More of the same. Pretty discouraging for sure. Mutual Fund liquidation, hedge fund, personal fund liquidations, margin calls, tax selling, Q4 earnings warnings.

The DOW was down 5.0%, NASDAQ 7.9% and and S+P 500 6.2%. For the year the DOW is now down 36%, NASDAQ 43% and the S+P 500 is down 41%. The Russell 3000 and the Wilshire 5000 are also down about 41% this year.

We had a 9.3% loss last week and are down 46% for the year. 2/3’s of the loss came from AVSO.ob and ARIS.ob taking 30% hits and MIVA getting whacked 40%— on decent earnings in the case of AVSO and no news in the cases of ARIS and MIVA.

There are a ton of values out there, that, if you assume that our economy will not implode, are once in a lifetime values.

Last week we went 4 stocks up, and 16 down and 2 even. Since inception we are now 23 stocks up, 21 down and 1 even.

Since inception 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%

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 23 stocks that we closed out in 2006, 2007 and 2008 the average gain was 22%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Down $.37 to $2.26.
They are still predicting at least $107 million in sales for the year, which means Q4will be over $27 million in sales. At the current $72 million market-cap, SPNC is trading at a little over 25% of sales, net of $44 million in cash. Cash includes $16 million of auction-rate securities. Based on what we have been reading, these “investments” will likely turn out OK.
SPNC is suffering from the FDA, ICE raids that apparently eminated from an ex-employee whistle-blower trying to collect so money from the company. Over the last couple of weeks the bottom feeding securities lawyers decided to target the company’s cash hoard too. Now the CEO has resigned. Perfect storm.
SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
The company has $44 million in cash ($1.30 per share), no debt and is trading at about 25% of 2008 revenues (net of cash)and is growing about 25% a year.
Now down 75%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $2.41 (was $3.02 before adding another $10,000,was $3.21 before adding another $10,000, averaged down from $3.66),
Valuation $8.64 (was $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.00, down $.15.
They have $.75 a share in cash and are profitable.
Earnings out Thursday, Nov. 20, before the open
Trading at a measly 12% of our valuation.
Now down 58%. BUY

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up)
Valuation $11.48 (was $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Up $.07 at $4.85.
Cannell Capital filed a 13D on February 19th, disclosing a 12.9% ownership stake. Cannell is pushing MEDW management to sell the company. Meanwhile, Constellation Software, a Canadian public company that has been on an acquisition binge filed a 13D in April, disclosing a 6.1% ownership in MEDW (499,000 shares). Constellation has $243 million in revenues and is profitable.
In early May, Constellation increased its bank credit line to $105 million from $50 million.
On November 14th, Constellation filed a 13D/A. One of their subsidiary officers bought over 300,000 MEDW shares in October, bringing their combined owership in MEDW to 17.9%
Looks like something is going to happen here–but when?
Down 23%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $5.88 (was $8.63, $9.90, $8.69, $11.51)
Down $.02 to $.39
Earnings out in mid September. Sales down 24% and they lost $7 million pre-tax. Still have $1.29 per share in cash, but burning through it. New valuation is $5.88 per share. They hired an investment banker to sell the company. We’ll see. Maybe Palomar will buy it to cut both there legal fees ($3.2 million this quarter for CLZR).
Down 89%. HOLD, we may get lucky and this thing will be sold for North of $1.

MIVA. (MIVA-Recommended 10/21/2007)
Buy Price $1.63 (Was $2.38 before adding another $20,000, $2.62 before another $10,000 and was $3.00 before double up),
Valuation $5.61 (was $6.42, $6.84, $7.58, $7.59)
Down $.18 to $.27.
Blinkx, a U.K. company made an all cash offer to buy MIVA in early August for $1.20. MIVA rejected the offer almost immediately saying it was too low and they think they can do better.
They better, or there will be shareholder lawsuits on this one.
Even though MIVA is a money losing mess, they are at such a low price to valuation that we will hold for another quarter. Hopefully we get a better take-over offer above our cost basis.
MIVA issued a press release in early October. Looks like they may be in active discussions to sell the company. Not a great environment to sell–but there is some hope.
Trading at 5% of our latest valuation
Down 84%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.79 (was $1.82 before adding $10,000, $2.02 before $10,000 added and $2.15 before double up),
Valuation $4.66 (Was $6.00, $5.96)
No change at $.97.
Earnings out in October, not great. Sales down 9% and they had an operating loss of $3.5 million compared to an operating profit of $1.6 million last year. Basically they failed to cut expenses as the $5 million decline in sales, dropped directly to the bottom line. This is likely why they hired a new CEO and pledged to cut expenses.
Finaciere De Sainte Marine, is a big investor in HPOL. They now own 7,779,000 shares up from 6,640,381 shares just a few months ago, or just over 14% of the company.
Trading at 16% of our valuation.
Down 45%. BUY

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.90 (Was $2.07 before another $10,000 added and $2.15 before double up), Valuation $4.99 (was $4.30, $4.09)
Down $.03 to $1.60.
Earnings out in early November. Not bad. Sales were flat (dial-up revenues dropped only $600,00 and they had a non-GAAP profit of $500,000–down from $700,000 last year. They still have $1.10 per share in cash. They also announced that they were no longer considering selling the company–rats! New CEO announced also. On the conference call, the old CEO was very curt to Foxhill’s pointed questions. Our valuation rose however to $4.99 a share from $4.30.
Foxhill has been buying more shares (13D/A filed in September for another 272,000 shares). Foxhill now owns 3,844,000 shares or 6.1% of IPASS.
With $1.10 per share in cash (75% of market cap), we feel that this has little additional downside.
Down 16%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.62 (Was $4.42)
Up $.47 at $2.75.
Company buying back shares, insiders buying shares–what’s up here. Up 21% in a crap market. No news though
Up 15%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$5.51 (was $6.14 before $10,000 added, $6.66 before $10,000 added, $7.00 before $10,000 added) (10.8% dividend yield)
Valuation $17.23 (Was $18.36)
Down $.44 to $4.05.
No news.
Down 27%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
Buy Price-$1.93 (was $2.08 before another $10,000 added, $2.00 before $10,000 added at $2.16)
NEW Valuation $4.18 (was $4.15)
Closed up $.30 at $1.60
Earnings out last week. Not bad. Revenues up 8% to $15.8 million, non-GAAP EPS of $.06 per share. $1.02 in cash also. Our valuation moved up slightly to $4.18 per share.
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September. They added 569,000 shares to their position between May and August and now hold 17,605,000 shares of MGIC or 55.4%. FORTY is a long-term investor, but this is a good sign of course.
Down 17%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.03
Closed down $.19 at $3.50
Has $1.80 per share in cash.
Blueline Partners filed a 13D on ANGN on June 23. They own 216,000 shares or about 5.3% of the company. All of their purchases were well North of the current price.
No news.
Down 9%. HOLD

Noah Educational. (NED-Recommended 10/5/2008)
Buy Price-$3.03 (was $3.00 before $10,000 added)
Valuation $13.03
Closed down $.37 at $2.16
Still trading at below cash value of $3.62 and profitable. Current valuation is pretty stupid unless there is something that hasn’t been announced by the company.
Earnings out Nov. 20th before the open.
Down 29%. BUY

Datalink . (DTLK-Recommended 10/12/2008)
Buy Price-$3.02
Valuation $10.26
Closed up $.05 at $2.94
Cash is $2.08 per share–70% of the current market cap.
Down 3%. BUY

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price-$3.69
Valuation NA-Dividend yield play
Closed down $.31 at $3.00
Current dividend yield–31%
Earnings last week were fine. Fleet utilization is still 98%. Their average ship charter life is around 10 years and the closest-in renewal is at the end of 2012. By then, you will have collected more than the current share price in dividends.
Down 19%. BUY

Middlebrook Pharmaceutical. (MBRK-Recommended 10/12/2008)
Buy Price-$1.16
Valuation-NA-Speculation
Closed down $.11 at $1.26
“Earnings” out last week. $2 million in sales and $12 million loss and $83 million of cash left. They expect 2009 sales to be about $40 million and will lose money. Some possibility of profits in 2010 and they think they have enough cash to last until then. Again, this is a speculation. Increased sales in 2009 will drive this stock.
New management and capital investment at $3.90 a share.
Up 9%. HOLD

SonicWALL. (SNWL-Recommended 10/20/2008)
Buy Price-$4.50
Valuation-$11.09(Was $10.44)
Closed down $.53 at $3.46
$3.02 cash per share.
No news.
Down 23%. HOLD

Cynosure. (SNWL-Recommended 10/29/2008)
Buy Price-$9.10
Valuation-$29.49
Closed down $.67 at $8.40
CYNO has $7.33 per share in cash–87% of its market-cap. Cheap.
Down 8%. HOLD

Cutera. (CUTR-Recommended 10/29/2008)
Buy Price-$7.88
Valuation-$ 18.88 (Was $21.07)
Closed up $.31 at $8.71
Earnings out in early November. Not good. Sales down 32% to $19.1 million. They actually had positive operating earnings of just over $100,000 (adding back $1.3 million of stock compensation BS). Pretty amazing operating performance considering the sales drop.
Cash per share rose to $8.56 per share. Our valuation fell to $18.88 per share.
We think that given the low valuations in this sector, that consolidation is just around the corner. Too much cash, high margins and a declining economy.
Up 11%. HOLD

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 $5.66 (was $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $.65, down $.30.
One trade on Friday of 8,500 share took this down 32%. Tax loss/liquidity selling we think.
Earnings announced late October. Sales up 5% and they made $.05 per share. Pre-tax loss was $204,000 versus $180,000 last year. Even so, our valuation moved up to $5.66from $5.63 per share. This is still way too cheap.
Wake up management–you have a great little company here worth 3X what it is selling for.
Now down 60%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time),
NEW Valuation $3.30 (was $3.76, $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.45, down $.29.
Earnings out last week. Sales down 13%, but they remained profitable. Made $.01 versus $.02 last year. Our valuation fell to “only” $3.30 a share. Stock fell 39% last week. Illiquid, tax-loss selling we think.
Trading at only 13% of our valuation.
Down 43%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask,
NEW Valuation $1.40 (Was $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price unchanged at $.09. Closed at $.07.
Earnings out last week. Nobody cared.
Their VOIP business continues to struggle and lose money–$604,000 in the last quarter–but they did have some revenues–$38,000!
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value.
Including a $2.85 million patent settlement gain, CTI earned $.05 in the quarter and $.03 for the nine months.
Even excluding the net patent gain, they had positive operating income for the quarter–despite the VOIP loss. Our valuation rose to $1.40
Still an “undercover” company and stock.
This is still trading at only 6% of our latest valuation.
Down 67%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up)
NEW Valuation-$2.22 (Was $1.61, $2.28, $2.08)
Closed at $.35, down $.02
10Q filed on Friday (conference call not till this coming Tuesday though).
Sales were up marginally to $16.7 million from $16.6 million LY and they made $.07 per share versus $.05 last year. For the 9 months, EPS is $.13 per share. So looks like we are selling at a bit over 2X earnings. Our valuation spiked back up to $2.22. Hmmm. Unusual legal structure, $70 million factory plan, $17 million land deposit all hang over this company. Stock market stinks, Chinese stocks maybe even worse than most.
Down 58%. HOLD

Back to “normal” another down week. Mutual Fund liquidation, hedge fund, personal fund liquidations, margin calls, tax selling, Q4 earnings warnings.

The markets dived after election day giving up around 900 points in 2 days, before coming back 250 point on Friday.

The DOW was down 4.1%, NASDAQ 4.3% and and S+P 500 3.9%. For the year the DOW is now down 33%, NASDAQ 38% and the S+P 500 is down 37%. The Russell 3000 and the Wilshire 5000 are also down about 37% this year.

We had a 1.2% loss last week and are down 36% for the year.

There are a ton of values out there, that, if you assume that our economy will not implode, are once in a lifetime values.

Last week we went 8 stocks up, and 12 down and 2 even. Since inception we are now 23 stocks up, 21 down and 1 even.

Since inception 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%

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 23 stocks that we closed out in 2006, 2007 and 2008 the average gain was 22%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Down $.37 to $2.63.
They are still predicting at least $107 million in sales for the year, which means Q4will be over $27 million in sales. At the current $85 million market-cap, SPNC is trading at a little over 50% of sales, net of $44 million in cash. Cash includes $16 million of auction-rate securities (shame on the CFO). Based on what we have been reading, these “investments” will likely turn out OK.
SPNC is suffering from the FDA, ICE raids that apparently eminated from an ex-employee whistle-blower trying to collect so money from the company. Over the last couple of weeks the bottom feeding securities lawyers decided to target the company’s cash hoard too. Now the CEO has resigned. Perfect storm.
SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
The company has $44 million in cash ($1.30 per share), no debt and is trading at about 1/2 times 2008 revenues (net of cash)and is growing about 25% a year.
Now down 71%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $2.41 (was $3.02 before adding another $10,000,was $3.21 before adding another $10,000, averaged down from $3.66),
Valuation $8.64 (was $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.15, down $.19.
They have $.75 a share in cash and are profitable.
Earnings out Thursday, Nov. 20, before the open
Trading at a measly 15% of our valuation.
Now down 52%. BUY

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up)
Valuation $11.48 (was $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Up $.80 at $4.78.
Cannell Capital filed a 13D on February 19th, disclosing a 12.9% ownership stake. Cannell is pushing MEDW management to sell the company. Meanwhile, Constellation Software, a Canadian public company that has been on an acquisition binge filed a 13D in April, disclosing a 6.1% ownership in MEDW (499,000 shares). Constellation has $243 million in revenues and is profitable.
In early May, Constellation increased its bank credit line to $105 million from $50 million.
On May 21 Constellation purchased another 586,000 shares of MEDW at prices from $5.43to $5.70 (most at $5.70). So Constellation now owns 1,056,000 shares–13.9%.
Cannell sold some MEDW (about 175,000 shares at about $5.60 to $5.80) but still holds 875,000 shares or 11.5%.
Looks like something is going to happen here–but when?
Down 25%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $5.88 (was $8.63, $9.90, $8.69, $11.51)
Down $.27 to $.41
Earnings out in mid September. Sales down 24% and they lost $7 million pre-tax. Still have $1.29 per share in cash, but burning through it. New valuation is $5.88 per share. They hired an investment banker to sell the company. We’ll see. Maybe Palomar will buy it to cut both there legal fees ($3.2 million this quarter for CLZR).
Down 89%. HOLD, we may get lucky and this thing will be sold for North of $1.

MIVA. (MIVA-Recommended 10/21/2007)
Buy Price $1.63 (Was $2.38 before adding another $20,000, $2.62 before another $10,000 and was $3.00 before double up),
Valuation $5.61 (was $6.42, $6.84, $7.58, $7.59)
Up $.06 to $.45.
Blinkx, a U.K. company made an all cash offer to buy MIVA in early August for $1.20. MIVA rejected the offer almost immediately saying it was too low and they think they can do better.
They better, or there will be shareholder lawsuits on this one.
Even though MIVA is a money losing mess, they are at such a low price to valuation that we will hold for another quarter. Hopefully we get a better take-over offer above our cost basis.
MIVA issued a press release in early October. Looks like they may be in active discussions to sell the company. Not a great environment to sell–but there is some hope.
Trading at 8% of our latest valuation
Down 73%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.79 (was $1.82 before adding $10,000, $2.02 before $10,000 added and $2.15 before double up),
Valuation $4.66 (Was $6.00, $5.96)
Down $.19 to $.97.
Earnings out in October, not great. Sales down 9% and they had an operating loss of $3.5 million compared to an operating profit of $1.6 million last year. Basically they failed to cut expenses as the $5 million decline in sales, dropped directly to the bottom line. This is likely why they hired a new CEO and pledged to cut expenses.
Finaciere De Sainte Marine, is a big investor in HPOL. They now own 7,779,000 shares up from 6,640,381 shares just a few months ago, or just over 14% of the company.
Trading at 16% of our valuation.
Down 45%. BUY

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.90 (Was $2.07 before another $10,000 added and $2.15 before double up), NEW Valuation $4.99 (was $4.30, $4.09)
Down $.27 to $1.63.
Earnings out last week. Not bad. Sales were flat (dial-up revenues dropped only $600,00 and they had a non-GAAP profit of $500,000–down from $700,000 last year. They still have $1.10 per share in cash. They also announced that they were no longer considering selling the company–rats! New CEO announced also. On the conference call, the old CEO was very curt to Foxhills pointed questions. Our valuation rose however to $4.99 a share from $4.30.
Foxhill has been buying more shares (13D/A filed in September for another 272,000 shares). Foxhill now owns 3,844,000 shares or 6.1% of IPASS.
With $1.10 per share in cash (75% of market cap), we feel that this has little additional downside.
Down 14%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.62 (Was $4.42)
Up $.03 at $2.28.
No news.
Down 5%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$5.51 (was $6.14 before $10,000 added, $6.66 before $10,000 added, $7.00 before $10,000 added) (9.8% dividend yield)
Valuation $17.23 (Was $18.36)
Down $.01 to $4.49.
Down 19%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
Buy Price-$1.93 (was $2.08 before another $10,000 added, $2.00 before $10,000 added at $2.16)
Valuation $4.15
Closed up $.26 at $1.90
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September. They added 569,000 shares to their position between May and August and now hold 17,605,000 shares of MGIC or 55.4%. FORTY is a long-term investor, but this is a good sign of course.
Earnings out November 10th, before the market opens.
Down 1%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.03
Closed down $.16 at $3.69
Blueline Partners filed a 13D on ANGN on June 23. They own 216,000 shares or about 5.3% of the company. All of their purchases were well North of the current price.
No news.
Down 4%. HOLD

Noah Educational. (NED-Recommended 10/5/2008)
Buy Price-$3.03 (was $3.00 before $10,000 added)
Valuation $13.03
Closed down $.07 at $2.53
Still trading at below cash value of $3.62 and profitable.
Earnings out Nov. 20th before the open.
Down 16%. BUY

Datalink . (DTLK-Recommended 10/12/2008)
Buy Price-$3.02
Valuation $10.26
Closed down $.19 at $2.89
Cash is $2.08 per share–72% of the current market cap.
Down 4%. BUY

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price-$3.69
Valuation NA-Dividend yield play
Closed up $.23 at $3.31
Current dividend yield–28%
Earnings out Thursday, November 13th, before the open.
Down 10%. BUY

Middlebrook Pharmaceutical. (MBRK-Recommended 10/12/2008)
Buy Price-$1.16
Valuation-NA-Speculation
Closed up $.02 at $1.37
New management and capital investment at $3.90 a share.
Earnings out Thursday, November 13th, before the open
Up 16%. HOLD

SonicWALL. (SNWL-Recommended 10/20/2008)
Buy Price-$4.50
Valuation-$11.09(Was $10.44)
Closed down $.49 at $3.99
$3.02 cash per share.
No news.
Down 1%. HOLD

Cynosure. (SNWL-Recommended 10/29/2008)
Buy Price-$9.10
Valuation-$29.49
Closed up $.31 at $9.07
CYNO has $7.33 per share in cash–76% of its market-cap. Cheap.
Down less than 1%. HOLD

Cutera. (CUTR-Recommended 10/29/2008)
Buy Price-$7.88
NEW Valuation-$ 18.88 (Was $21.07)
Closed down $.11 at $8.40
Earnings last week. Not good. Sales down 32% to $19.1 million. They actually had positive operating earnings of just over $100,000 (adding back $1.3 million of stock compensation BS). Pretty amazing operating performance considering the sales drop.
Cash per share rose to $8.56 per share. Our valuation fell to $18.88 per share.
We think that given the low valuations in this sector, that consolidation is just around the corner. Too much cash, high margins and a declining economy.
Up 7%. 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 $5.66 (was $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $.95, unchanged.
Earnings announced late October. Sales up 5% and they made $.05 per share. Pre-tax loss was $204,000 versus $180,000 last year. Even so, our valuation moved up to $5.66from $5.63 per share. This is still way too cheap.
Wake up management–you have a great little company here worth 3X what it is selling for.
Now down 41%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time),
Valuation $3.76 (was $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.74, unchanged.
Trading at only 20% of our valuation.
Earnings out next Friday (14th) before the market opens.
Down 7%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, Valuation $1.29 (Was $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price down $.01 at $.09. Closed at $.09.
Their VOIP business continues to struggle and lose money–$707,000 in the last quarter. Gross margin % held steady at about 75%.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value.
CTIG issued a very positive press release in early October. Hopefully there is some substance to their touting their VOIP business. We’ll see.
Still an “undercover” company and stock.
This is still trading at only 9% of our latest valuation.
Down 67%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up) Valuation-$1.61 (Was $2.28, $2.08)
Closed at $.37, up $.05
LTUS is actually presenting at Rodman & Renshaws conference on Tuesday. Hopefully it will be more organized than the last conference call.
Our only solace is that all Chinese stocks have been hammered also.
Down 56%. HOLD

Finally a good week overall, but still lots of uncertainty out there, and still plenty of choppiness ahead. Mutual Fund liquidation, margin calls, tax selling, Q4 earnings warnings.

The markets soared for a change. The DOW was up 11.3%, NASDAQ 10.9% and and S+P 500 10.5%. For the year the DOW is now down 30%, NASDAQ 35% and the S+P 500 is down 34%. The Russell 3000 and the Wilshire 5000 are also down about 34%.

We managed to post “only” a 3.5% gain, but are still down 35% for the year.

There are a ton of values out there, that, if you assume that our economy will not implode, are once in a lifetime values.

Last week we went 14 stocks up, and 8 down. Since inception we are now 24 stocks up, 20 down and 1 even.

Since inception 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%

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 23 stocks that we closed out in 2006, 2007 and 2008 the average gain was 22%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Up $.26 to $3.00.
SPNC released earnings last week. They were good. Initially the stock junped to $3.65, but sellers used the opportunity to dump into the small rally. Tax loss selling no doubt (I am personnally doing some tax selling on other positions).
Sales were up 26% and thay managed to make $.01 per share despite over $400,000 in legal expenses (see below). They are still predicting at least $105 million in sales for the year, which means Q4 will be over $27 million in sales. At the current $101 million market-cap, SPNC is trading at a little over 50% of sales, net of $44 million in cash. Cash includes $16 million of auction-rate securities (shame on the CFO). Based on what we have been reading, these “investments” will likely turn out OK.
SPNC is suffering from the FDA, ICE raids that apparently eminated from an ex-employee whistle-blower trying to collect so money from the company. Over the last couple of weeks the bottom feeding securities lawyers decided to target the company’s cash hoard too. Now the CEO has resigned. Perfect storm.
SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
The company has $44 million in cash ($1.30 per share), no debt and is trading at about 1/2 times 2008 revenues (net of cash)and is growing about 25% a year.
Now down 66%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $2.41 (was $3.02 before adding another $10,000,was $3.21 before adding another $10,000, averaged down from $3.66),
Valuation $8.64 (was $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.34, up $.02.
They have $.75 a share in cash and are profitable.
Earnings out Thursday, Nov. 20, before the open
Trading at a measly 15% of our valuation.
Now down 44%. BUY

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 $11.48 (was $11.47 $10.99, $10.28, $13.32, $12.89, $13.40)
Down $.04 at $3.98.
Earnings out last week. Not bad. Although sales were down 8%, they still managed to make $.03 per share (HPOL management should learn from this–see below). Still have $2.76 per share in cash. Our valuation moved up a penny to $11.48.
Last Wednesday over 250,000 shares traded. It looks like 5, 50,000 share blocks traded. Someone is selling, but someone is also buying. No new SEC filing yet.
Cannell Capital filed a 13D on February 19th, disclosing a 12.9% ownership stake. Cannell is pushing MEDW management to sell the company. Meanwhile, Constellation Software, a Canadian public company that has been on an acquisition binge filed a 13D in April, disclosing a 6.1% ownership in MEDW (499,000 shares). Constellation has $243 million in revenues and is profitable.
In early May, Constellation increased its bank credit line to $105 million from $50 million.
On May 21 Constellation purchased another 586,000 shares of MEDW at prices from $5.43to $5.70 (most at $5.70). So Constellation now owns 1,056,000 shares–13.9%.
Cannell sold some MEDW (about 175,000 shares at about $5.60 to $5.80) but still holds 875,000 shares or 11.5%. We have not seen another Constellation filing, but obviously someone is buying these shares and the price has barely moved.
Looks like something is going to happen here–but when?
Down 37%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $5.88 (was $8.63, $9.90, $8.69, $11.51)
Up $.12 to $.68
Earnings out in mid September. Sales down 24% and they lost $7 million pre-tax. Still have $1.29 per share in cash, but burning through it. New valuation is $5.88 per share. They hired an investment banker to sell the company. We’ll see. Maybe Palomar will buy it to cut both there legal fees ($3.2 million this quarter for CLZR).
Down 82%. HOLD, we may get lucky and this thing will be sold for North of $1.

MIVA. (MIVA-Recommended 10/21/2007)
Buy Price $1.63 (Was $2.38 before adding another $20,000, $2.62 before another $10,000 and was $3.00 before double up),
Valuation $5.61 (was $6.42, $6.84, $7.58, $7.59)
Down $.06 to $.39.
Blinkx, a U.K. company made an all cash offer to buy MIVA in early August for $1.20. MIVA rejected the offer almost immediately saying it was too low and they think they can do better.
They better, or there will be shareholder lawsuits on this one.
Even though MIVA is a money losing mess, they are at such a low price to valuation that we will hold for another quarter. Hopefully we get a better take-over offer above our cost basis.
MIVA issued a press release in early October. Looks like they may be in active discussions to sell the company. Not a great environment to sell–but there is some hope.
Trading at 7% of our latest valuation
Down 76%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.79 (was $1.82 before adding $10,000, $2.02 before $10,000 added and $2.15 before double up),
NEW Valuation $4.66 (Was $6.00, $5.96)
Up $.17 to $1.16.
Earnings out last week, not great. Sales down 9% and they had an operating loss of $3.5 million compared to an operating profit of $1.6 million last year. Basically they failed to cut expenses as the $5 million decline in sales, dropped directly to the bottom line. This is likely why they hired a new CEO last week and pledged to cut expenses. Our valuation fell to $4.66 from $6.00.
Finaciere De Sainte Marine, is a big investor in HPOL. They now own 7,779,000 shares up from 6,640,381 shares just a few months ago, or just over 14% of the company.
Trading at 16% of our valuation.
Down 35%. BUY

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.90 (Was $2.07 before another $10,000 added and $2.15 before double up), Valuation $4.30 (was $4.09)
Up $.14 to $1.90.
Foxhill has been buying more shares (13D/A filed in September for another 272,000 shares). Foxhill now owns 3,844,000 shares or 6.9% of IPASS. They also sent another letter to IPASS urging they sell the company. Looks like they are serious.
With $1.12 per share in cash (75% of market cap), we feel that this has little additional downside.
Earnings due out Nov. 3rd, after the close.
Down 6%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
NEW Valuation $4.62 (Was $4.42)
Up $.05 at $2.25.
Earnings out last week. Pretty good. Sales up 16% and they made $.03 a share (same as last year) despite having $550,000 of expense in the quarter for their annual Summitt, which was in Q2 last year. Our valuation moved up to $4.62 from $4.42.
Down 6%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$5.51 (was $6.14 before $10,000 added, $6.66 before $10,000 added, $7.00 before $10,000 added) (9.8% dividend yield)
Valuation $17.23 (Was $18.36)
Up $.03 to $4.50.
Down 18%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
NEW Buy Price-$1.93 (was $2.08 before another $10,000 added, $2.00 before $10,000 added at $2.16)
Valuation $4.15
Closed down $.21 at $1.64
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September. They added 569,000 shares to their position between May and August and now hold 17,605,000 shares of MGIC or 55.4%. FORTY is a long-term investor, but this is a good sign of course.
Earnings out November 10th, before the market opens.
Down 15%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
NEW Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.03
Closed down $.13 at $3.85
Blueline Partners filed a 13D on ANGN on June 23. They own 216,000 shares or about 5.3% of the company. All of their purchases were well North of the current price.
No news.
Up 1%. HOLD

Noah Educational. (NED-Recommended 10/5/2008)
NEW Buy Price-$3.03 (was $3.00 before $10,000 added)
Valuation $13.03
Closed down $.25 at $2.60
Still trading at below cash value of $3.62 and profitable.
Down 14%. BUY

Datalink . (DTLK-Recommended 10/12/2008)
Buy Price-$3.02
Valuation $10.26
Closed up $.37 at $3.08
Cash is $2.08 per share–68% of the current market cap.
Up 2%. BUY

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price-$3.69
Valuation NA-Dividend yield play
Closed down $.26 at $3.08
Current dividend yield–30%
Earnings out Thursday, November 13th, before the open.
Down 17%. BUY

Middlebrook Pharmaceutical. (MBRK-Recommended 10/12/2008)
Buy Price-$1.16
Valuation-NA-Speculation
Closed up $.07 at $1.35
New management and capital investment at $3.90 a share.
Earnings out Thursday, November 13th, before the open
Up 16%. HOLD

SonicWALL. (SNWL-Recommended 10/20/2008)
Buy Price-$4.50
NEW Valuation-$11.09(Was $10.44)
Closed up $.04 at $4.48
Earnings out last week. Sales were up 5% and they made $.01 per share versus a small loss last year. They have $3.02 in cash and our valuation moved up to $11.09 per share from $10.44.
Down 1%. HOLD

Cynosure. (SNWL-Recommended 10/29/2008)
Buy Price-$9.10
Valuation-$29.49
Closed down $.34 at $8.76
Earnings out last week. Sales up 21%, made $.25 per share (compared to $.36 last year). Not bad. CYNO has $7.33 per share in cash–86% of its market-cap. Cheap.
Down 4%. HOLD

Cutera. (CUTR-Recommended 10/29/2008)
Buy Price-$7.88
Valuation-$21.07
Closed up $.63 at $8.51
Cutera has $8.01 in cash–94% of its market-cap. So you can buy this for 7% of sales. Profitable too.
Up 8%. 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 $5.66 (was $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $.95, up $.06.
Earnings announced last week. Sales up 5% and they made $.05 per share. Pre-tax loss was $204,000 versus $180,000 last year. Even so, our valuation moved up to $5.66 from $5.63 per share. This is still way too cheap.
They announced a small aquisition in early July. Will add $1 million in revenue and be profitable. This is the stuff that will help get some attention for ARI.
ARI does little to get any investor attention. Wake up management–you have a great little company here worth 3X what it is selling for.
Now down 41%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time),
Valuation $3.76 (was $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.74, up $.14.
Trading at only 20% of our valuation.
Down 7%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, Valuation $1.29 (Was $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price down $.01 at $.10. Closed at $.10.
Q2 earnings announced in August. Sales were ok, but they had another loss. Sales were $5.035 million compared to $6.1 million last year. Last year included about $900,000 of legal settlement income. They lost $553,000, which included $247,000 of patent enforcement costs. They indicated that there might be a litigation settlement before the end of the year. Their VOIP business continues to struggle and lose money–$707,000 in the current quarter. Gross margin % held steady at about 75%.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value.
CTIG issued a very positive press release in early October. Hopefully there is some substance to their touting their VOIP buaisness. We’ll see.
Still an “undercover” company and stock.
This is still trading at only 9% of our latest valuation.
Down 63%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up) Valuation-$1.61 (Was $2.28, $2.08)
Closed at $.32, up $.02
Earnings out in early August. Sales were up 51% over last year to $19.4 million. They earned $2.2 million or $.05 per share. For the 6 months, sales were up 47% to $31.1 million and they reported $.07 per share in earnings.
So why is the stock down? It looks like it is trading at at less than 4 times EPS.
Well, their legal structure, apparently uncollectible $13 million of receivables from their Chinese affiliated company and their committment to build a manufacturing plant for about $70 million with no disclosable means of financing it, are giving all investors pause. Also their “Selling Expenses” went from $800,000 last year to $5.9 million in the current quarter as they paid $3 million more commissions to sell product and $2.4 million in “bonuses” to accelerate collections. Pretty odd, almost sounds desperate.
Our valuation fell to $1.61 from $2.28.
We listened to the conference call. It actually made us feel a little bit better, although all the Chinese and subsequent translations were trying. They reaffirmed their 2008 guidance. They are shooting for the moon here. If it works, we will have another AOB. It seems that if their land deal and $70 million building don’t pan out, their back-up plan is to sell the land (or parts of it). Sensible.
Keep your finger on the SELL trigger on this one. Our only solace is that all Chinese stocks have been hammered also.
Down 62%. HOLD

Cutera Inc. (NASDAQ–CUTR)
Valuation-$21.07
Closing price October 28, 2008-$8.12

Cash at June 30, 2008 was approximately $108 million or $8.01 per share. So at the current price cash is 99% of the market cap. CUTR is trading at 39% of our valuation.
About Cutera, Inc.
Brisbane, California-based Cutera is a leading provider of laser and other light-based aesthetic systems for practitioners worldwide. Since 1998, Cutera has been developing innovative, easy-to-use products that enable physicians and other qualified practitioners to offer safe and effective aesthetic treatments to their patients.

Cynosure Inc. (NASDAQ–CYNO)
Valuation-$29.49

Closing price October 28, 2008-$9.31

Cash at September 30, 2008 was approximately $93 million or $7.33 per share. So at the current price cash is 79% of the market cap. CUTR is trading at 32% of our valuation.

About Cynosure, Inc.
Cynosure, Inc. develops and markets aesthetic treatment systems that are used by physicians and other practitioners to perform non-invasive and minimally invasive procedures to remove hair, treat vascular lesions, rejuvenate skin through the treatment of shallow vascular and pigmented lesions, liquefy and remove unwanted fat through laser lipolysis and temporarily reduce the appearance of cellulite. Cynosure’s products include a broad range of laser and other light-based energy sources, including Alexandrite, pulsed dye, Nd:YAG and diode lasers, as well as intense pulsed light. Cynosure was founded in 1991

Down, down we go. Pretty discouraging for sure. Mutual Fund liquidation, margin calls, tax selling, Q4 earnings warnings–it looks like the rest of 2008 will not be pretty, and it will take a while for stocks to start acting rationally. Hopefully in 2009. We are certainly glad we NEVER buy on margin.

The markets plunged again last week. The DOW was down 5.4%, NASDAQ a whopping 9.3% and and S+P 500 6.8%. For the year the DOW is now down 37%, NASDAQ 41% and the S+P 500 is down 40%. The Russell 3000 and the Wilshire 5000 are also down about 41%.

We managed to post “only” a 3.1% loss, but are still down 38% for the year.

There are a ton of values out there, that, if you assume that our economy will not implode, are once in a lifetime values.

Last week we went 4 stocks up, 15 down and 1 even. Since inception we are now 22 stocks up and 21 down.

Since inception 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%

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 23 stocks that we closed out in 2006, 2007 and 2008 the average gain was 22%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Down $.80 to $2.76.
SPNC is suffering from the FDA, ICE raids that apparently eminated from an ex-employee whistle-blower trying to collect so money from the company. Over the last couple of weeks the bottom feeding securities lawyers decided to target the company’s cash hoard too. Now the CEO has resigned. Perfect storm.
SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
Earnings out on Wednesday–before the open. Trading at about 40% of sales (deducting cash from the market cap.)
The company has $44.4 million in cash ($1.33 per share), no debt and is trading at just less than 1/2 times 2008 revenues (net of cash)and is growing about 30% a year.
Now down 69%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $2.41 (was $3.02 before adding another $10,000,was $3.21 before adding another $10,000, averaged down from $3.66), Valuation $8.64 (was $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.32, up $.07.
They have $.75 a share in cash and are profitable.
No news.
Trading at a measly 15% of our valuation.
Now down 45%. BUY

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up) Valuation $11.47 (was $10.99, $10.28, $13.32, $12.89, $13.40)
Down $.92 at $4.02.
Cannell Capital filed a 13D on February 19th, disclosing a 12.9% ownership stake. Cannell is pushing MEDW management to sell the company. Meanwhile, Constellation Software, a Canadian public company that has been on an acquisition binge filed a 13D in April, disclosing a 6.1% ownership in MEDW (499,000 shares). Constellation has $243 million in revenues and is profitable.
In early May, Constellation increased its bank credit line to $105 million from $50 million.
On May 21 Constellation purchased another 586,000 shares of MEDW at prices from $5.43to $5.70 (most at $5.70). So Constellation now owns 1,056,000 shares–13.9%.
Cannell sold some MEDW (about 175,000 shares at about $5.60 to $5.80) but still holds 875,000 shares or 11.5%. We have not seen another Constellation filing, but obviously someone is buying these shares and the price has barely moved.
MEDW announced an expanded share buy-back last week-another $4 million. This moved the stock back up from the $4 level it was trading at before the announcement.
Looks like something is going to happen here–but when?
Earnings out on Tuesday before the open.
Down 37%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), NEW Valuation $5.88 (was $8.63, $9.90, $8.69, $11.51)
Down $.18 to $.56
Earnings out last week. Sales down 24% and they lost $7 million pre-tax. Still have $1.29 per share in cash, but burning through it. New valuation is $5.88 per share. They hired an investment banker to sell the company. We’ll see. Maybe Palomar will buy it to cut both there legal fees ($3.2 million this quarter for CLZR).
Down 85%. HOLD, we may get lucky and this thing will be sold for North of $1.

MIVA. (MIVA-Recommended 10/21/2007)
Buy Price $1.63 (Was $2.38 before adding another $20,000, $2.62 before another $10,000 and was $3.00 before double up), Valuation $5.61 (was $6.42, $6.84, $7.58, $7.59)
UP $.10 to $.45.
Blinkx, a U.K. company made an all cash offer to buy MIVA in early August for $1.20. MIVA rejected the offer almost immediately saying it was too low and they think they can do better.
They better, or there will be shareholder lawsuits on this one.
Even though MIVA is a money losing mess, they are at such a low price to valuation that we will hold for another quarter. Hopefully we get a better take-over offer above our cost basis.
MIVA issued a press release in early October. Looks like they may be in active discussions to sell the company. Not a great environment to sell–but there is some hope.
Trading at 8% of our latest valuation
Down 73%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.79 (was $1.82 before adding $10,000, $2.02 before $10,000 added and $2.15 before double up),Valuation $6.00 (Was $5.96)
Down $.18 to $.99.
Finaciere De Sainte Marine, is a big investor in HPOL. They now own 7,779,000 shares up from 6,640,381 shares just a few months ago, or just over 14% of the company.
Trading at 16% of our valuation.
Down 45%. BUY

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.90 (Was $2.07 before another $10,000 added and $2.15 before double up), Valuation $4.30 (was $4.09)
Down $.06 to $1.76.
Foxhill has been buying more shares (13D/A filed in September for another 272,000 shares). Foxhill now owns 3,844,000 shares or 6.9% of IPASS. They also sent another letter to IPASS urging they sell the company. Looks like they are serious.
With $1.12 per share in cash (75% of market cap), we feel that this has little additional downside.
Earnings due out Nov. 3rd, after the close.
Down 7%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.42
Down $.03 at $2.20.
Earnings out October 28th after the close.
Down 7%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$5.51 (was $6.14 before $10,000 added, $6.66 before $10,000 added, $7.00 before $10,000 added) (9.8% dividend)
Valuation $17.23 (Was $18.36)
Down $.22 to $4.47.
Down 19%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
NEW Buy Price-$1.93 (was $2.08 before another $10,000 added, $2.00 before $10,000 added at $2.16)
Valuation $4.15
Closed up $.11 at $1.85
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September. They added 569,000 shares to their position between May and August and now hold 17,605,000 shares of MGIC or 55.4%. FORTY is a long-term investor, but this is a good sign of course.
Earnings out November 10th, before the market opens.
Down 4%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
NEW Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.03
Closed up $.63 at $3.98
Blueline Partners filed a 13D on ANGN on June 23. They own 216,000 shares or about 5.3% of the company. All of their purchases were well North of the current price.
No news.
Up 4%. HOLD

Noah Educational. (NED-Recommended 10/5/2008)
NEW Buy Price-$3.03 (was $3.00 before $10,000 added)
Valuation $13.03
Closed down $.19 at $2.85
Still trading at below cash value.
Down 6%. BUY

Datalink . (DTLK-Recommended 10/12/2008)
Buy Price-$3.02
Valuation $10.26
Closed down $.30 at $2.71
Cash is $2.08 per share–77% of the current market cap.
Down 10%. BUY

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price-$3.69
Valuation NA-Dividend yield play
Closed down $.35 at $3.36
Current dividend yield–27%
No news.
Down 9%. BUY

Middlebrook Pharmaceutical. (MBRK-Recommended 10/12/2008)
Buy Price-$1.16
Valuation-NA-Speculation
Closed down $.10 at $1.28
New management and capital investment at $3.90 a share.
Up 10%. HOLD

SonicWALL. (SNWL-Recommended 10/20/2008)
Buy Price-$4.50
Valuation-$10.44
Closed dwon $.06 at $4.44
Has $2.76 per share in cash.
Down 1%. HOLD

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 $5.63 (was $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $.89, down $.12.
Earnings announced in June were impressive. $.06 per share in earnings (untaxed)for the quarter and $.14 per share for the first three quarters. Our valuation moved up to $5.63 per share. This is still way too cheap.
They announced a small aquisition in early July. Will add $1 million in revenue and be profitable. This is the stuff that will help get some attention for ARI.
ARI does little to get any investor attention. Wake up management–you have a great little company here worth 3X what it is selling for.
Earnings out October 29th, before the open.
Now down 45%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
NEW Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time), Valuation $3.76 (was $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.60, unchanged.
Trading at only 16% of our valuation.
Down 24%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, Valuation $1.29 (Was $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price down $.01 at $.11. Closed at $.10.
Q2 earnings announced in August. Sales were ok, but they had another loss. Sales were $5.035 million compared to $6.1 million last year. Last year included about $900,000 of legal settlement income. They lost $553,000, which included $247,000 of patent enforcement costs. They indicated that there might be a litigation settlement before the end of the year. Their VOIP business continues to struggle and lose money–$707,000 in the current quarter. Gross margin % held steady at about 75%.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value.
CTIG issued a very positive press release in early October. Hopefully there is some substance to their touting their VOIP buaisness. We’ll see.
Still an “undercover” company and stock.
This is still trading at only 9% of our latest valuation.
Down 59%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up) Valuation-$1.61 (Was $2.28, $2.08)
Closed at $.30, down $.02
Earnings out in early August. Sales were up 51% over last year to $19.4 million. They earned $2.2 million or $.05 per share. For the 6 months, sales were up 47% to $31.1 million and they reported $.07 per share in earnings.
So why is the stock down? It looks like it is trading at at less than 4 times EPS.
Well, their legal structure, apparently uncollectible $13 million of receivables from their Chinese affiliated company and their committment to build a manufacturing plant for about $70 million with no disclosable means of financing it, are giving all investors pause. Also their “Selling Expenses” went from $800,000 last year to $5.9 million in the current quarter as they paid $3 million more commissions to sell product and $2.4 million in “bonuses” to accelerate collections. Pretty odd, almost sounds desperate.
Our valuation fell to $1.61 from $2.28.
We listened to the conference call. It actually made us feel a little bit better, although all the Chinese and subsequent translations were trying. They reaffirmed their 2008 guidance. They are shooting for the moon here. If it works, we will have another AOB. It seems that if their land deal and $70 million building don’t pan out, their back-up plan is to sell the land (or parts of it). Sensible.
Keep your finger on the SELL trigger on this one. Our only solace is that all Chinese stocks have been hammered also.
Down 64%. HOLD

SonicWALL (NASDAQ–SNWL)
Valuation-$10.44
Closing price October 18, 2008-$4.50

Cash at June 30, 2008 was approximately $161 million or $2.76 per share. So at the current price cash is 61% of the market cap. Our valuation based on annual sales of $220 million and 70% gross margins is $10.44 per share. SNWL is trading at 43% of our valuation.

Latest quarter sales were up 19% to $55.8 million. They made non-GAAP earnings of $.06 per share. Gross margin exceeded 70%.

SNWL has been aggressively buying back shares and purchased 5.8 million shares in Q2. The current repurchase has just about run-out, but we would be surprised if they don’t initiate a new one with the current low share price.

Earnings due out next week on the 28th.

SNWL trades almost 400,000 shares a day, so liquidity is not an issue here.

There are about 59 million fully diluted shares outstanding.

About SonicWALL, Inc.
Founded in 1991, SonicWALL, Inc. designs, develops and manufactures comprehensive network security, email security, secure remote access, and continuous data protection solutions.

Up and down goes the market. Feels like it is trying to find a bottom, but with earnings season coming up–we expect a lot of disapointing reports–and more downward pressure (add some tax selling to that also).

The markets sea-sawed last week, but ended up. The DOW was up 4.75%, NASDAQ 3.75% and and S+P 500 4.6%. For the year the DOW is now down 33%, NASDAQ 35% and the S+P 500 is down 36%. The Russell 3000 and the Wilshire 5000 are also down about 36%.

We managed to post a 6.7% gain, but are still down 35% for the year.

There are a ton of values out there, that if you assume that our economy will not implode, are once in a lifetime values.

Last week we went 11 stocks up, 7 down and 1 even. Since inception we are now 23 stocks up and 19 down.

Since inception 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%

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 23 stocks that we closed out in 2006, 2007 and 2008 the average gain was 22%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Down $.40 to $3.56.
SPNC is suffering from the FDA, ICE raids that apparently eminated from an ex-employee whistle-blower trying to collect so money from the company. Over the last couple of weeks the bottom feeding securities lawyers decided to target the company’s cash hoard too.
SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
The company has $44.4 million in cash ($1.33 per share), no debt and is trading at just less than 1 times 2008 revenues (net of cash)and is growing about 30% a year.
Now down 60%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $2.41 (was $3.02 before adding another $10,000,was $3.21 before adding another $10,000, averaged down from $3.66), Valuation $8.64 (was $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.25, down $.12.
They have $.75 a share in cash and are profitable.
No news.
Trading at a measly 14% of our valuation.
Now down 48%. BUY

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up) Valuation $11.47 (was $10.99, $10.28, $13.32, $12.89, $13.40)
UP $.03 at $4.94.
Cannell Capital filed a 13D on February 19th, disclosing a 12.9% ownership stake. Cannell is pushing MEDW management to sell the company. Meanwhile, Constellation Software, a Canadian public company that has been on an acquisition binge filed a 13D in April, disclosing a 6.1% ownership in MEDW (499,000 shares). Constellation has $243 million in revenues and is profitable.
In early May, Constellation increased its bank credit line to $105 million from $50 million.
On May 21 Constellation purchased another 586,000 shares of MEDW at prices from $5.43to $5.70 (most at $5.70). So Constellation now owns 1,056,000 shares–13.9%.
Cannell sold some MEDW (about 175,000 shares at about $5.60 to $5.80) but still holds 875,000 shares or 11.5%. We have not seen another Constellation filing, but obviously someone is buying these shares and the price has barely moved.
MEDW announced an expanded share buy-back last week-another $4 million. This moved the stock back up from the $4 level it was trading at before the annoncement.
Looks like something is going to happen here–but when?
Down 22%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $8.63 (was $9.90, $8.69, $11.51)
Down $.26 to $.74
Candela reported that they lost the first of 3 lawsuits against Palomar. They now have more cash ($1.44 per share) than their market cap. (as of June 30 anyway).
Earnings out 10/21 after the close. Probably a good buy here for a rebound.
Down 80%. HOLD until after earnings this week.

MIVA. (MIVA-Recommended 10/21/2007)
Buy Price $1.63 (Was $2.38 before adding another $20,000, $2.62 before another $10,000 and was $3.00 before double up), Valuation $5.61 (was $6.42, $6.84, $7.58, $7.59)
Down $.03 to $.35.
Blinkx, a U.K. company made an all cash offer to buy MIVA in early August for $1.20. MIVA rejected the offer almost immediately saying it was too low and they think they can do better.
They better, or there will be shareholder lawsuits on this one.
Even though MIVA is a money losing mess, they are at such a low price to valuation that we will hold for another quarter. Hopefully we get a better take-over offer above our cost basis.
MIVA issued a press release in early October. Looks like they may be in active discussions to sell the company. Not a great environment to sell–but there is some hope.
Trading at 6% of our latest valuation
Down 79%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.79 (was $1.82 before adding $10,000, $2.02 before $10,000 added and $2.15 before double up),Valuation $6.00 (Was $5.96)
Up $.06 to $1.17.
Finaciere De Sainte Marine, is a big investor in HPOL. They now own 7,779,000 shares up from 6,640,381 shares just a few months ago, or just over 14% of the company.
Trading at 20% of our valuation.
Down 35%. BUY

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.90 (Was $2.07 before another $10,000 added and $2.15 before double up), Valuation $4.30 (was $4.09)
Up $.32 to $1.82.
Foxhill has been buying more shares (13D/A filed in September for another 272,000 shares). Foxhill now owns 3,844,000 shares or 6.9% of IPASS. They also sent another letter to IPASS urging they sell the company. Looks like they are serious.
With $1.12 per share in cash (75% of market cap), we feel that this has little additional downside.
Down 4%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.42
Up $.07 at $2.23.
Jumped to $2.70 last week and then gave it all back.
No news.
Down 7%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
NEW Buy Price-$5.51 (was $6.14 before $10,000 added, $6.66 before $10,000 added, $7.00 before $10,000 added) (9.4% dividend)
NEW Valuation $17.23 (Was $18.36)
Up $.47 to $4.69.
Earnings out last week. Sales fell a bit from $46.6 to $45.4 million and EPS fell from $.29 to $.16. Not great but our valuation only fell to $17.23 from $18.36, and they still have $2.58 a share in cash (55% of current market cap.). Quarterly $.11 dividend declared also.
Down 15%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
NEW Buy Price-$1.93 (was $2.08 before another $10,000 added, $2.00 before $10,000 added at $2.16)
Valuation $4.15
Closed up $.06 at $1.74
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September. They added 569,000 shares to their position between May and August and now hold 17,605,000 shares of MGIC or 55.4%. FORTY is a long-term investor, but this is a good sign of course.
Earnings out November 10th, before the market opens.
Down 10%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
NEW Buy Price-$3.82 (was $5.15 before $10,000 added)
Valuation $13.03
Closed up $.31 at $3.35
Blueline Partners filed a 13D on ANGN on June 23. They own 216,000 shares or about 5.3% of the company. All of their purchases were well North of the current price.
No news.
Down 12%. HOLD

Noah Educational. (NED-Recommended 10/5/2008)
NEW Buy Price-$3.03 (was $3.00 before $10,000 added)
Valuation $13.03
Closed down $.01 at $3.04
HIt $4.27 last week before giving it all back.
Still trading at below cash value.
Down less than 1%. BUY

Datalink . (DTLK-Recommended 10/12/2008)
Buy Price-$3.02
Valuation $10.26
Closed down $.01 at $3.01
Earnings out last week. Pretty good. Sales increased 9% to $50 million and they earned $.08 per share (GAAP basis) compared to $.07 last year. Cash was $2.08 per share–67% of the current market cap. Q4 guidance is revenue of $49-$53 million and GAAP EPS of $.08-$.12 per share.
Down less than 1%. BUY

Global Shipping . (GSL-Recommended 10/12/2008)
Buy Price-$3.69
Valuation NA-Dividend yield play
Closed up $.02 at $3.71
Current dividend yield–25%
No news.
Up less than 1%. BUY

Middlebrook Pharmaceutical. (MBRK-Recommended 10/12/2008)
Buy Price-$1.16
Valuation-NA-Speculation
Closed up $.22 at $1.38
New management and capital investment at $3.90 a share.
Up 19%. HOLD

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 $5.63 (was $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.01, down $.29.
Earnings announced in June were impressive. $.06 per share in earnings (untaxed)for the quarter and $.14 per share for the first three quarters. Our valuation moved up to $5.63 per share. This is still way too cheap.
They announced a small aquisition in early July. Will add $1 million in revenue and be profitable. This is the stuff that will help get some attention for ARI.
ARI does little to get any investor attention. Wake up management–you have a great little company here worth 3X what it is selling for.
Now down 37%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
NEW Buy price $.79 (Was $.93, $.99 and $1.19 before adding $10,000-each time), Valuation $3.76 (was $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.60, up $.05.
Trading at only 16% of our valuation.
Down 24%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, Valuation $1.29 (Was $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price unchanged at $.12. Closed at $.12.
Q2 earnings announced in August. Sales were ok, but they had another loss. Sales were $5.035 million compared to $6.1 million last year. Last year included about $900,000 of legal settlement income. They lost $553,000, which included $247,000 of patent enforcement costs. They indicated that there might be a litigation settlement before the end of the year. Their VOIP business continues to struggle and lose money–$707,000 in the current quarter. Gross margin % held steady at about 75%.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value.
CTIG issued a very positive press release in early October. Hopefully there is some substance to their touting their VOIP buaisness. We’ll see.
Still an “undercover” company and stock.
This is still trading at only 9% of our latest valuation.
Down 56%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up) Valuation-$1.61 (Was $2.28, $2.08)
Closed at $.32, up $.12
Earnings out in early August. Sales were up 51% over last year to $19.4 million. They earned $2.2 million or $.05 per share. For the 6 months, sales were up 47% to $31.1 million and they reported $.07 per share in earnings.
So why is the stock down? It looks like it is trading at at less than 4 times EPS.
Well, their legal structure, apparently uncollectible $13 million of receivables from their Chinese affiliated company and their committment to build a manufacturing plant for about $70 million with no disclosable means of financing it, are giving all investors pause. Also their “Selling Expenses” went from $800,000 last year to $5.9 million in the current quarter as they paid $3 million more commissions to sell product and $2.4 million in “bonuses” to accelerate collections. Pretty odd, almost sounds desperate.
Our valuation fell to $1.61 from $2.28.
We listened to the conference call. It actually made us feel a little bit better, although all the Chinese and subsequent translations were trying. They reaffirmed their 2008 guidance. They are shooting for the moon here. If it works, we will have another AOB. It seems that if their land deal and $70 million building don’t pan out, their back-up plan is to sell the land (or parts of it). Sensible.
Keep your finger on the SELL trigger on this one. Our only solace is that all Chinese stocks have been hammered also.
Down 62%. HOLD

Well, we got October 1987 all over again–just 21 years later. The markets plunged like bever before. The DOW was down 18%, NASDAQ 15.3% and and S+P 500 18%. For the year the DOW is now down 36%, NASDAQ 38% and the S+P 500 is down 39%. The Russell 3000 and the Wilshire 5000 are also down 38-39%.

We of course did not escape this carnage with a 21% loss.

We must confess, that with such huge losses, the plunge exposed a flaw in our calculation of our performance. We spent hours this week recalculating our performance since 2006. As it turns out we over-stated our 2006 and 2007 performance a bit, but we overstated our losses in 2008 so far also. So officially in 2006 we were up 14.4% (reported 15.5%), in 2007 we were up 11.1% (reported 19.9%) and so far in 2008 we are down 42%. Turns out our calculation effectively assumed that all purchases were margined–which we never, never actually do. Sorry for this.

Everything got hammered last week. Almost any company that has, or holds debt was decimated, and everything else got whacked too. So we are going to buy more. We are adding $10,000 to ANGN ($1.80 a share cash-59% of market cap), NED ($3.62 a share in cash-119% of market cap), MGIC ($.94 a share in cash-56% of market cap), AVSO (just too cheap), CAW ($2.58 a share in cash–61% of market cap. and buying DTLK again ($2.24 a share in cash-74% of market cap).

There are a ton of values out there, that if you assume that our economy will not implode, are once in a lifetime values.

We would also recommend a couple of trades:

Global Shipping-($3.69-NYSE-GSL)-Has announced that it will pay a $.23 quaterly dividend starting with the Sept. quarter. This was a bling pool company that bought a container ship leasing company this summer. We believe few people understand this one. At $.92 a year dividend, the yield is currently 25%. Dividends can always be cut, but they have very long term charters already in place. Sell this at $5 or better (35% gain-we hope).

Middlebrook Pharmaceutical ($1.16-NASDAQ-MBRK). MBRK was recapitalized with a $100 million equity investment in September by a Sam Zell affiliate. They bought new stock at $3.90 a share. New management was installed with the investment. We will still try to follow smart money where we can. With a 70% loss on their investment so far–they should be pretty motivated to get his stock price back up. Sell at $1.80 or better (55% gain-we hope).

We went 2 stocks up and 14 down. Since inception we are now 21 stocks up and 17 down. Only one of our current holdings is still above water–NED (which is profitable and trading below net cash).

Since inception 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%

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 23 stocks that we closed out in 2006, 2007 and 2008 the average gain was 22%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Down $.77 to $3.96.
SPNC is suffering from the FDA, ICE raids that apparently eminated from an ex-employee whistle-blower trying to collect so money from the company. Over the last couple of weeks the bottom feeding securities lawyers decided to target the company’s cash hoard too.
SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
The company has $44.4 million in cash ($1.33 per share), no debt and is trading at just less than 1 times 2008 revenues (net of cash)and is growing about 30% a year.
Now down 56%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $2.41 (was $3.02 before adding another $10,000,was $3.21 before adding another $10,000, averaged down from $3.66), Valuation $8.64 (was $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.37, down $.42.
They have $.75 a share in cash and are profitable.
No news.
Trading at a measly 16% of our valuation.
Now down 43%. BUY

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up) Valuation $11.47 (was $10.99, $10.28, $13.32, $12.89, $13.40)
Down $.59 at $4.91.
Cannell Capital filed a 13D on February 19th, disclosing a 12.9% ownership stake. Cannell is pushing MEDW management to sell the company. Meanwhile, Constellation Software, a Canadian public company that has been on an acquisition binge filed a 13D in April, disclosing a 6.1% ownership in MEDW (499,000 shares). Constellation has $243 million in revenues and is profitable.
In early May, Constellation increased its bank credit line to $105 million from $50 million.
On May 21 Constellation purchased another 586,000 shares of MEDW at prices from $5.43to $5.70 (most at $5.70). So Constellation now owns 1,056,000 shares–13.9%.
Cannell sold some MEDW (about 175,000 shares at about $5.60 to $5.80) but still holds 875,000 shares or 11.5%. We have not seen another Constellation filing, but obviously someone is buying these shares and the price has barely moved.
Looks like something is going to happen here–but when?
Down 23%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $8.63 (was $9.90, $8.69, $11.51)
Down $1.02 to $1.00
Candela reported that they lost the first of 3 lawsuits against Palomar. Add this to the market crash and we lost half our investment last week. They now have more cash ($1.44 per share) than their market cap. (as of June 30 anyway). Probably a good buy here for a rebound.
Down 73%. BUY.

MIVA. (MIVA-Recommended 10/21/2007)
Buy Price $1.63 (Was $2.38 before adding another $20,000, $2.62 before another $10,000 and was $3.00 before double up), Valuation $5.61 (was $6.42, $6.84, $7.58, $7.59)
Down $.32 to $.38.
Blinkx, a U.K. company made an all cash offer to buy MIVA in early August for $1.20. MIVA rejected the offer almost immediately saying it was too low and they think they can do better.
They better, or there will be shareholder lawsuits on this one.
Even though MIVA is a money losing mess, they are at such a low price to valuation that we will hold for another quarter. Hopefully we get a better take-over offer above our cost basis.
MIVA issued a press release last week. Looks like they may be in active discussions to sell the company. Not a great environment to sell–but there is some hope.
Trading at 7% of our latest valuation
Down 77%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.79 (was $1.82 before adding $10,000, $2.02 before $10,000 added and $2.15 before double up),Valuation $6.00 (Was $5.96)
Down $.56 to $1.11.
Finaciere De Sainte Marine, is a big investor in HPOL. They now own 7,779,000 shares up from 6,640,381 shares just over a month ago, or just over 14% of the company.
Trading at 19% of our valuation.
Down 38%. BUY

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.90 (Was $2.07 before another $10,000 added and $2.15 before double up), Valuation $4.30 (was $4.09)
Down $.30 to $1.50.
Foxhill has been buying more shares (13D/A filed in September for another 272,000 shares). Foxhill now owns 3,844,000 shares or 6.9% of IPASS. They also sent another letter to IPASS urging they sell the company. Looks like they are serious.
With $1.12 per share in cash (75% of market cap), we feel that this has little additional downside. Nice mention in Barron’s this week as being a cheap stock based on its cash holdings.
Down 21%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.42
Down $.32 at $2.16.
No news.
Down 10%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$6.14 (was $6.66 before $10,000 added, $7.00 before $10,000 added) (6.9% dividend)
Valuation $18.36
Down $1.08 to $4.22.
Dividend yield up to 10.4%.
Adding another $10,000 here. New average buy price will be $5.51.
No news.
Down 31%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
Buy Price-$2.08 (was $2.00 before $10,000 added at $2.16)
Valuation $4.15
Closed down $.17 at $1.68
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September. They added 569,000 shares to their position between May and August and now hold 17,605,000 shares of MGIC or 55.4%. FORTY is a long-term investor, but this is a good sign of course.
Adding $10,000 here. New average buy price will be $1.93.
Down 19%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$5.15
Valuation $13.03
Closed down $1.35 at $3.04
Blueline Partners filed a 13D on ANGN on June 23. They own 216,000 shares or about 5.3% of the company. All of their purchases were well North of the current price.
Add $10,000 here. New average buy price will be $3.82.
Down 41%. BUY

Noah Educational. (NED-Recommended 10/5/2008)
Buy Price-$3.00
Valuation $13.03
Closed up $.05 at $3.05
Blueline Partners filed a 13D on ANGN on June 23. They own 216,000 shares or about 5.3% of the company. All of their purchases were well North of the current price.
NED got up to over $4 last week before the plunge.
Double up here. New average buy price will be $3.03.
Up 2%. 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 $5.63 (was $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.30, up $.10.
Earnings announced in June were impressive. $.06 per share in earnings (untaxed)for the quarter and $.14 per share for the first three quarters. Our valuation moved up to $5.63 per share. This is still way too cheap.
They announced a small aquisition in early July. Will add $1 million in revenue and be profitable. This is the stuff that will help get some attention for ARI.
ARI does little to get any investor attention. Wake up management–you have a great little company here worth 3X what it is selling for.
Now down 19%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $.93 (Was $.99 and $1.19 before adding $10,000-twice), NEW Valuation $3.76 (was $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.55, down $.43.
AVSO finally issued their 10Q. Our valuation came down to $3.76 form $4.00 on seasonally slow sales and margins. Cash continues to increase, and so does net income. Trading at only 15% of our valuation. We will average down one more time on this one. New average buy price will be $.79.
Down 41%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, Valuation $1.29 (Was $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price down $.08 at $.12. Closed at $.12.
Q2 earnings announced in August. Sales were ok, but they had another loss. Sales were $5.035 million compared to $6.1 million last year. Last year included about $900,000 of legal settlement income. They lost $553,000, which included $247,000 of patent enforcement costs. They indicated that there might be a litigation settlement before the end of the year. Their VOIP business continues to struggle and lose money–$707,000 in the current quarter. Gross margin % held steady at about 75%.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value.
CTIG issued a very positive press release last week. Hopefully there is some substance to their touting their VOIP buaisness. We’ll see.
Still an “undercover” company and stock.
This is still trading at only 9% of our latest valuation.
Down 56%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up) Valuation-$1.61 (Was $2.28, $2.08)
Closed at $.20, down $.16
Earnings out in early August. Sales were up 51% over last year to $19.4 million. They earned $2.2 million or $.05 per share. For the 6 months, sales were up 47% to $31.1 million and they reported $.07 per share in earnings.
So why is the stock down? It looks like it is trading at at less than 4 times EPS.
Well, their legal structure, apparently uncollectible $13 million of receivables from their Chinese affiliated company and their committment to build a manufacturing plant for about $70 million with no disclosable means of financing it, are giving all investors pause. Also their “Selling Expenses” went from $800,000 last year to $5.9 million in the current quarter as they paid $3 million more commissions to sell product and $2.4 million in “bonuses” to accelerate collections. Pretty odd, almost sounds desperate.
Our valuation fell to $1.61 from $2.28.
We listened to the conference call. It actually made us feel a little bit better, although all the Chinese and subsequent translations were trying. They reaffirmed their 2008 guidance. They are shooting for the moon here. If it works, we will have another AOB. It seems that if their land deal and $70 million building don’t pan out, their back-up plan is to sell the land (or parts of it). Sensible.
Keep your finger on the SELL trigger on this one. Our only solace is that all Chinese stocks have been hammered also.
Down 76%. HOLD

Valuation-$7.18
Closing price October 3, 2008-$3.00

Noah is a Chinese company. Despite that, we are taking a flyer here. Noah is now trading significantly below cash value. All amounts are converted at RMB to $ of 6.9/1.

All Chinese stocks (and just about every other stock too) have taken it on the chin is 2008. Noah is no exception.

Cash at June 30, 2008 was approximately $145 million or $3.62 per share. So it is trading at 83% of cash on-hand. Our valuation based on annual sales of $85 million and 50% gross margins is $7.18 per share. Noah is trading at 42% of our valuation.

We take some comfort that Noah trades on the NYSE where the listing and governance standards are higher (certainly higher than the Bulletin Board!). They have a Big 4 audit firm also.

Actual sales, gross margin and net income for the year ended June 30, 2008 were: $94 million, 51% and $21 million (about $.53 per share).

On September 25th Noah warned that they would not meet their guidance of sales of $36 million and net income of $7 million ($.18 per share). Instead they forecast sales of $29 million and net income of about $3 million ($.08 per share). While this is a big drop in net income forecast, the stock is trading as if it was hemorrhaging losses.

Noah went public in late 2007. Its 52 week trading range is $3.00 to $23.70.

So at 83% of actual cash, 42% of our valuation, 50% margins, NYSE listed, audited by a Big 4 firm—we are taking a “flyer” here. At any other time we would think we found a goldmine. But today, with how the markets are in such turmoil—everything is a risk!

NED trades over 100,000 shares a day, so liquidity is not an issue here.

There are about 40 million fully diluted shares outstanding.

About Noah:
Noah Education Holdings Limited (“Noah”) is a leading provider of supplementary education content to China’s elementary and middle school students. Noah develops and markets interactive educational content, software and delivery platforms that combine traditional education content with digital and multi-media technologies to cater to students’ interests and enhance academic efficiency and performance. Noah employs a nationwide sales network, powerful brand image, and accessible and diversified delivery platforms to attract students to its innovative content. Noah delivers its education content via Noah electronic educational products, Noah’s online website and after-school tutoring centers. The interactive and comprehensive structure of Noah’s offerings encourages students and teachers to form knowledge-sharing communities around the Noah brand. Noah was founded in 2004 and is listed on the New York Stock Exchange under the ticker symbol NED.

Not only more of the same-it keeps getting worse!

Small caps continue to drift (or plunge) down with the market.

We went 5 stocks up, 9 down and 1 even last week (same as prior week)

Fear continues to abound. People are just pulling their money from mutual funds, stocks, bonds, everything, just to preserve capital. Usually this is a great time to buy–but this economy and all the banking, housing problems makes this a crapshoot. We are sticking with our philosophy–no matter what.

The Dow was down “only” 7.3% last week, NASDAQ was down 10.8% and the S+P 500 was down 9.4%

For last week, 2008 year-to-date, and since we started this Blog in January 2006, our model portfolio is -10.6%,-58.8% and -23.3% respectively. Since inception we are now 22 stocks up and 16 down, with 2 of the losers being down 10% or less.

So far in 2008 the DOW is down 22.2%, NASDAQ is down 26.6% and the S+P 500 is down 25.1%. The NASDAQ is down a 31.9% since October 31, 2007.

The Russell 3000 and the Wilshire 5000 are both down about 25% this year.

Since inception 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%

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 23 stocks that we closed out in 2006, 2007 and 2008 the average gain was 22%.

Spectranetics (SPNC-Recommended 9/2/2006)
Buy price $8.90 (was $9.40 before adding $10,000,and was $10.65 before double up), Valuation –Suspended.
Up $.21 to $4.73.
SPNC is suffering from the FDA, ICE raids that apparently eminated from an ex-employee whistle-blower trying to collect so money from the company. Over the last couple of weeks the bottom feeding securities lawyers decided to target the company’s cash hoard too.
SPNC has the financial where-with-all to deal with this. Just got to wait this one out.
The company has $44.4 million in cash ($1.33 per share), no debt and is trading at just less than 1 times 2008 revenues (net of cash)and is growing about 30% a year.
Now down 47%. HOLD.

DataWatch Corp. (DWCH-Recommended 2/12/2006)
Buy price $3.02 (was $3.02 beofre adding another $10,000,was $3.21 before adding another $10,000, averaged down from $3.66), Valuation $8.64 (was $8.47, $8.47, $10.30, $9.28, $9.20, $8.32, $7.50, $7.63, $9.31)
Closed at $1.79, up $.30.
They have $.75 a share in cash and are profitable.
No news.
Trading at a measly 21% of our valuation.
Now down 26%. BUY

Mediware (MEDW-Recommended 6/4/2007)
Buy Price $6.33, (was $6.52, $6.67 ($10,000 added), $6.98 after double up) NEW NEW Valuation $11.47 (was $10.99, $10.28, $13.32, $12.89, $13.40)
Down $.12 at $5.50.
Cannell Capital filed a 13D on February 19th, disclosing a 12.9% ownership stake. Cannell is pushing MEDW management to sell the company. Meanwhile, Constellation Software, a Canadian public company that has been on an acquisition binge filed a 13D in April, disclosing a 6.1% ownership in MEDW (499,000 shares). Constellation has $243 million in revenues and is profitable.
In early May, Constellation increased its bank credit line to $105 million from $50 million.
On May 21 Constellation purchased another 586,000 shares of MEDW at prices from $5.43to $5.70 (most at $5.70). So Constellation now owns 1,056,000 shares–13.9%.
Cannell sold some MEDW (about 175,000 shares at about $5.60 to $5.80) but still holds 875,000 shares or 11.5%. We have not seen another Constellation filing, but obviously someone is buying these shares and the price has barely moved.
Looks like something is going to happen here–but when?
Down 13%. HOLD

Candela Corp. (CLZR-Recommended 8/30/2007)
Buy Price $3.74 (was $7.26 before double up), Valuation $8.63 (was $9.90, $8.69, $11.51)
Down $.65 to $2.02
Candela reported Q4 results on 8/20. More of the same. Sales down 3% and lost $2.7 million. Also reported that they are having “product reliability issues”. Great.
On the other hand, they still have $1.46 per share in cash and Q4 included $3.7 million in legal expenses related to their lawsuits with Palomar. They are predicting these expenses will decline (trial is scheduled in September) and that they will return to profitability in calendar Q1 2009. No news on the trail so far. If they can do what they say, this stock should double from here.
Down 46%. HOLD

MIVA. (MIVA-Recommended 10/21/2007)
Buy Price $1.63 (Was $2.38 before adding another $20,000, $2.62 before another $10,000 and was $3.00 before double up), Valuation $5.61 (was $6.42, $6.84, $7.58, $7.59)
Down $.07 to $.62.
Blinkx, a U.K. company made an all cash offer to buy MIVA in early August for $1.20. MIVA rejected the offer almost immediately saying it was too low and they think they can do better.
They better, or there will be shareholder lawsuits on this one.
Even though MIVA is a money losing mess, they are at such a low price to valuation that we will hold for another quarter. Hopefully we get a better take-over offer above our cost basis.
Trading at 11% of our latest valuation
Down 62%. HOLD

Harris Interactive. (HPOL-Recommended 5/25/2008)
Buy Price $1.79 (was $1.82 before adding $10,000, $2.02 before $10,000 added and $2.15 before double up),Valuation $6.00 (Was $5.96)
Down $.12 to $1.67.
Finaciere De Sainte Marine, continues to buy HPOL. They now own 7,779,000 shares up from 6,640,381 shares just over a month ago, or just over 14% of the company.
Trading at 28% of our valuation.
Down 7%. BUY

IPASS. (IPAS-Recommended 6/1/2008)
Buy Price-$1.90 (Was $2.07 before another $10,000 added and $2.15 before double up), Valuation $4.30 (was $4.09)
Down $.52 to $1.80.
Foxhill is buying more shares (13D/A filed in September for another 272,000 shares). Foxhill now owns 3,844,000 shares or 6.9% of IPASS. They also sent another letter to IPASS urging they sell the company. Looks like they are serious.
With $1.12 per share in cash (62% of market cap), we feel that this has little additional downside.
Down 5%. BUY

Healthstream Inc. (HSTM-Recommended 8/4/2008)
Buy Price-$2.40
Valuation $4.42
Up $.04 at $2.48.
No news.
Up 3%. HOLD

CCA Industries. (CAW-Recommended 8/4/2008)
Buy Price-$6.66 (was $7.00 before $10,000 added) (6.9% dividend)
Valuation $18.36
Down $.35 to $5.30.
Dividend yield up to 8.2%.
Add another $10,000 here. New average buy price will be $6.14.
No news.
Down 20%. BUY

Magic Software Enterprises. (MGIC-Recommended 8/18/2008)
Buy Price-$2.08 (was $2.00 before $10,000 added at $2.16)
Valuation $4.15
Closed down $.15 at $1.85
Formula Systems (NASDAQ-FORTY) filed an amended Schedule 13D in early September. They added 569,000 shares to their position between May and August and now hold 17,605,000 shares of MGIC or 55.4%. FORTY is a long-term investor, but this is a good sign of course.
Down 11%. BUY

Angeion Corporation. (ANGN-Recommended 8/28/2008)
Buy Price-$5.15
Valuation $13.03
Closed down $.41 at $4.39
Blueline Partners filed a 13D on ANGN on June 23. They own 216,000 shares or about 5.3% of the company. All of their purchases were well North of the current price.
Down 15%. 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 $5.63 (was $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $1.20, even.
Earnings announced in June were impressive. $.06 per share in earnings (untaxed)for the quarter and $.14 per share for the first three quarters. Our valuation moved up to $5.63 per share. This is still way too cheap.
They announced a small aquisition in early July. Will add $1 million in revenue and be profitable. This is the stuff that will help get some attention for ARI.
ARI does little to get any investor attention. Wake up management–you have a great little company here worth 3X what it is selling for.
Now down 25%. BUY. Still a Huge valuation gap here.

Avatech Solutions Inc. (AVSO.ob-Bought November 28, 2005)
Buy price $.93 (Was $.99 and $1.19 before adding $10,000-twice), NEW Valuation $3.76 (was $4.00 $3.41, $3.05, $2.53, $3.25, $3.29 $2.69, $3.36, $3.81)
Stock closed at $.98, up $.03.
AVSO finally issued their 10Q. Our valuation came down to $3.76 form $4.00 on seasonally slow sales and margins. Cash continues to increase, and so does net income. Trading at only 26% of our valauation.
UP 5%. BUY.

CTI Holdings (CTIG.ob-Recommended 2/25/2006)
Buy price $.27 ask, Valuation $1.29 (Was $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price up $.03 at $.20. Closed at $.16.
Q2 earnings announced in August. Sales were ok, but they had another loss. Sales were $5.035 million compared to $6.1 million last year. Last year included about $900,000 of legal settlement income. They lost $553,000, which included $247,000 of patent enforcement costs. They indicated that there might be a litigation settlement before the end of the year. Their VOIP business continues to struggle and lose money–$707,000 in the current quarter. Gross margin % held steady at about 75%.
They might have to sell or shut this VOIP business down in our opinion. Just losing too much money, and eroding shareholder value.
Still an “undercover” company and stock.
This is still trading at only 13% of our latest valuation.
Down 26%. BUY

Lotus Pharmaceuticals (LTUS.ob-Recommended 12/3/2007)
Buy price $.84 (Was $.95 before $10,000 adder, $1.08 before double-up) Valuation-$1.61 (Was $2.28, $2.08)
Closed at $.32, down $.15
Earnings out in early August. Sales were up 51% over last year to $19.4 million. They earned $2.2 million or $.05 per share. For the 6 months, sales were up 47% to $31.1 million and they reported $.07 per share in earnings.
So why is the stock down? It looks like it is trading at at less than 4 times EPS.
Well, their legal structure, apparently uncollectible $13 million of receivables from their Chinese affiliated company and their committment to build a manufacturing plant for about $70 million with no disclosable means of financing it, are giving all investors pause. Also their “Selling Expenses” went from $800,000 last year to $5.9 million in the current quarter as they paid $3 million more commissions to sell product and $2.4 million in “bonuses” to accelerate collections. Pretty odd, almost sounds desperate.
Our valuation fell to $1.61 from $2.28.
We listened to the conference call. It actually made us feel a little bit better, although all the Chinese and subsequent translations were trying. They reaffirmed their 2008 guidance. They are shooting for the moon here. If it works, we will have another AOB. It seems that if their land deal and $70 million building don’t pan out, their back-up plan is to sell the land (or parts of it). Sensible.
Keep your finger on the SELL trigger on this one.
Down 62%. HOLD