation dropped to $2.92 per share which is still more than double the current price.
After the dividend our valuation will drop to $2.45 per share with about $.48 a share in cash versus an adjusted stock price of $.87 per share (based on a $1.35 market price)—an even wider “value gap” on a % basis.
Raging Bull continues to buy shares. Another 950,000 acquired on 11/4 at about $1.36.
Chairman of the Board had resigned and the current CEO also resigned from the Board (but not as CEO). Two new Board members were appointed.
Up 1% BUY

Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)
Buy Price-$8.49
Valuation $13.40 (Was $16.02)
Closed down $.87 at $6.58
Next earnings due out Wednesday, November 30th after the market close.
Mak Capital One LLC filed a 13G in November disclosing a 6.6% (2,110,000 shares) stake in SIGM.
Earnings announced in August. Sales were down 23% to just under $47 million and they lost $22 million. Yuck. But it is not as bad as it seems. Cash and investments actually went up to $5.40 a share ($170 million) and if you exclude the GAAP non-cash BS and the inventory write down, the loss was “only” about $6 million. So we are trading at a market cap of about $65 million (excluding cash) for a $200 million a year chip company with 50% margins. Still pretty stupid we think. However, our valuation dived to $13.40, so we need to keep our eye on this one.
Down 23%, HOLD

Mitel Networks (NASDAQ-MITL)-Recommended 7/6/2011)
Buy Price- $3.04( Was $3.36 before $10,000 added, $3.95 before $10,000 added)
Valuation $14.04 (Was $10.39)
Closed down $.12 at $2.30
Next earnings due out Thursday, December 1st after the market close.
Earnings announced in August. Pretty good. Revenues were $164 million up from $160 million last year. Non-GAAP net income was $9.2 million or $.16 a share compared to $10.8 million and $.19 a share last year. They took a $4.8 million restructuring charge in the quarter, to they reported a loss of $2.8 million in the quarter.
Our valuation jumped to $14.04.
Down 24%, BUY

Rimage (NASDAQ-RIMG)-Recommended 5/24/2011)
Buy Price-$14.20
Valuation $25.67 (Was $25.63, $26.45)
Closed down $.23 at $11.01
Pays $.68 a share annual dividend.
Earnings announced in November. Revenues down from $23.4 million to $20.3 million. They made $1.5 million ($.16 per share vs. $.24 last year). Cash was $115 million or $12.14 per share (before the Qumu $39 million payment after the quarter end). Our valuation just on their Q3 performance actually increased a bit to $25.67. Looking at their guidance we estimate that our valuation will fall to about $22 next year. This is still a big enough value gap to hang onto the stock, collect the 6% dividend and see what this Qumu acquisition does.
They are projecting the combined company will generate more than 15% sales growth in 2012 and that cash flows will be about the same as 2011. Accordingly they upped the quarterly dividend to $.17 per share.
After the Qumu payment they will have about $75 million in cash, or over $7 a share. Not too shabby.
Arcadia sent a letter to Rimage on September 12th, again asking for the $9 dividend and making vague threats of doing something. Not clear what exactly. Oust the CEO, make a tender offer are among the possibilities we guess. We are not sure what they will do now that the company bought Qumu.
Down 23%, BUY

Lexmark International (NYSE-LXK)-Recommended 5/24/2011)
Buy Price-$28.80
Valuation $63.84 (Was $79.12, $63.99)
Closed down $2.2 at $31.17
Pays $1.00 per share annual dividend.
LXK announced in October that they will start paying a $1 annual dividend.
Earnings announced in October. Pretty good. Revenue was up 1% to $1.035 billion and EPS was $.86 per share versus $.90 last year. Q4 projection is for EPS of $1.02 to $1.12 so they expect to comfortably earn over $4 a share this year on a GAAP basis and about $4.60 per share on a Non-GAAP basis. Net cash fell by $125 million as they bought this much back in LXK stock during the quarter and expect to buy back a similar amount in Q4. Net cash is $7.34 per share. Our valuation fell back to $63.84 on the decline in cash, a drop in margins and net income. Still trading at about 50% of our valuation and spewing cash.
This would normally be a “buy” with such a huge discount to our valuation, but the vagaries on the stock analysts make us cautious.
Up 8%, HOLD

MER Telemanagement (NASDAQ-MTSL)-Recommended 5/17/2011)
Buy Price-$1.42 (Was $1.50 before adding another $10,000 investment)
Valuation $6.28 (Was $5.61, $5.11)
Closed down $.11 at $1.20
Last earnings out in November. Sales were up from $2.7 million to $3 million and they made $226,000 ($.05 a share) versus $14,000 last year. Cash per share rose to $.68 from $.63 last quarter and our valuation rose to $6.28 per share. Overall a very good report, but no reaction in the stock price. For the 9 months ended September 30th, they have made $.13 per share compared to $.01 last year.
MER announced a contract extension in August of $2.5 million (minimum). This is almost 50% of MER’s entire market cap. .
Down 16% BUY

Harris Interactive (NASDAQ-HPOL)-Recommended 3/3/2010)
Buy Price-$.92
Valuation $2.90 (Was $3.11, $2.63, $2.97)
Closed at $.65, down $.05
Earnings announced in November. Revenues actually increased to $38.3 million from $37 million. HPOL lost $6 million after a $6.8 million restructuring charge which had been warned of ahead of time. Net cash actually rose to almost $3 million and our valuation dropped back to $2.90 a share on the seasonal drop in revenues ($2.57 last year). Overall, not bad considering they are in the middle of a major restructuring effort.
Down 29%, HOLD

Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)
Buy Price-$5.08
Valuation $11.38 (was $14.04, $18.54, $15.99)
Closed down $.01 at $3.60
Earnings announced in November. Nothing to write home about. Sales fell to $12.9 million from $15.5 million last year and they lost $2.6 million versus $1.2 million last year. Cash fell to $3.50 a share and our valuation fell to $11.38. Hopefully with all the new deals they have announced this year, this decline in value will turnaround soon. We are switching to a HOLD here from a BUY.
They presented at a Wells Fargo investor conference on November 9th. Would not think they would do this if things were not going in a positive direction, at least from a business perspective.
In April the company announced that it would not do the stock buy back that Skellig was suggesting. We don’t like buy backs anyway. Hopefully Skellig will keep pushing management to get the share price up. Their ownership is up to 5.86%.
Down 29%, HOLD

Astex Pharmaceuticals Inc. (Was SuperGen Inc.) (NASDAQ-ASTX)-Recommended 10/4/2010)
Buy Price-$2.31 (was $2.09 before adding $10,000)
Valuation $3.42 (was $3.11, $5.21, $4.89, $4.37, $3.48)
Closed down $.11 at $1.60
Earnings announced in November. Sales rose to almost $17 million from $13.4 million last year and they lost $3.4 million before taxes. But this loss was after almost $8 million of acquisition expenses and stock based compensation. Cash ended up at $128 million or $1.28 a share. Our valuation rose to $3.42 a share.
As we said before, the merger with the revenue poor Astex hurt our valuation which does not take into account the massive drug pipeline of Astex. It is not easy to find a small drug company that has a pile of cash, is not losing a ton of money and is trading at even close to our valuation.
There are $2 BILLION of potential milestone payments down the road.
Down 31%, HOLD

Performance Technology (PTIX-Recommended 3/30/2010)
Buy Price-$2.70
Valuation $5.94-(was $4.87, $4.99, $3.79, $3.87, $5.03, $5.98, $7.13)
Closed down $.02 at $1.95
Earnings announced in November. Not bad at all. Revenues were $9 million, up from $6.3 million last year and they made $.07 on a non-GAAP basis. On a GAAP basis they lost $86,000. Cash per share was $1.12 and our valuation rose to $5.94 on increased sales, margins and reduced losses. Looks too cheap to us, so we are changing this to a BUY.
Down 28%, BUY

Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.18 (Was $3.04 before adding another $10,000)
Valuation-$6.72 (was $6.45, $5.67, $7.36, $7.23, $7.31, $6.82, $6.81)
Closed down $.25 at $2.79
Earnings announced in November. Sales fell from $84 million to $79 million and they made $1.6 million ($.02 a share) versus $2.7 million ($.03 a share) last year. On a non-GAAP basis they made $4.4 million versus $4.8 million last year. Margins rose from 46% last quarter to 55% this quarter and they had $141 million or $1.50 in cash per share. Our valuation rose to $6.72.
Starboard was cleared to buy up to 15% of EXTR as disclosed in an SEC filing in June.
Starboard Value Fund filed another 13D/A in June disclosing that they had upped their stake again to 9.6%.
Down 12%, BUY

Broadvision (BVSN-Recommended 3/16/2010)
Buy Price-$10.84 (Was $13.50 before double up)
Valuation $17.75-(was $18.01, $21.21, $22.95, $22.31, $21.77, $23.37, $27.15)
Closed up $.24 at $8.20.
“Earnings” announced in October Sales fell YOY from $5.2 million to $4.2 million and they lost $1.6 million for the quarter. Although the CEO said they were pleased with the progress they are making, no on else is. Cash fell to $12.61 per share and our valuation slipped a bit to $17.75.
Marlin filed a 13D/A in late October saying that the company had REJECTED it’s offer to buy it and that they had reduced their ownership to about 3.3% through market sales of the stock (just under 100,000 shares sold. We have to assume the offer was for more that the cash value on the company’s books.
Without the fact that BVSN is trading at less than cash, we would likely sell BVSN but will hold on another quarter or two and see if they can produce some decent results.
Down 24%, BUY

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price- $1.45 per ADS (Was $1.68 before double up)
Valuation $5.39-(Was $5.33, $5.61, $5.73, $4.38, $4.44, $5.15)
Closed down $.08 at $1.35
Earnings announced in November. Not bad at all. Revenues rose 8% to $13.4 million and they made $3.1 million or $.11 per ADS. For the nine months ended September 30th, they have made $.25 per ADS. Cash fell about $1.5 million to $2.05 per ADS.
Now trading at $.85 less than cash value. And they are profitable.
Our valuation rose a bit to $5.39 on some margin compression, but at less than cash value and 22% of our valuation this is one good lottery ticket if they ever commercially release Ragnarok 2.
Down 7%, BUY

AEterna Zentaris (AEZS-Recommended 6/20/2009)
Buy price $1.42 (was $1.78 before adding another $10,000, $1.82 before double up)
Valuation –Speculation.
Closed down $.05 at $1.63
AEZS announced another licensing deal for Perifosine in the Middle East and North Africa. Milestone payment potential is only $2 million but they would sell the drug at a cost plus basis and collect double digit royalties on the sales.
Earnings announced in November. Revenues rose to $9.5 million from $7.5 million and they lost $8.2 million versus $5.5 million from operations. They continue to sell stock under their “at the market” program and raised $15.8 million during and just after the quarter. They had $48 million of cash at September 3oth and about $54 million after their latest stock sales. Shares outstanding are up over 100 million now.
This is pretty normal for a developing drug company.
Speculative for sure.
Up 15%, HOLD

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $5.68 (was $8.90, $9.40 before adding $10,000, and was $10.65 before double up),
Valuation –$12.00 (was $10)
Closed down $1.35 at $6.39
CFO exercised 145,000 $2+ options on 11/3 and sold 86,000 shares at $7.5 to cover the option exercise price and taxes. Didn’t help the stock to drop this many shares on the market at one time. B
Earnings announced in October. Mediocre again. Revenues were up nicely to $32.1 million (up 9% YOY), but they again made no money (ok, $109,000 or $0 per share). Included in net income was the charge for the recently lost litigation of over $800,000.
Cash rose to $36.2 million. We upped our valuation to $12.
This company needs to be sold so that someone can take advantage of their 70%+ gross margins and enjoy some profits.
Paragon filed a 13D/A in May disclosing they had upped their stake to 7%.
Up 13%, HOLD

Mediware (MEDW-Recommended 6/4/2007)

Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up)
Valuation $17.96 (was $18.34, $16.07, $15.04, $14.23, $15.02, $14.35, $12.13, $12.57, $12.29, $11.90, $11.30, $11.48, $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Closed unchanged at $13.50
Resigning CFO has been selling his vested shares. Only about 16,000, but that is a fair amount for MEDW that has 13,000 shares a day average volume.
Another good earnings report in November. Revenues up 24% to $15.5 million and they made $.18 per share compared to $.13 last year (up 38%). Cash rose to $4.20 a share. Our valuation fell a bit to $17.96 but up from $14.23 last year.
Constellation resumed selling in early September.
We give up on the sale of the company anytime soon.
Constellation Software owns 21.8%, but put itself up for sale this year. Should have bought Constellation stock, it has tripled since they got into MEDW!
All we read is that medical records will be a hot area, so MEDW looks like the place to be.
Up 113%, HOLD

Vertro (VTRO (was-MIVA)-Recommended 10/21/2007)
Buy Price $8.15 (Was $11.90 before adding another $20,000, $13.10 before another $10,000 and was $15.00 before double up),
Valuation $8.04 (was $10.91, $12.42, $14.23, $14.76, $12.40, $12.55, $10.85, $8.25, $9.45, $28.05, $32.10, $34.20, $37.90, $37.95)
Closed unchanged at $1.49
“Earnings” announced in November. Not good. Revenue fell to $6.3 million from $9.8 million last year and they lost about $1.6 million from operations compared to a profit of $368,000 last year. Cash fell to $.53 per share (about $4 million in total) and our valuation plunged to $8.04.
Inuvo (AMEX–INUV) announced in October they had agreed to buy VTRO in an all stock deal. The price is 1.546 shares of INUV for each share of VTRO. INUV was $1.75 when the deal was announced indicating a value of $2.71, but INUV shares have fallen to $1.08 making the value about $1.67. INUV has about $50 million in sales, 40% gross margins and is slightly EBITDA positive. Maybe 1 and 1 can make 3 here. Our valuation of INUV is $4.32. VTRO’s largest shareholder filed a 13D/a indicating he is not happy with this deal and included calculations indicating that VTRO could return $3.38-$4.39 a share to shareholders on a liquidation of the company.
Should have sold this when it traded over $6.
Down 82% HOLD

Angeion Corporation (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.13 (was $13.19, $13.60, $15.00, $13.06, $12.15, $11.29, $11.73, $11.47, $11.16, $9.53, $13.30, $13.03)
Closed down $.15 at $4.45
CEO bought 10,000 shares in September at $4.25. Good sign.
Earnings in August. Another lackluster quarter. Sales fell from $7.1 million to $6.8 million and they lost $81,000 or $.02 a share. Our valuation fell slightly to $13.13 and cash was $2.39 per share. If this company could just show a bit of growth I think we would see $10 in short order—if.
Blueline Partners still owns 7.6% of ANGN and ought to be pushing on the company to do something about the stock price.
Up 16%, BUY

OB-abies (Bulletin Board Listed Stocks)

As proven by OPTIO, patience is necessary with these stocks.

ARI Networks (ARIS.ob-Recommended 8/19/2006)
Buy price $1.61 (Was $1.78 before another $10,000 added, was $2.06 before double up),
Valuation $5.72 (was $5.65, $5.39, $4,86, $5.60, $5.73, $5.54, $5.74, $5.96, $4.72, $5.19, $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.29 down $.05
Hmm, in addition to earnings and all the other recent announcements, the CEO got an amendment to his “change of control” agreement. Wonder why they are reviewing these kind of agreements right now?
Earnings out in November. Good results, terrible press release, as you had to decode Q4 results from it. Sales were flat at $5.4 million and it looks like they made about $400,000 of operating income compared to an $800,000 operating loss last year. They reported net income of $.31 per share for the year, but on a normalized basis (excluding unusual gains and an income tax benefit) they made about $.12 a share pre-tax or about $.08 a share after tax. If they want to become a real public company, they are going to have to be more transparent in their press releases. Our valuation rose a bit to $5.72 a share.
ARIS announced in October that they had engaged a PR firm, saying their stock was undervalued and the business had great opportunities ahead.
ARIS filed an 8k in September with presentation materials for a “potential investor”. They talk about how they think their shares are undervalued. There may be some life here.
Management finally looks like it is waking up and trying to increase the share price. Got a long way to go yet though.
Now down 22%, BUY, Still a Huge valuation gap here.

Rand Worldwide (RWWI.ob (Was Avatech, AVSO.ob)-Bought November 28, 2005)
Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time),
Valuation $2.09 (was $2.12, $2.60, $2.40, $1.90, $2.26 $3.07, $3.03, $2.38, $2.57, $2.81, $2.78, $3.30, $3.76, $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.66, down $.11
Earnings announced in November. Not bad. Revenues were $21.9 million up from $16.8 million last year and they made $363,000 ($.01 per share) versus a loss of $2.6 million ($.06 per share) last year. Cash was still net negative and our valuation fell $.03 to $2.09 per share.
Still more than 2X the current price.
Down 17%, BUY

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $1.37 (Was $1.23, $.91, $1.21, $.71, $.83, $.88 $.96, $.93, $.75, $.85, $1.57, $1.40, $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price $.15, closed at $.10.
CEO bought another 14,000 shares last week.
Earnings announced in November. Revenues were up 30% to $4,379,000 and they made $200,000 excluding a $289,000 severance charge. Yikes. Not bad. VOIP revenues were $475,000 up from $170,000 in the prior year and up slightly from the June quarter ($461,000). VOIP still lost $481,000 but this is down from $667,000 last year and $545,000 last quarter. Cash per share fell to $.13 (still more than the current market price) and our valuation rose again to $1.37 per share.
One of their Directors, Michael Reinarts, filed a 13D in November disclosing a 9.5% ownership stake. There were no specific proposals in the filing. We’ll have to wait and see what happens here. We know the stock is ridiculously cheap, and filing a 13D usually precedes some type of activist position.
At a $2.5 million market cap, this is stupidly cheap. Their intellectual property is probably worth 10 times this price. They need to liquefy this value somehow.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value–or it could be a home run.
Still an “undercover” company and stock.
Down 44%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $1.68 (Was $1.80 before $10,000 adder, $2.16 before double-up)
Valuation-$.85 (Was $1.05, $2.43, $4.11, $4.84, $4.98, $4.60, $3.82, $4.00, $3.68, $3.12, $3.98, $4.44, $3.22, $2.12, $4.56, $4.16)
Closed at $.35, up $.03.
Earnings announced in November. Revenues were up slightly over last year at $19 million versus $18.3 last year, but gross margins remained low and they made $2.1 million of $.04 per share compared to $.25 last year. Our valuation fell again to $.85.
We are now worried for the first time that with the decline in net income, that they may be having liquidity issues with all of their capital commitments. If this is going to work, it won’t be until 2012 that we see anything.
Down 79%, HOLD

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Cheap Stocks, 11-18-2011 Update

We had a good week even though the markets were down 3-4%. We were up .8% for the week.

Some of our stocks are just stupid cheap—compared to their cash on hand. Check this list:

Cash as % of Stock Price

RIMG 64%
EXTR 49%
PTIX 57%
GRVY 143%
BVSN 158%
CCUR 97%
MTSL 52%
SIGM 73%
ASTX 81%
CTIG 131%

Plus EXTR, RIMG, VTRO and MRVC.PK are all in “play” with activist shareholders either trying to get them to pay out special dividends or take them over.

Earnings reports for CTIG and RWWI last week.

We are now down .9% for the year. All of the damage comes from LTUS. Hopefully this will turn around in 2012.

The DOW was down 2.9% last week, NASDAQ was down 4% and the S+P 500 was down 3%. The Russell 3000 was down 3.8%.

RWWI, BVSN, EXTR, MTSL and MITL are our favorites.

For the year, the DOW is up 1.9%, NASDAQ is down 3%, S+P 500 is down 3.3%, the Russell 3000 is down 4.1%

Last week we went 10 stocks up, 11 down and 1 unchanged. Since inception we are now 49 stocks up and 21 down for a 70% winning percentage (80% is our target win %).

Since our beginning, we have closed out the following positions:

2006-NTCT +44%
2006-ONXS +11% (Buyout offer)
2006-DTLK +41%
2006-CAW +21% (Buyout offer)
2007-IYXI.ob +44% (Buyout offer)
2007-MOBI +47% (Buyout offer)
2007-INFT +11% (Buyout offer)
2007-RITT +62%
2007-MIVA +55%
2007-DTLK +25% (2 weeks)
2007-PDLI + 3%
2007-QADI +25%
2007-CIMT +50%
2007-BDR +19%
2007-LINN.ob -57% (mortgage business bust didn’t help here)
2007-TISA -39% (take some tax loss for 2007 due to disappointing results.
2008-ANGN +26%
2008-OPTO.ob +40% (Buy-out offer)
2008-PDLI +9% (company split, and special dividend)
2008-BDAY -39% (long overdue takeover offer-or “take-under”)
2008-DTLK +40% (third trip on this one)
2008-ILOG +26% (Buy-out offer from IBM)
2008-PARL +56%
2009-MBRK +67%
2009-SNWL +14%
2009-CYNO +25%
2009-DTLK +33%
2009-NED +46%
2009-CUTR +13%
2009-HSTM +67% (continued good earnings)
2009-RNWK +36%
2009-OPK +116%
2009-CLZR -32% (a loser even on a buy-out)
2009-DTLK +28% (our 5th profitable trip on this one)
2010-HPOL +110%
2010-DIVX +25%
2010-CHRD +37% Buyout (2 weeks after we recommended it)
2010-HPOL +30%
2010-MGIC +82%
2010-GSL +78%
2010-CCEL +49%
2010-HPOL +27%
2010-CAW EVEN (excluding 2.5 years of dividends)
2011-DWCH +116%
2011-IPAS +15%
2011-PRM +56% Buyout (1 week after we recommended it)
2011-RST +12%
2011-NINE -10%

The model portfolio assumes $10,000 invested in each stock (unless we double-up–then it is $20,000), less $10 commission each way (TD Ameritrade rate).

For the 48 stocks that we closed out since 2006 (43 were winners) the average net gain was 37%.

MRV Communications (Pink Sheets-MRVC.pk)
Valuation $2.45 (after $.0475 special dividend)-(Was $2.92, $3.09)
Buy Price October 7, 2011-$1.27
Closed up $.03 at $.90
The special dividend was finally paid last week and the stock dropped ex-dividend as expected, but it still ended up $.03 adjusted for the dividend.
Earnings announced in November. Revenue was $62.5 million down from $66.1 million last year. Net income was $2.1 million or $.01 per share comparer to $3.6 million last year ($.02 per share). Cash before the $75 dividend dropped slightly to $150 million or $.90 per share. Our valuation dropped to $2.92 per share which is still more than double the current price.
After the dividend our valuation will dropped to $2.45 per share with about $.48 a share in cash versus an adjusted stock price of $.87 per share (based on a $1.35 market price)—an even wider “value gap” on a % basis.
Raging Bull continues to buy shares. Another 950,000 acquired on 11/4 at about $1.36.
Chairman of the Board had resigned and the current CEO also resigned from the Board (but not as CEO). Two new Board members were appointed.
Up 8% BUY

Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)
Buy Price-$8.49
Valuation $13.40 (Was $16.02)
Closed down $.62 at $7.45
Mak Capital One LLC filed a 13G last week disclosing a 6.6% (2,110,000 shares) stake in SIGM.
Earnings announced in August. Sales were down 23% to just under $47 million and they lost $22 million. Yuck. But it is not as bad as it seems. Cash and investments actually went up to $5.40 a share ($170 million) and if you exclude the GAAP non-cash BS and the inventory write down, the loss was “only” about $6 million. So we are trading at a market cap of about $65 million (excluding cash) for a $200 million a year chip company with 50% margins. Still pretty stupid we think. However, our valuation dived to $13.40, so we need to keep our eye on this one.
Down 12%, HOLD

Mitel Networks (NASDAQ-MITL)-Recommended 7/6/2011)
Buy Price- $3.04( Was $3.36 before $10,000 added, $3.95 before $10,000 added)
Valuation $14.04 (Was $10.39)
Closed up $.04 at $2.42
Next earnings due out Thursday, December 1st after the market close.
Earnings announced in August. Pretty good. Revenues were $164 million up from $160 million last year. Non-GAAP net income was $9.2 million or $.16 a share compared to $10.8 million and $.19 a share last year. They took a $4.8 million restructuring charge in the quarter, to they reported a loss of $2.8 million in the quarter.
Our valuation jumped to $14.04.
Down 20%, BUY

Rimage (NASDAQ-RIMG)-Recommended 5/24/2011)
Buy Price-$14.20
Valuation $25.67 (Was $25.63, $26.45)
Closed down $.06 at $11.24
Pays $.68 a share annual dividend.
Earnings announced in November. Revenues down from $23.4 million to $20.3 million. They made $1.5 million ($.16 per share vs. $.24 last year). Cash was $115 million or $12.14 per share (before the Qumu $39 million payment after the quarter end). Our valuation just on their Q3 performance actually increased a bit to $25.67. Looking at their guidance we estimate that our valuation will fall to about $22 next year. This is still a big enough value gap to hang onto the stock, collect the 6% dividend and see what this Qumu acquisition does.
They are projecting the combined company will generate more than 15% sales growth in 2012 and that cash flows will be about the same as 2011. Accordingly they upped the quarterly dividend to $.17 per share.
After the Qumu payment they will have about $75 million in cash, or over $7 a share. Not too shabby.
Arcadia sent a letter to Rimage on September 12th, again asking for the $9 dividend and making vague threats of doing something. Not clear what exactly. Oust the CEO, make a tender offer are among the possibilities we guess. We are not sure what they will do now that the company bought Qumu.
Down 21%, HOLD

Lexmark International (NYSE-LXK)-Recommended 5/24/2011)
Buy Price-$28.80
Valuation $63.84 (Was $79.12, $63.99)
Closed up $.44 at $33.45
Pays $1.00 per share annual dividend.
LXK announced in October that they will start paying a $1 annual dividend.
Earnings announced in October. Pretty good. Revenue was up 1% to $1.035 billion and EPS was $.86 per share versus $.90 last year. Q4 projection is for EPS of $1.02 to $1.12 so they expect to comfortably earn over $4 a share this year on a GAAP basis and about $4.60 per share on a Non-GAAP basis. Net cash fell by $125 million as they bought this much back in LXK stock during the quarter and expect to buy back a similar amount in Q4. Net cash is $7.34 per share. Our valuation fell back to $63.84 on the decline in cash, a drop in margins and net income. Still trading at about 50% of our valuation and spewing cash.
This would normally be a “buy” with such a huge discount to our valuation, but the vagaries on the stock analysts make us cautious.
Up 16%, HOLD

MER Telemanagement (NASDAQ-MTSL)-Recommended 5/17/2011)
Buy Price-$1.42 (Was $1.50 before adding another $10,000 investment)
Valuation $6.28 (Was $5.61, $5.11)
Closed down $.02 at $1.31
Hmm, not sure how we missed this earnings release on 11/10 but we did. Sales were up from $2.7 million to $3 million and they made $226,000 ($.05 a share) versus $14,000 last year. Cash per share rose to $.68 from $.63 last quarter and our valuation rose to $6.28 per share. Overall a very good report, but no reaction in the stock price. For the 9 months ended September 30th, they have made $.13 per share compared to $.01 last year.
MER announced a contract extension in August of $2.5 million (minimum). This is almost 50% of MER’s entire market cap. .
Down 8% BUY

Harris Interactive (NASDAQ-HPOL)-Recommended 3/3/2010)
Buy Price-$.92
Valuation $2.90 (Was $3.11, $2.63, $2.97)
Closed at $.70, down $.03
Earnings announced in November. Revenues actually increased to $38.3 million from $37 million. HPOL lost $6 million after a $6.8 million restructuring charge which had been warned of ahead of time. Net cash actually rose to almost $3 million and our valuation dropped back to $2.90 a share on the seasonal drop in revenues ($2.57 last year). Overall, not bad considering they are in the middle of a major restructuring effort.
Down 24%, HOLD

Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)
Buy Price-$5.08
Valuation $11.38 (was $14.04, $18.54, $15.99)
Closed down $.05 at $3.61
Earnings announced in November. Nothing to write home about. Sales fell to $12.9 million from $15.5 million last year and they lost $2.6 million versus $1.2 million last year. Cash fell to $3.50 a share and our valuation fell to $11.38. Hopefully with all the new deals they have announced this year, this decline in value will turnaround soon. We are switching to a HOLD here from a BUY.
They presented at a Wells Fargo investor conference on November 9th. Would not think they would do this if things were not going in a positive direction, at least from a business perspective.
In April the company announced that it would not do the stock buy back that Skellig was suggesting. We don’t like buy backs anyway. Hopefully Skellig will keep pushing management to get the share price up. Their ownership is up to 5.86%.
Down 29%, HOLD

Astex Pharmaceuticals Inc. (Was SuperGen Inc.) (NASDAQ-ASTX)-Recommended 10/4/2010)
Buy Price-$2.31 (was $2.09 before adding $10,000)
Valuation $3.42 (was $3.11, $5.21, $4.89, $4.37, $3.48)
Closed down $.17 at $1.71
Earnings announced in November. Sales rose to almost $17 million from $13.4 million last year and they lost $3.4 million before taxes. But this loss was after almost $8 million of acquisition expenses and stock based compensation. Cash ended up at $128 million or $1.28 a share. Our valuation rose to $3.42 a share.
As we said before, the merger with the revenue poor Astex hurt our valuation which does not take into account the massive drug pipeline of Astex. It is not easy to find a small drug company that has a pile of cash, is not losing a ton of money and is trading at even close to our valuation.
There are $2 BILLION of potential milestone payments down the road.
Down 26%, HOLD

Performance Technology (PTIX-Recommended 3/30/2010)
Buy Price-$2.70
Valuation $5.94-(was $4.87, $4.99, $3.79, $3.87, $5.03, $5.98, $7.13)
Closed up $.15 at $1.97
Earnings announced in November. Not bad at all. Revenues were $9 million, up from $6.3 million last year and they made $.07 on a non-GAAP basis. On a GAAP basis they lost $86,000. Cash per share was $1.12 and our valuation rose to $5.94 on increased sales, margins and reduced losses. Looks too cheap to us, so we are changing this to a BUY.
Down 27%, BUY

Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.18 (Was $3.04 before adding another $10,000)
Valuation-$6.72 (was $6.45, $5.67, $7.36, $7.23, $7.31, $6.82, $6.81)
Closed up $.03 at $3.04
Earnings announced in November. Sales fell from $84 million to $79 million and they made $1.6 million ($.02 a share) versus $2.7 million ($.03 a share) last year. On a non-GAAP basis they made $4.4 million versus $4.8 million last year. Margins rose from 46% last quarter to 55% this quarter and they had $141 million or $1.50 in cash per share. Our valuation rose to $6.72.
Starboard was cleared to buy up to 15% of EXTR as disclosed in an SEC filing in June.
Starboard Value Fund filed another 13D/A in June disclosing that they had upped their stake again to 9.6%.
Down 4%, BUY

Broadvision (BVSN-Recommended 3/16/2010)
Buy Price-$10.84 (Was $13.50 before double up)
Valuation $17.75-(was $18.01, $21.21, $22.95, $22.31, $21.77, $23.37, $27.15)
Closed down $.09 at $7.96.
“Earnings” announced in October Sales fell YOY from $5.2 million to $4.2 million and they lost $1.6 million for the quarter. Although the CEO said they were pleased with the progress they are making, no on else is. Cash fell to $12.61 per share and our valuation slipped a bit to $17.75.
Marlin filed a 13D/A in late October saying that the company had REJECTED it’s offer to buy it and that they had reduced their ownership to about 3.3% through market sales of the stock (just under 100,000 shares sold. We have to assume the offer was for more that the cash value on the company’s books.
Without the fact that BVSN is trading at less than cash, we would likely sell BVSN but will hold on another quarter or two and see if they can produce some decent results.
Down 27%, BUY

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price- $1.45 per ADS (Was $1.68 before double up)
Valuation $5.39-(Was $5.33, $5.61, $5.73, $4.38, $4.44, $5.15)
Closed up $.23 at $1.43
Volume and price picking up. Hopefully we get some good news on RK2 soon.
Earnings announced in November. Not bad at all. Revenues rose 8% to $13.4 million and they made $3.1 million or $.11 per ADS. For the nine months ended September 30th, they have made $.25 per ADS. Cash fell about $1.5 million to $2.05 per ADS.
Now trading at $.85 less than cash value. And they are profitable.
Our valuation rose a bit to $5.39 on some margin compression, but at less than cash value and 22% of our valuation this is one good lottery ticket if they ever commercially release Ragnarok 2.
Down 2%, HOLD

AEterna Zentaris (AEZS-Recommended 6/20/2009)
Buy price $1.42 (was $1.78 before adding another $10,000, $1.82 before double up)
Valuation –Speculation.
Closed up $.08 at $1.68
Earnings announced in November. Revenues rose to $9.5 million from $7.5 million and they lost $8.2 million versus $5.5 million from operations. They continue to sell stock under their “at the market” program and raised $15.8 million during and just after the quarter. They had $48 million of cash at September 3oth and about $54 million after their latest stock sales. Shares outstanding are up over 100 million now.
This is pretty normal for a developing drug company.
Speculative for sure.
Up 18%, HOLD

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $5.68 (was $8.90, $9.40 before adding $10,000, and was $10.65 before double up),
Valuation –$12.00 (was $10)
Closed down $.05 at $7.74
CFO exercised 145,000 $2+ options on 11/3 and sold 86,000 shares at $7.5 to cover the option exercise price and taxes. Didn’t help the stock to drop this many shares on the market at one time. B
Earnings out in October. Mediocre again. Revenues were up nicely to $32.1 million (up 9% YOY), but they again made no money (ok, $109,000 or $0 per share). Included in net income was the charge for the recently lost litigation of over $800,000.
Cash rose to $36.2 million. We upped our valuation to $12.
This company needs to be sold so that someone can take advantage of their 70%+ gross margins and enjoy some profits.
Paragon filed a 13D/A in May disclosing they had upped their stake to 7%.
Up 36%, HOLD

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up)
Valuation $17.96 (was $18.34, $16.07, $15.04, $14.23, $15.02, $14.35, $12.13, $12.57, $12.29, $11.90, $11.30, $11.48, $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Closed down $.50 at $13.50
Another good earnings report in November. Revenues up 24% to $15.5 million and they made $.18 per share compared to $.13 last year (up 38%). Cash rose to $4.20 a share. Our valuation fell a bit to $17.96 but up from $14.23 last year.
Constellation resumed selling in early September.
We give up on the sale of the company anytime soon.
Constellation Software owns 21.8%, but put itself up for sale this year. Should have bought Constellation stock, it has tripled since they got into MEDW!
All we read is that medical records will be a hot area, so MEDW looks like the place to be.
Up 113%, HOLD

Vertro (VTRO (was-MIVA)-Recommended 10/21/2007)
Buy Price $8.15 (Was $11.90 before adding another $20,000, $13.10 before another $10,000 and was $15.00 before double up),
Valuation $8.04 (was $10.91, $12.42, $14.23, $14.76, $12.40, $12.55, $10.85, $8.25, $9.45, $28.05, $32.10, $34.20, $37.90, $37.95)
Closed up $.04 at $1.49
“Earnings” announced in November. Not good. Revenue fell to $6.3 million from $9.8 million last year and they lost about $1.6 million from operations compared to a profit of $368,000 last year. Cash fell to $.53 per share (about $4 million in total) and our valuation plunged to $8.04.
Inuvo (AMEX–INUV) announced in October they had agreed to buy VTRO in an all stock deal. The price is 1.546 shares of INUV for each share of VTRO. INUV was $1.75 when the deal was announced indicating a value of $2.71, but INUV shares have fallen to $1.08 making the value about $1.67. INUV has about $50 million in sales, 40% gross margins and is slightly EBITDA positive. Maybe 1 and 1 can make 3 here. Our valuation of INUV is $4.32. VTRO’s largest shareholder filed a 13D/a indicating he is not happy with this deal and included calculations indicating that VTRO could return $3.38-$4.39 a share to shareholders on a liquidation of the company.
Should have sold this when it traded over $6.
Down 82% HOLD

Angeion Corporation (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.13 (was $13.19, $13.60, $15.00, $13.06, $12.15, $11.29, $11.73, $11.47, $11.16, $9.53, $13.30, $13.03)
Closed up $.07 at $4.60
CEO bought 10,000 shares in September at $4.25. Good sign.
Earnings in August. Another lackluster quarter. Sales fell from $7.1 million to $6.8 million and they lost $81,000 or $.02 a share. Our valuation fell slightly to $13.13 and cash was $2.39 per share. If this company could just show a bit of growth I think we would see $10 in short order—if.
Blueline Partners still owns 7.6% of ANGN and ought to be pushing on the company to do something about the stock price.
Up 20%, BUY

OB-abies (Bulletin Board Listed Stocks)

As proven by OPTIO, patience is necessary with these stocks.

ARI Networks (ARIS.ob-Recommended 8/19/2006)
Buy price $1.61 (Was $1.78 before another $10,000 added, was $2.06 before double up),
Valuation $5.72 (was $5.65, $5.39, $4,86, $5.60, $5.73, $5.54, $5.74, $5.96, $4.72, $5.19, $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.29 unchanged
Hmm, in addition to earnings and all the other recent announcements, the CEO got an amendment to his “change of control” agreement. Wonder why they are reviewing these kind of agreements right now?
Earnings out in November. Good results, terrible press release, as you had to decode Q4 results from it. Sales were flat at $5.4 million and it looks like they made about $400,000 of operating income compared to an $800,000 operating loss last year. They reported net income of $.31 per share for the year, but on a normalized basis (excluding unusual gains and an income tax benefit) they made about $.12 a share pre-tax or about $.08 a share after tax. If they want to become a real public company, they are going to have to be more transparent in their press releases. Our valuation rose a bit to $5.72 a share.
ARIS announced in October that they had engaged a PR firm, saying their stock was undervalued and the business had great opportunities ahead.
ARIS filed an 8k in September with presentation materials for a “potential investor”. They talk about how they think their shares are undervalued. There may be some life here.
Management finally looks like it is waking up and trying to increase the share price. Got a long way to go yet though.
Now down 20%, BUY, Still a Huge valuation gap here.

Rand Worldwide (RWWI.ob (Was Avatech, AVSO.ob)-Bought November 28, 2005)
Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time),
NEW Valuation $2.09 (was $2.12, $2.60, $2.40, $1.90, $2.26 $3.07, $3.03, $2.38, $2.57, $2.81, $2.78, $3.30, $3.76, $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.77, up $.08
Earnings announced last week. Not bad. Revenues were $21.9 million up from $16.8 million last year and they made $363,000 ($.01 per share) versus a loss of $2.6 million ($.06 per share) last year. Cash was still net negative and our valuation fell $.03 to $2.09 per share.
Still more than 2X the current price.
Down 3%, HOLD

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
NEW Valuation $1.37 (Was $1.23, $.91, $1.21, $.71, $.83, $.88 $.96, $.93, $.75, $.85, $1.57, $1.40, $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price $.10, closed at $.09.
CEO bought another 14,000 shares last week.
Earnings last week. Revenues were up 30% to $4,379,000 and they made $200,000 excluding a $289,000 severance charge. Yikes. Not bad. VOIP revenues were $475,000 up from $170,000 in the prior year and up slightly from the June quarter ($461,000). VOIP still lost $481,000 but this is down from $667,000 last year and $545,000 last quarter. Cash per share fell to $.13 (still more than the current market price) and our valuation rose again to $1.37 per share.
One of their Directors, Michael Reinarts, filed a 13D in November disclosing a 9.5% ownership stake. There were no specific proposals in the filing. We’ll have to wait and see what happens here. We know the stock is ridiculously cheap, and filing a 13D usually precedes some type of activist position.
At a $2.5 million market cap, this is stupidly cheap. Their intellectual property is probably worth 10 times this price. They need to liquefy this value somehow.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value–or it could be a home run.
Still an “undercover” company and stock.
Down 63%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $1.68 (Was $1.80 before $10,000 adder, $2.16 before double-up)
Valuation-$.85 (Was $1.05, $2.43, $4.11, $4.84, $4.98, $4.60, $3.82, $4.00, $3.68, $3.12, $3.98, $4.44, $3.22, $2.12, $4.56, $4.16)
Closed at $.32, down $.02.
Earnings announced in November. Revenues were up slightly over last year at $19 million versus $18.3 last year, but gross margins remained low and they made $2.1 million of $.04 per share compared to $.25 last year. Our valuation fell again to $.85.
We are now worried for the first time that with the decline in net income, that they may be having liquidity issues with all of their capital commitments. If this is going to work, it won’t be until 2012 that we see anything.
Down 81%, HOLD

Cheap Stocks, 11/11/2011 Update

It was a decent week for us, up 1.7%, better than the market averages but we still lag on a YTD basis.

Some of our stocks are just stupid cheap—compared to their cash on hand. Check this list:

Cash as % of Stock Price
RIMG 63%
EXTR 50%
PTIX 61%
GRVY 170%
BVSN 157%
CCUR 95%
MTSL 47%
SIGM 67%
ASTX 73%

Plus EXTR, RIMG, VTRO and MRVC.PK are all in “play” with activist shareholders either trying to get them to pay out special dividends or take them over.

Earnings reports for GRVY, VTRO, PTIX, LTUS and AEZS last week.

We are now down 1.7% for the year. All of the damage comes from LTUS. Hopefully this will turn around in 2012.

The DOW was up 1.4% last week, NASDAQ was down .3% and the S+P 500 was up .9%. The Russell 3000 was up .6%.

AVSO, BVSN, CCUR, EXTR, MTSL and MITL are our favorites.

For the year, the DOW is up 5%, NASDAQ is up 1%, S+P 500 is up .5%, the Russell 3000 is down .3%

Last week we went 10 stocks up, 10 down and 2 unchanged. Since inception we are now 49 stocks up and 21 down for a 70% winning percentage (80% is our target win %).

Since our beginning, we have closed out the following positions:

2006-NTCT +44%
2006-ONXS +11% (Buyout offer)
2006-DTLK +41%
2006-CAW +21% (Buyout offer)
2007-IYXI.ob +44% (Buyout offer)
2007-MOBI +47% (Buyout offer)
2007-INFT +11% (Buyout offer)
2007-RITT +62%
2007-MIVA +55%
2007-DTLK +25% (2 weeks)
2007-PDLI + 3%
2007-QADI +25%
2007-CIMT +50%
2007-BDR +19%
2007-LINN.ob -57% (mortgage business bust didn’t help here)
2007-TISA -39% (take some tax loss for 2007 due to disappointing results.
2008-ANGN +26%
2008-OPTO.ob +40% (Buy-out offer)
2008-PDLI +9% (company split, and special dividend)
2008-BDAY -39% (long overdue takeover offer-or “take-under”)
2008-DTLK +40% (third trip on this one)
2008-ILOG +26% (Buy-out offer from IBM)
2008-PARL +56%
2009-MBRK +67%
2009-SNWL +14%
2009-CYNO +25%
2009-DTLK +33%
2009-NED +46%
2009-CUTR +13%
2009-HSTM +67% (continued good earnings)
2009-RNWK +36%
2009-OPK +116%
2009-CLZR -32% (a loser even on a buy-out)
2009-DTLK +28% (our 5th profitable trip on this one)
2010-HPOL +110%
2010-DIVX +25%
2010-CHRD +37% Buyout (2 weeks after we recommended it)
2010-HPOL +30%
2010-MGIC +82%
2010-GSL +78%
2010-CCEL +49%
2010-HPOL +27%
2010-CAW EVEN (excluding 2.5 years of dividends)
2011-DWCH +116%
2011-IPAS +15%
2011-PRM +56% Buyout (1 week after we recommended it)
2011-RST +12%
2011-NINE -10%

The model portfolio assumes $10,000 invested in each stock (unless we double-up–then it is $20,000), less $10 commission each way (TD Ameritrade rate).

For the 48 stocks that we closed out since 2006 (43 were winners) the average net gain was 37%.

MRV Communications (Pink Sheets-MRVC.pk)
NEW Valuation $2.92-(Was $3.09)
Buy Price October 7, 2011-$1.27
Closed down $.01 at $1.35
Earnings last week. Revenue was $62.5 million down from $66.1 million last year. Net income was $2.1 million or $.01 per share comparer to $3.6 million last year ($.02 per share). Cash before the $75 million dividend dropped slightly to $150 million or $.90 per share. Our valuation dropped to $2.92 per share which is still more than double the current price.
After the dividend our valuation will drop to $2.45 per share with about $.48 a share in cash versus an adjusted stock price of $.87 per share (based on a $1.35 market price)—an even wider “value gap” on a % basis.
Raging Bull continues to buy shares. Another 950,000 acquired on 11/4 at about $1.36.
We should finally receive the $.48 dividend next week after they fumbled around on when the record date and ex-dividend date was. The drop in the stock when it goes ex-dividend will be the key here. They will still have another $75 million+ of cash and are profitable.
Chairman of the Board had resigned and the current CEO also resigned from the Board (but not as CEO). Two new Board members were appointed.
Up 6%

Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)
Buy Price-$8.49
Valuation $13.40 (Was $16.02)
Closed down $.51 at $8.07
Earnings out in August. Sales were down 23% to just under $47 million and they lost $22 million. Yuck. But it is not as bad as it seems. Cash and investments actually went up to $5.40 a share ($170 million) and if you exclude the GAAP non-cash BS and the inventory write down, the loss was “only” about $6 million. So we are trading at a market cap of about $65 million (excluding cash) for a $200 million a year chip company with 50% margins. Still pretty stupid we think. However, our valuation dived to $13.40, so we need to keep our eye on this one.
Down 5%, HOLD

Mitel Networks (NASDAQ-MITL)-Recommended 7/6/2011)
Buy Price- $3.04( Was $3.36 before $10,000 added, $3.95 before $10,000 added)
Valuation $14.04 (Was $10.39)
Closed down $.03 at $2.38
Earnings in August. Pretty good. Revenues were $164 million up from $160 million last year. Non-GAAP net income was $9.2 million or $.16 a share compared to $10.8 million and $.19 a share last year. They took a $4.8 million restructuring charge in the quarter, to they reported a loss of $2.8 million in the quarter.
Our valuation jumped to $14.04.
Down 22%, BUY

Rimage (NASDAQ-RIMG)-Recommended 5/24/2011)
Buy Price-$14.20
Valuation $25.67 (Was $25.63, $26.45)
Closed unchanged at $11.30
Pays $.68 a share annual dividend.
Earnings out in November. Revenues down from $23.4 million to $20.3 million. They made $1.5 million ($.16 per share vs. $.24 last year). Cash was $115 million or $12.14 per share (before the Qumu $39 million payment after the quarter end). Our valuation just on their Q3 performance actually increased a bit to $25.67. Looking at their guidance we estimate that our valuation will fall to about $22 next year. This is still a big enough value gap to hang onto the stock, collect the 6% dividend and see what this Qumu acquisition does.
They are projecting the combined company will generate more than 15% sales growth in 2012 and that cash flows will be about the same as 2011. Accordingly they upped the quarterly dividend to $.17 per share.
After the Qumu payment they will have about $75 million in cash, or over $7 a share. Not too shabby.
Arcadia sent a letter to Rimage on September 12th, again asking for the $9 dividend and making vague threats of doing something. Not clear what exactly. Oust the CEO, make a tender offer are among the possibilities we guess. We are not sure what they will do now that the company bought Qumu.
Down 20%, HOLD

Lexmark International (NYSE-LXK)-Recommended 5/24/2011)
Buy Price-$28.80
Valuation $63.84 (Was $79.12, $63.99)
Closed up $.54 at $33.89
Pays $1.00 per share annual dividend
LXK announced in October that they will start paying a $1 annual dividend.
Earnings in October. Pretty good. Revenue was up 1% to $1.035 billion and EPS was $.86 per share versus $.90 last year. Q4 projection is for EPS of $1.02 to $1.12 so they expect to comfortably earn over $4 a share this year on a GAAP basis and about $4.60 per share on a Non-GAAP basis. Net cash fell by $125 million as they bought this much back in LXK stock during the quarter and expect to buy back a similar amount in Q4. Net cash is $7.34 per share. Our valuation fell back to $63.84 on the decline in cash, a drop in margins and net income. Still trading at about 50% of our valuation and spewing cash.
This would normally be a “buy” with such a huge discount to our valuation, but the vagaries on the stock analysts make us cautious.
Up 18%, HOLD

MER Telemanagement (NASDAQ-MTSL)-Recommended 5/17/2011)
Buy Price-$1.42 (Was $1.50 before adding another $10,000 investment)
Valuation $5.61 (Was $5.11)
Closed up $.12 at $1.33
MER announced a contract extension in August of $2.5 million (minimum). This is almost 50% of MER’s entire market cap.
Earnings in August. Not bad. Sales were just over $3 million and they made over $200,000 or $.05 a share. For the six months they have made $.08 a share (untaxed of course). So MTSL is trading at about 8X untaxed annualized earnings. Oh yeah, they have $.63 a share in cash also (up from $.60 last quarter). Our valuation jumped to $5.61 per share.
Down 6% BUY

Harris Interactive (NASDAQ-HPOL)-Recommended 3/3/2010)
Buy Price-$.92
Valuation $2.90 (Was $3.11, $2.63, $2.97)
Closed at $.73, up $.01
Earnings in November. Revenues actually increased to $38.3 million from $37 million. HPOL lost $6 million after a $6.8 million restructuring charge which had been warned of ahead of time. Net cash actually rose to almost $3 million and our valuation dropped back to $2.90 a share on the seasonal drop in revenues ($2.57 last year). Overall, not bad considering they are in the middle of a major restructuring effort.
Down 21%, HOLD

Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)
Buy Price-$5.08
Valuation $11.38 (was $14.04, $18.54, $15.99)
Closed down $.24 at $3.66
Earnings in November. Nothing to write home about. Sales fell to $12.9 million from $15.5 million last year and they lost $2.6 million versus $1.2 million last year. Cash fell to $3.50 a share and our valuation fell to $11.38. Hopefully with all the new deals they have announced this year, this decline in value will turnaround soon. We are switching to a HOLD here from a BUY.
They presented at a Wells Fargo investor conference on November 9th. Would not think they would do this if things were not going in a positive direction, at least from a business perspective.
In April the company announced that it would not do the stock buy back that Skellig was suggesting. We don’t like buy backs anyway. Hopefully Skellig will keep pushing management to get the share price up. Their ownership is up to 5.86%.
Down 28%, HOLD

Astex Pharmaceuticals Inc. (Was SuperGen Inc.) (NASDAQ-ASTX)-Recommended 10/4/2010)
Buy Price-$2.31 (was $2.09 before adding $10,000)
Valuation $3.42 (was $3.11, $5.21, $4.89, $4.37, $3.48)
Closed down $.07 at $1.88
Earnings out in November. Sales rose to almost $17 million from $13.4 million last year and they lost $3.4 million before taxes. But this loss was after almost $8 million of acquisition expenses and stock based compensation. Cash ended up at $128 million or $1.28 a share. Our valuation rose to $3.42 a share.
As we said before, the merger with the revenue poor Astex hurt our valuation which does not take into account the massive drug pipeline of Astex. It is not easy to find a small drug company that has a pile of cash, is not losing a ton of money and is trading at even close to our valuation.
There are $2 BILLION of potential milestone payments down the road.
Down 18%, HOLD

Performance Technology (PTIX-Recommended 3/30/2010)
Buy Price-$2.70
NEW Valuation $5.94-(was $4.87, $4.99, $3.79, $3.87, $5.03, $5.98, $7.13)
Closed up $.12 at $1.82
Earnings last week. Not bad at all. Revenues were $9 million, up from $6.3 million last year and they made $.07 on a non-GAAP basis. On a GAAP basis they lost $86,000. Cash per share was $1.12 and our valuation rose to $5.94 on increased sales, margins and reduced losses. Looks too cheap to us, so we are changing this to a BUY.
Down 33%, BUY

Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.18 (Was $3.04 before adding another $10,000)
Valuation-$6.72 (was $6.45, $5.67, $7.36, $7.23, $7.31, $6.82, $6.81)
Closed up $.03 at $3.01
Earnings out in November. Sales fell from $84 million to $79 million and they made $1.6 million ($.02 a share) versus $2.7 million ($.03 a share) last year. On a non-GAAP basis they made $4.4 million versus $4.8 million last year. Margins rose from 46% last quarter to 55% this quarter and they had $141 million or $1.50 in cash per share. Our valuation rose to $6.72.
Starboard was cleared to buy up to 15% of EXTR as disclosed in an SEC filing in June.
Starboard Value Fund filed another 13D/A in June disclosing that they had upped their stake again to 9.6%.
Down 5%, BUY

Broadvision (BVSN-Recommended 3/16/2010)
Buy Price-$10.84 (Was $13.50 before double up)
Valuation $17.75-(was $18.01, $21.21, $22.95, $22.31, $21.77, $23.37, $27.15)
Closed down $.20 at $8.05.
“Earnings” out in October Sales fell YOY from $5.2 million to $4.2 million and they lost $1.6 million for the quarter. Although the CEO said they were pleased with the progress they are making, no on else is. Cash fell to $12.61 per share and our valuation slipped a bit to $17.75.
Marlin filed a 13D/A in late October saying that the company had REJECTED it’s offer to buy it and that they had reduced their ownership to about 3.3% through market sales of the stock (just under 100,000 shares sold. We have to assume the offer was for more that the cash value on the company’s books.
Without the fact that BVSN is trading at less than cash, we would likely sell BVSN but will hold on another quarter or two and see if they can produce some decent results.
Down 26%, BUY

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price- $1.45 per ADS (Was $1.68 before double up)
NEW Valuation $5.39-(Was $5.33, $5.61, $5.73, $4.38, $4.44, $5.15)
Closed up $.05 at $1.20
Earnings last week. Not bad at all. Revenues rose 8% to $13.4 million and they made $3.1 million or $.11 per ADS. For the nine months ended September 30th, they have made $.25 per ADS. Cash fell about $1.5 million to $2.05 per ADS.
Now trading at $.85 less than cash value. And they are profitable.
Our valuation rose a bit to $5.39 on some margin compression, but at less than cash value and 22% of our valuation this is one good lottery ticket if they ever commercially release Ragnarok 2.
Down 17%, HOLD

AEterna Zentaris (AEZS-Recommended 6/20/2009)
Buy price $1.42 (was $1.78 before adding another $10,000, $1.82 before double up)
Valuation –Speculation.
Closed down $.01 at $1.60
Earnings last week. Revenues rose to $9.5 million from $7.5 million and they lost $8.2 million versus $5.5 million from operations. They continue to sell stock under their “at the market” program and raised $15.8 million during and just after the quarter. They had $48 million of cash at September 3oth and about $54 million after their latest stock sales. Shares outstanding are up over 100 million now.
This is pretty normal for a developing drug company.
Speculative for sure.
Up 12%, HOLD

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $5.68 (was $8.90, $9.40 before adding $10,000, and was $10.65 before double up),
Valuation –$12.00 (was $10)
Closed up $.41 at $7.79
CFO exercised 145,000 $2+ options on 11/3 and sold 86,000 shares at $7.5 to cover the option exercise price and taxes. Didn’t help the stock to drop this many shares on the market at one time. B
Earnings out in October. Mediocre again. Revenues were up nicely to $32.1 million (up 9% YOY), but they again made no money (ok, $109,000 or $0 per share). Included in net income was the charge for the recently lost litigation of over $800,000.
Cash rose to $36.2 million. We upped our valuation to $12.
This company needs to be sold so that someone can take advantage of their 70%+ gross margins and enjoy some profits.
Paragon filed a 13D/A in May disclosing they had upped their stake to 7%.
Up 37%, HOLD

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up)
Valuation $17.96 (was $18.34, $16.07, $15.04, $14.23, $15.02, $14.35, $12.13, $12.57, $12.29, $11.90, $11.30, $11.48, $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Closed up $.75 at $14.00
Another good earnings report in November . Revenues up 24% to $15.5 million and they made $.18 per share compared to $.13 last year (up 38%). Cash rose to $4.20 a share. Our valuation fell a bit to $17.96 but up from $14.23 last year.
Constellation resumed selling in early September.
We give up on the sale of the company anytime soon.
Constellation Software owns 21.8%, but put itself up for sale this year. Should have bought Constellation stock, it has tripled since they got into MEDW!
All we read is that medical records will be a hot area, so MEDW looks like the place to be.
Up 121%, HOLD

Vertro (VTRO (was-MIVA)-Recommended 10/21/2007)
Buy Price $8.15 (Was $11.90 before adding another $20,000, $13.10 before another $10,000 and was $15.00 before double up),
NEW Valuation $8.04 (was $10.91, $12.42, $14.23, $14.76, $12.40, $12.55, $10.85, $8.25, $9.45, $28.05, $32.10, $34.20, $37.90, $37.95)
Closed down $.20 at $1.45
“Earnings” last week. Not good. Revenue fell to $6.3 million from $9.8 million last year and they lost about $1.6 million from operations compared to a profit of $368,000 last year. Cash fell to $.53 per share (about $4 million in total) and our valuation plunged to $8.04.
Inuvo (AMEX–INUV) announced in October they had agreed to buy VTRO in an all stock deal. The price is 1.546 shares of INUV for each share of VTRO. INUV was $1.75 when the deal was announced indicating a value of $2.71, but INUV shares have fallen to $1.07 making the value about $1.65. INUV has about $50 million in sales, 40% gross margins and is slightly EBITDA positive. Maybe 1 and 1 can make 3 here. Our valuation of INUV is $4.32. VTRO’s largest shareholder filed a 13D/a indicating he is not happy with this deal and included calculations indicating that VTRO could return $3.38-$4.39 a share to shareholders on a liquidation of the company.
Should have sold this when it traded over $6.
Down 80% HOLD

Angeion Corporation (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.13 (was $13.19, $13.60, $15.00, $13.06, $12.15, $11.29, $11.73, $11.47, $11.16, $9.53, $13.30, $13.03)
Closed down $.22 at $4.53
CEO bought 10,000 shares in September at $4.25. Good sign.
Earnings in August. Another lackluster quarter. Sales fell from $7.1 million to $6.8 million and they lost $81,000 or $.02 a share. Our valuation fell slightly to $13.13 and cash was $2.39 per share. If this company could just show a bit of growth I think we would see $10 in short order—if.
Blueline Partners still owns 7.6% of ANGN and ought to be pushing on the company to do something about the stock price.
Up 19%, BUY

OB-abies (Bulletin Board Listed Stocks)

As proven by OPTIO, patience is necessary with these stocks.

ARI Networks (ARIS.ob-Recommended 8/19/2006)
Buy price $1.61 (Was $1.78 before another $10,000 added, was $2.06 before double up),
Valuation $5.72 (was $5.65, $5.39, $4,86, $5.60, $5.73, $5.54, $5.74, $5.96, $4.72, $5.19, $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.29 up $.29
Hmm, in addition to earnings and all the other recent announcements, the CEO got an amendment to his “change of control” agreement. Wonder why they are reviewing these kind of agreements right now?
Earnings out in November. Good results, terrible press release, as you had to decode Q4 results from it. Sales were flat at $5.4 million and it looks like they made about $400,000 of operating income compared to an $800,000 operating loss last year. They reported net income of $.31 per share for the year, but on a normalized basis (excluding unusual gains and an income tax benefit) they made about $.12 a share pre-tax or about $.08 a share after tax. If they want to become a real public company, they are going to have to be more transparent in their press releases. Our valuation rose a bit to $5.72 a share.
ARIS announced in October that they had engaged a PR firm, saying their stock was undervalued and the business had great opportunities ahead.
ARIS filed an 8k in September with presentation materials for a “potential investor”. They talk about how they think their shares are undervalued. There may be some life here.
Management finally looks like it is waking up and trying to increase the share price. Got a long way to go yet though.
Now down 20%, BUY, Still a Huge valuation gap here.

Rand Worldwide (RWWI.ob (Was Avatech, AVSO.ob)-Bought November 28, 2005)
Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time),
Valuation $2.12 (was $2.60, $2.40, $1.90, $2.26 $3.07, $3.03, $2.38, $2.57, $2.81, $2.78, $3.30, $3.76, $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.69, down $.08
Next earnings due out Monday, November 14th before the market opens.
Earnings out in October. Not bad. Revenues were $23.3 million and they made $.01 per share. For the year they ended up with revenues of $89.2 million, 47% gross margins and they made $1.8 million or $.03 a share, after $1.9 million of one-time merger expenses. Not bad for a company with a market cap of $39 million. Our valuation dropped to $2.12 a share on the seasonal drop in revenues. Still more than 2X the current price.
Down 13%, HOLD

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $1.23 (Was $.91, $1.21, $.71, $.83, $.88 $.96, $.93, $.75, $.85, $1.57, $1.40, $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price $.09, closed at $.07.
One of their Directors, Michael Reinarts, filed a 13D last week disclosing a 9.5% ownership stake. There were no specific proposals in the filing. We’ll have to wait and see what happens here. We know the stock is ridiculously cheap, and filing a 13D usually precedes some type of activist position.
Earnings announced in August. Not bad at all. .Revenues increased from $3.578 million to $4 million and they only lost $.01 per share. The good news is that they got a $7 million prepayment on a big U.K. order and were able to pay off all their debt and end up with $4.65 million in net cash. This is $.16 a share—double the current trading price. VOIP revenues more than doubled to $461,000 from $197,000 last year and almost doubled from $246,000 last quarter. VOIP still lost $545,000 but the loss was $100,000 less than last year. Our valuation spiked back up to $1.23.
At a $2.5 million market cap, this is stupidly cheap. Their intellectual property is probably worth 10 times this price. They need to liquefy this value somehow.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value–or it could be a home run.
Still an “undercover” company and stock.
Down 67%. HOLD

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $1.68 (Was $1.80 before $10,000 adder, $2.16 before double-up)
NEW Valuation-$.85 (Was $1.05, $2.43, $4.11, $4.84, $4.98, $4.60, $3.82, $4.00, $3.68, $3.12, $3.98, $4.44, $3.22, $2.12, $4.56, $4.16)
Closed at $.34, up $.02.
Earnings last week. Revenues were up slightly over last year at $19 million versus $18.3 last year, but gross margins remained low and they made $2.1 million of $.04 per share compared to $.25 last year. Our valuation fell again to $.85.
We are now worried for the first time that with the decline in net income, that they may be having liquidity issues with all of their capital commitments. If this is going to work, it won’t be until 2012 that we see anything.
Down 80%, HOLD

Cheap Stocks, 11/4/2011 Update

We were down ½ % last week, better than the market averages.

Some of our stocks are just stupid cheap—compared to their cash on hand. Check this list:

Cash as % of Stock Price

RIMG 63%
EXTR 50%
PTIX 72%
GRVY 183%
BVSN 153%
CCUR 90%
MTSL 52%
SIGM 63%
ASTX 71%

Plus EXTR, RIMG, VTRO and MRVC.PK are all in “play” with activist shareholders either trying to get them to pay out special dividends or take them over.

Earnings reports for ASTX, ARIS, HPOL, EXTR, RIMG and CCUR last week.

We are now down 3.4% for the year. All of the damage comes from LTUS. Hopefully this will turn around in 2012.

The DOW was down 2% last week, NASDAQ was down 1.9% and the S+P 500 was down 2.5%. The Russell 3000 was down 2.3%.

AVSO, BVSN, CCUR, EXTR, MTSL and MITL are our favorites.

For the year, the DOW is up 3.5%, NASDAQ is up 1.3%, S+P 500 is down .4%, the Russell 3000 is down .9%

Last week we went 9 stocks up, 11 down and 2 unchanged. Since inception we are now 50 stocks up and 20 down for a 71% winning percentage (80% is our target win %).

Since our beginning, we have closed out the following positions:

2006-NTCT +44%
2006-ONXS +11% (Buyout offer)
2006-DTLK +41%
2006-CAW +21% (Buyout offer)
2007-IYXI.ob +44% (Buyout offer)
2007-MOBI +47% (Buyout offer)
2007-INFT +11% (Buyout offer)
2007-RITT +62%
2007-MIVA +55%
2007-DTLK +25% (2 weeks)
2007-PDLI + 3%
2007-QADI +25%
2007-CIMT +50%
2007-BDR +19%
2007-LINN.ob -57% (mortgage business bust didn’t help here)
2007-TISA -39% (take some tax loss for 2007 due to disappointing results.
2008-ANGN +26%
2008-OPTO.ob +40% (Buy-out offer)
2008-PDLI +9% (company split, and special dividend)
2008-BDAY -39% (long overdue takeover offer-or “take-under”)
2008-DTLK +40% (third trip on this one)
2008-ILOG +26% (Buy-out offer from IBM)
2008-PARL +56%
2009-MBRK +67%
2009-SNWL +14%
2009-CYNO +25%
2009-DTLK +33%
2009-NED +46%
2009-CUTR +13%
2009-HSTM +67% (continued good earnings)
2009-RNWK +36%
2009-OPK +116%
2009-CLZR -32% (a loser even on a buy-out)
2009-DTLK +28% (our 5th profitable trip on this one)
2010-HPOL +110%
2010-DIVX +25%
2010-CHRD +37% Buyout (2 weeks after we recommended it)
2010-HPOL +30%
2010-MGIC +82%
2010-GSL +78%
2010-CCEL +49%
2010-HPOL +27%
2010-CAW EVEN (excluding 2.5 years of dividends)
2011-DWCH +116%
2011-IPAS +15%
2011-PRM +56% Buyout (1 week after we recommended it)
2011-RST +12%
2011-NINE -10%

The model portfolio assumes $10,000 invested in each stock (unless we double-up–then it is $20,000), less $10 commission each way (TD Ameritrade rate).

For the 48 stocks that we closed out since 2006 (43 were winners) the average net gain was 37%.

MRV Communications (Pink Sheets-MRVC.pk)
Valuation-$3.09
Buy Price October 7, 2011-$1.27
Closed up $.05 at $1.36
The Singer/Miller group filed a 13D/a last week disclosing they had upped their combined stake to 7.7% and saying they think the company should return more capital to shareholders and that they would continue to monitor the situation.
Well we should receive the $.48 dividend next week (actually it goes ex-dividend on 14th) after they fumbled around on when the record date and ex-dividend date was. The drop in the stock when it goes ex-dividend will be the key here. They will still have another $75 million+ of cash and are profitable.
Chairman of the Board had resigned and the current CEO also resigned from the Board (but not as CEO). Two new Board members were appointed.
Up 7%

Sigma Designs Inc. (NASDAQ-SIGM)-Recommended 7/11/2011)
Buy Price-$8.49
Valuation $13.40 (Was $16.02)
Closed up $.13 at $8.58
Earnings out in August. Sales were down 23% to just under $47 million and they lost $22 million. Yuck. But it is not as bad as it seems. Cash and investments actually went up to $5.40 a share ($170 million) and if you exclude the GAAP non-cash BS and the inventory write down, the loss was “only” about $6 million. So we are trading at a market cap of about $65 million (excluding cash) for a $200 million a year chip company with 50% margins. Still pretty stupid we think. However, our valuation dived to $13.40, so we need to keep our eye on this one.
Up 1%, HOLD

Mitel Networks (NASDAQ-MITL)-Recommended 7/6/2011)
Buy Price- $3.04( Was $3.36 before $10,000 added, $3.95 before $10,000 added)
Valuation $14.04 (Was $10.39)
Closed down $.34 at $2.75
Earnings in August. Pretty good. Revenues were $164 million up from $160 million last year. Non-GAAP net income was $9.2 million or $.16 a share compared to $10.8 million and $.19 a share last year. They took a $4.8 million restructuring charge in the quarter, to they reported a loss of $2.8 million in the quarter.
Our valuation jumped to $14.04.
Down 21%, BUY

Rimage (NASDAQ-RIMG)-Recommended 5/24/2011)
Buy Price-$14.20
NEW Valuation $25.67 (Was $25.63, $26.45)
Closed up $.07 at $11.23
Earnings out last week. Revenues down from $23.4 million to $20.3 million. They made $1.5 million ($.16 per share vs. $.24 last year). Cash was $115 million or $12.14 per share (before the Qumu $39 million payment after the quarter end). Our valuation just on their Q3 performance actually increased a bit to $25.67. Looking at their guidance we estimate that our valuation will fall to about $22 next year. This is still a big enough value gap to hang onto the stock, collect the 6% dividend and see what this Qumu acquisition does.
They are projecting the combined company will generate more than 15% sales growth in 2012 and that cash flows will be about the same as 2011. Accordingly they upped the quarterly dividend to $.17 per share.
After the Qumu payment they will have about $75 million in cash, or over $7 a share. Not too shabby.
Arcadia sent a letter to Rimage on September 12th, again asking for the $9 dividend and making vague threats of doing something. Not clear what exactly. Oust the CEO, make a tender offer are among the possibilities we guess. We are not sure what they will do now that the company bought Qumu.
Down 20%, HOLD

Lexmark International (NYSE-LXK)-Recommended 5/24/2011)
Buy Price-$28.80
Valuation $63.84 (Was $79.12, $63.99)
Closed up $.66 at $33.35
LXK announced in October that they will start paying a $1 annual dividend. This and earning helped drive the stock up $3.
Earnings in October. Pretty good. Revenue was up 1% to $1.035 billion and EPS was $.86 per share versus $.90 last year. Q4 projection is for EPS of $1.02 to $1.12 so they expect to comfortably earn over $4 a share this year on a GAAP basis and about $4.60 per share on a Non-GAAP basis. Net cash fell by $125 million as they bought this much back in LXK stock during the quarter and expect to buy back a similar amount in Q4. Net cash is $7.34 per share. Our valuation fell back to $63.84 on the decline in cash, a drop in margins and net income. Still trading at about 50% of our valuation and spewing cash.
This would normally be a “buy” with such a huge discount to our valuation, but the vagaries on the stock analysts make us cautious.
Up 16%, HOLD

MER Telemanagement (NASDAQ-MTSL)-Recommended 5/17/2011)
Buy Price-$1.42 (Was $1.50 before adding another $10,000 investment)
Valuation $5.61 (Was $5.11)
Closed unhanged at $1.21
MER announced a contract extension in August of $2.5 million (minimum). This is almost 50% of MER’s entire market cap.
Earnings in August. Not bad. Sales were just over $3 million and they made over $200,000 or $.05 a share. For the six months they have made $.08 a share (untaxed of course). So MTSL is trading at about 8X untaxed annualized earnings. Oh yeah, they have $.63 a share in cash also (up from $.60 last quarter). Our valuation jumped to $5.61 per share.
Down 15% BUY

Harris Interactive (NASDAQ-HPOL)-Recommended 3/3/2010)
Buy Price-$.92
NEW Valuation $2.90 (Was $3.11, $2.63, $2.97)
Closed at $.72, up $.10
Earnings last week. Revenues actually increased to $38.3 million from $37 million. HPOL lost $6 million after a $6.8 million restructuring charge which had been warned of ahead of time. Net cash actually rose to almost $3 million and our valuation dropped back to $2.90 a share on the seasonal drop in revenues ($2.57 last year). Overall, not bad considering they are in the middle of a major restructuring effort.
Down 22%, HOLD

Concurrent Computer (NASDAQ-CCUR)-Recommended 2/4/2011)
Buy Price-$5.08
NEW Valuation $11.38 (was $14.04, $18.54, $15.99)
Closed down $.29 at $3.90
Earnings last week. Nothing to write home about. Sales fell to $12.9 million from $15.5 million last year and they lost $2.6 million versus $1.2 million last year. Cash fell to $3.50 a share and our valuation fell to $11.38. Hopefully with all the new deals they have announced this year, this decline in value will turnaround soon. We are switching to a HOLD here from a BUY.
They are presenting at a Wells Fargo investor conference on November 9th. Would not think they would do this if things were not going in a positive direction, at least from a business perspective.
In April the company announced that it would not do the stock buy back that Skellig was suggesting. We don’t like buy backs anyway. Hopefully Skellig will keep pushing management to get the share price up. Their ownership is up to 5.86%.
Down 23%, HOLD

Astex Pharmaceuticals Inc. (Was SuperGen Inc.) (NASDAQ-ASTX)-Recommended 10/4/2010)
Buy Price-$2.31 (was $2.09 before adding $10,000)
NEW Valuation $3.42 (was $3.11, $5.21, $4.89, $4.37, $3.48)
Closed down $.10 at $1.95
Earnings out last week. Sales rose to almost $17 million from $13.4 million last year and they lost $3.4 million before taxes. But this loss was after almost $8 million of acquisition expenses and stock based compensation. Cash ended up at $128 million or $1.28 a share. Our valuation rose to $3.42 a share.
As we said before, the merger with the revenue poor Astex hurt our valuation which does not take into account the massive drug pipeline of Astex. It is not easy to find a small drug company that has a pile of cash, is not losing a ton of money and is trading at even close to our valuation.
There are $2 BILLION of potential milestone payments down the road.
Down 15%, HOLD

Performance Technology (PTIX-Recommended 3/30/2010)
Buy Price-$2.70
Valuation $4.87-(was $4.99, $3.79, $3.87, $5.03, $5.98, $7.13)
Closed down $.15 at $1.70
Next earnings due out Thursday, November 10th after the market close.
Earnings out in August. Sales up 15% to $8.5 million and they made $300,000 on a non-GAAP basis. Not bad at all. Cash is $1.23 a share and our valuation fell a tad to $4.87
We think we will hold on to this one a bit longer and see if they can get to a consistent profit.
Down 37%, HOLD

Extreme Networks (EXTR-Recommended 3/22/2010)
Buy Price-$3.18 (Was $3.04 before adding another $10,000)
NEW Valuation-$6.72 (was $6.45, $5.67, $7.36, $7.23, $7.31, $6.82, $6.81)
Closed down $.11 at $2.98
Earnings out last week. Sales fell from $84 million to $79 million and they made $1.6 million ($.02 a share) versus $2.7 million ($.03 a share) last year. On a non-GAAP basis they made $4.4 million versus $4.8 million last year. Margins rose from 46% last quarter to 55% this quarter and they had $141 million or $1.50 in cash per share. Our valuation rose to $6.72.
Starboard was cleared to buy up to 15% of EXTR as disclosed in an SEC filing in June.
Starboard Value Fund filed another 13D/A in June disclosing that they had upped their stake again to 9.6%.
Down 6%, BUY

Broadvision (BVSN-Recommended 3/16/2010)
Buy Price-$10.84 (Was $13.50 before double up)
Valuation $17.75-(was $18.01, $21.21, $22.95, $22.31, $21.77, $23.37, $27.15)
Closed down $.10 at $8.25.
“Earnings” out in October Sales fell YOY from $5.2 million to $4.2 million and they lost $1.6 million for the quarter. Although the CEO said they were pleased with the progress they are making, no on else is. Cash fell to $12.61 per share and our valuation slipped a bit to $17.75.
Marlin filed a 13D/A in late October saying that the company had REJECTED it’s offer to buy it and that they had reduced their ownership to about 3.3% through market sales of the stock (just under 100,000 shares sold. We have to assume the offer was for more that the cash value on the company’s books.
Marlin Capital Investment filed a 13D in October saying that they sent a letter to the company on October 4th saying they wanted to buy the company. They bought 248,000 shares on September 16th (at $8.50 a share) as reported in their Form 13g in September. Finally somebody has noticed how cheap this is!
Without the fact that BVSN is trading at less than cash, we would likely sell BVSN but will hold on another quarter or two and see if they can produce some decent results.
Down 24%, BUY

Gravity Company Ltd. (GRVY-Recommended 1/18/2010)
Buy Price- $1.45 (Was $1.68 before double up)
Valuation $5.33-(Was $5.61, $5.73, $4.38, $4.44, $5.15)
Closed down $.03 at $1.15
Now trading at $.95 less than cash value. And they are profitable.
June quarterly earnings out in August. Revenues were just under $14 million and they made $.06 a share. Only fly in the ointment was that Ragnarok 2 is delayed until at least Q1 2012. Cash per share rose to $2.10.
Our valuation fell a bit to $5.33 on some margin compression, but at less than cash value and 22% of our valuation this is one good lottery ticket if they ever release Ragnarok 2.
Down 21%, HOLD

AEterna Zentaris (AEZS-Recommended 6/20/2009)
Buy price $1.42 (was $1.78 before adding another $10,000, $1.82 before double up)
Valuation –Speculation.
Closed down $.14 at $1.61
Next earnings due out on Thursday, November 10th before the market opens.
Earnings announced in August. Revenues were up about $900,000 to $6.5 million and their operating loss was about $8 million (compared to $15 million loss last year). AEZS has been diligently selling shares under their announced programs and have about $53 million in cash (but close to 100 million shares outstanding). This is pretty normal for a developing drug company.
Speculative for sure.
Up 13%, HOLD

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $5.68 (was $8.90, $9.40 before adding $10,000, and was $10.65 before double up),
Valuation –$12.00 (was $10)
Closed down $.56 at $7.38
Earnings out in October. Mediocre again. Revenues were up nicely to $32.1 million (up 9% YOY), but they again made no money (ok, $109,000 or $0 per share). Included in net income was the charge for the recently lost litigation of over $800,000.
Cash rose to $36.2 million. We upped our valuation to $12.
This company needs to be sold so that someone can take advantage of their 70%+ gross margins and enjoy some profits.
Paragon filed a 13D/A in May disclosing they had upped their stake to 7%.
Up 30%, HOLD

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up)
NEW Valuation $17.96 (was $18.34, $16.07, $15.04, $14.23, $15.02, $14.35, $12.13, $12.57, $12.29, $11.90, $11.30, $11.48, $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Closed up $.80 at $13.25
Another good earnings report last week. Revenues up 24% to $15.5 million and they made $.18 per share compared to $.13 last year (up 38%). Cash rose to $4.20 a share. Our valuation fell a bit to $17.96 but up from $14.23 last year.
Constellation resumed selling in early September.
We give up on the sale of the company anytime soon.
Constellation Software owns 21.8%, but put itself up for sale this year. Should have bought Constellation stock, it has tripled since they got into MEDW!
All we read is that medical records will be a hot area, so MEDW looks like the place to be.
Up 109%, HOLD

Vertro (VTRO (was-MIVA)-Recommended 10/21/2007)
Buy Price $8.15 (Was $11.90 before adding another $20,000, $13.10 before another $10,000 and was $15.00 before double up),
Valuation $10.91 (was $12.42, $14.23, $14.76, $12.40, $12.55, $10.85, $8.25, $9.45, $28.05, $32.10, $34.20, $37.90, $37.95)
Closed down $.14 at $1.65
Next earings due out on Wednesday, November 9th, after the market close.
Inuvo (AMEX–INUV) announced in October they had agreed to buy VTRO in an all stock deal. The price is 1.546 shares of INUV for each share of VTRO. INUV was $1.75 when the deal was announced indicating a value of $2.71, but INUV shares have fallen to $1.07 making the value about $1.65. INUV has about $50 million in sales, 40% gross margins and is slightly EBITDA positive. Maybe 1 and 1 can make 3 here. Our valuation of INUV is $4.32. VTRO’s largest shareholder filed a 13D/a indicating he is not happy with this deal and included calculations indicating that VTRO could return $3.38-$4.39 a share to shareholders on a liquidation of the company.
Earnings announced in August. Not great. Sales were down $1 million from last year to $7.5 million and they lost $300,000 ($.05 per share).
Should have sold this when it traded over $6. Our valuation fell to $10.91 and cash per share fell to $.67.
Down 80% HOLD

Angeion Corporation (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.13 (was $13.19, $13.60, $15.00, $13.06, $12.15, $11.29, $11.73, $11.47, $11.16, $9.53, $13.30, $13.03)
Closed up $.01 at $4.75
CEO bought 10,000 shares in September at $4.25. Good sign.
Earnings in August. Another lackluster quarter. Sales fell from $7.1 million to $6.8 million and they lost $81,000 or $.02 a share. Our valuation fell slightly to $13.13 and cash was $2.39 per share. If this company could just show a bit of growth I think we would see $10 in short order—if.
Blueline Partners still owns 7.6% of ANGN and ought to be pushing on the company to do something about the stock price.
Up 24%, BUY

OB-abies (Bulletin Board Listed Stocks)

As proven by OPTIO, patience is necessary with these stocks.

ARI Networks (ARIS.ob-Recommended 8/19/2006)
Buy price $1.61 (Was $1.78 before another $10,000 added, was $2.06 before double up),
NEW Valuation $5.72 (was $5.65, $5.39, $4,86, $5.60, $5.73, $5.54, $5.74, $5.96, $4.72, $5.19, $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.00 up $.20
Hmm, in addition to earnings and all the other recent announcements, the CEO got an amendment to his “change of control” agreement. Wonder why they are reviewing these kind of agreements right now?
Earnings out last week. Good results, terrible press release, as you had to decode Q4 results from it. Sales were flat at $5.4 million and it looks like they made about $400,000 of operating income compared to an $800,000 operating loss last year. They reported net income of $.31 per share for the year, but on a normalized basis (excluding unusual gains and an income tax benefit) they made about $.12 a share pre-tax or about $.08 a share after tax. If they want to become a real public company, they are going to have to be more transparent in their press releases. Our valuation rose a bit to $5.72 a share.
ARIS announced in October that they had engaged a PR firm, saying their stock was undervalued and the business had great opportunities ahead.
ARIS filed an 8k in September with presentation materials for a “potential investor”. They talk about how they think their shares are undervalued. There may be some life here.
Management finally looks like it is waking up and trying to increase the share price. Got a long way to go yet though.
Now down 38%, BUY, Still a Huge valuation gap here.

Rand Worldwide (RWWI.ob (Was Avatech, AVSO.ob)-Bought November 28, 2005)
Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time),
Valuation $2.12 (was $2.60, $2.40, $1.90, $2.26 $3.07, $3.03, $2.38, $2.57, $2.81, $2.78, $3.30, $3.76, $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.77, up $.03
Next earnings due out Monday, November 14th before the market opens.
Earnings out in October. Not bad. Revenues were $23.3 million and they made $.01 per share. For the year they ended up with revenues of $89.2 million, 47% gross margins and they made $1.8 million or $.03 a share, after $1.9 million of one-time merger expenses. Not bad for a company with a market cap of $39 million. Our valuation dropped to $2.12 a share on the seasonal drop in revenues. Still more than 2X the current price.
Down 3%, HOLD

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
Valuation $1.23 (Was $.91, $1.21, $.71, $.83, $.88 $.96, $.93, $.75, $.85, $1.57, $1.40, $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price $.09, closed at $.07.
One of their Directors, Michael Reinarts, bought 2.4 million shares on October 31st at $.095 a share—from another Director. Not sure what to make of this. But Reinarts now owns 2.7 million shares, or just a bit under 10% of the company.
CEO bought more shares in September, about 40,000 in total.
One of CTI’s directors bought 254,000 shares in August and the CEO bought 38,000 more. Finally, some trading activity!
Earnings announced in August. Not bad at all. .Revenues increased from $3.578 million to $4 million and they only lost $.01 per share. The good news is that they got a $7 million prepayment on a big U.K. order and were able to pay off all their debt and end up with $4.65 million in net cash. This is $.16 a share—double the current trading price. VOIP revenues more than doubled to $461,000 from $197,000 last year and almost doubled from $246,000 last quarter. VOIP still lost $545,000 but the loss was $100,000 less than last year. Our valuation spiked back up to $1.23.
At a $2.5 million market cap, this is stupidly cheap. Their intellectual property is probably worth 10 times this price. They need to liquefy this value somehow.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value–or it could be a home run.
Still an “undercover” company and stock.
Down 67%. HOLD

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $1.68 (Was $1.80 before $10,000 adder, $2.16 before double-up)
Valuation-$1.05 (Was $2.43, $4.11, $4.84, $4.98, $4.60, $3.82, $4.00, $3.68, $3.12, $3.98, $4.44, $3.22, $2.12, $4.56, $4.16)
Closed at $.32, down $.01.
Last earnings report in August. Sales were down $200,000 to $18.7 million and they made $.06 a share compared to $.24 last year. Our valuation plunged to $1.05 per share on margin and income declines. Gross margins fell to 26% from 48% last year. We are now worried for the first time that with the decline in net income, that they may be having liquidity issues with all of their capital commitments. If this is going to work, it won’t be until 2012 that we see anything.
Down 81%, HOLD