Keeping a Casual Eye on ASUR, Part III

As I mentioned in a previous post ("Keeping a Casual Eye on ASUR"), I closed out my positions in Asure Software (Nasdaq: ASUR) at .25, but I planned to keep a casual eye on the stock to see

if Red Oak succeeds in unlocking some shareholder value here. If so, it might be worth considering piggybacking on their next venture in micro cap shareholder activism.

David Sandberg and his associates have succeeded in ousting ASUR's management: "Shareholders oust Forgent’s board". Now it will be interesting to see if Sandberg can make the company profitable again and increase shareholder value. If memory serves, his average cost on this is about 18 cents per share.

Quick Destiny Media Update

After noticing that shares of Destiny Media Technologies (OTC BB: DSNY.OB) dropped 23% today on about 10x average volume, I put in a quick call to Destiny's CFO, Fred Vandenberg. He didn't have any explanation for the move, though he suspected short sellers. He also seemed to be in a good mood while mentioning that Destiny would be releasing its Q3 numbers tomorrow and updating its investor site, DSNY.com.

Recall from my conversation with Vandenberg after Destiny released its Q2 numbers, that Vandenberg had predicted that Destiny would turn a profit in its Q3. Destiny's CEO Steve Vestergaard had falsely predicted profitability more than once in the past, but this was the first time that Vandenberg, the company's CFO, had done so. Vandenberg has tended to be conservative, as befits an accountant, in his comments to me.

PhotoChannel Turns a Profit

From the company's press release ("PhotoChannel Reports Profitable First Quarter"):

FIRST QUARTER FISCAL 2009 HIGHLIGHTS

- Net profit of $940,644 versus a loss of $1,082,600 for
the comparable period of fiscal 2008

- Record revenues of $7.2 million, up 67% year-over-year

- Transactional revenues of $5.8 million, up 91% year-over-year

- Non-GAAP adjusted EBITDA(1) of $2.8 million, compared
to an adjusted EBITDA loss of $117,483 in the first quarter
of 2008 (adjusted EBITDA defined as net profit plus amortization
and stock-based compensation expense)

- Non-GAAP adjusted EBITDA representing 39% of net-revenues
for the quarter

- Earnings per share (EPS) of $0.03 versus a loss per share
of $0.03 for the comparable period of fiscal 2008

- Non-GAAP adjusted Earnings per share (EPS)(1) of $0.08
versus $0.00 for the comparable period of fiscal 2008

- At December 31, 2008 the Company had approximately $3.1
million cash on its balance sheet

ORDER METRICS

- Over 4.9 million orders were transacted in the first quarter
of fiscal 2009

- Average daily orders of approximately 53,000 versus 15,000
for the same period of fiscal 2008, a 240% increase year-over-year

- Peak day saw over 134,000 orders placed and over 5.2 million
images pass through the PNI Platform

Another Alloy Steel Post

In a post a couple of weeks ago ("Alloy Steel Update"), we quoted an e-mail from the CFO of Alloy Steel (OTC BB: AYSI.OB) in which he intimated that the company might file an 8-k or issue a press release about its fiscal fourth quarter results within the next week. At this point, since there's been no announcement from the company, it's likely we won't hear anything until Alloy Steel files its 10-k later this month. Alloy Steel's lack of emphasis on shareholder communication isn't new; the company still hasn't set up the investor relations section of its website. If you click on one of the tabs under the "Investors" heading on Alloy Steel's website, your taken to a generic page on the website of the company's outsourced IR web vendor (the stock image above is from that generic page.

In a discussion about Alloy Steel on its Investors Hub message board , I mentioned that I was less concerned about the previous quarter's results (which I think will be positive) than I was for the company's prospects in '09, given the global recession and the grim news from the mining industry. A commenter who goes by the handle "Littlefish¹" explained why he was confident in the company's prospects during this downturn. Below is his explanation.

I have a lot of confidence in the company being around when things recover, excepting some kind of huge technological breakthrough in wear plates that puts all alloy wear plate into permanent obsolescence.

I don't have confidence in when they'll get around to putting out prelim or audited results though:) Except probably by the end of year. Hopefully much sooner but who knows. I don't want my eyes permanently crossed so am only going to cross them for one night.

If you look at the company's operating history, it is vanilla plain clear to see they know how to weather tough times. They survived years (especially 2001-2003 tough times) on practically nothing (IMO).

Unlike many micros out there, I would say the likelihood of them making it thru the next year readying themselves for a hopeful recovery at SOME point is extremely likely.

They've been thru this before with the Aussie miners. Plus now they have a little bit of chance to get themselves into new markets. They haven't borrowed from any banks. They have no dilutive instruments. They got thru 2001-2003 w/o diluting or borrowing from lenders.

And they have mostly paid for the 2nd mill already with internally generated cash. Worst case, knowing Gene's fiscal responsibility, they could just operate one mill until a 2nd is needed and adjust headcount to keep pace with what they have for work.

What is the WORST operating earnings loss they have reported in their operating history? One thing seems pretty clear with about 8 years of filing as a public company, they don't lose much money regardless of economic conditions and sales. And have tight cash flow management.

Plus without debt and with prior history of having opertaing income even on $500K revs Qs (I think even $400K Qs if I recall), I just don't think we'll see them evaporate. The cash they have IMO they will hold or spend judiciously. If they spend it, hopefully it is to finish off the 2nd mill and/or branch out to sales in US etc.

As ambu [another I-Hub commenter] mentions, they've probably missed out on some revs growth during this last commodity bonanza go-round by being so cautious. But it also means they should be fine in this downturn.

I think this company will be in a better position than before IF/WHEN we get a recovery (because of capacity upside, cash on hand for a change).

BUT when is that recovery? Who knows.

What would be a strong endorsement to the product quality and potential IMO is to see sales actually grow in this mining industry/commodity blowup. It won't be easy but one avenue to seeing that happen would be by tapping into markets they don't sell into much now (like the US).

As I mentioned in a previous post (Vaalco Energy Update), I sold a few shares of Vaalco to free up some cash to buy some more Alloy Steel. My limit buy orders for Alloy Steel haven't been filled yet though.

¹"Littlefish" was the subject of a pair of posts here over the summer about his success with another micro cap stock, Mexco Energy: "How One Investor Found a Home Run Stock, Part I", and "... Part II".

Perritt on Micro-Caps

After a three month lag time, I received the semi-annual reports for Perritt Micro-cap Opportunities and Emerging Opportunities funds today. One statistic cited by Perritt portfolio manager Michael Corbett jumped out at me. Perritt broke down the performance of different market cap ranges within the Russell 2000 index and found that, over the 12-month period ending April 30th, 2008, the average stock in the $5 million to $295 million market cap range was down a 49.3%.

A couple of other observations from this report:

1) One of my current holdings, Vaalco Energy (EGY), was listed as one of the top ten holdings of the Perritt Micro-Cap Opportunities Fund. EGY was down today, with the pullback in oil prices.

2) One of the top ten holdings of the smaller (under $250 million market cap, if memory serves) Emerging Opportunities Fund looks interesting: Mitcham Industries, Inc. (MIND). It leases and sells seismic equipment of the sort used by oil and gas E&Ps on land and in shallow waters. The company has no debt, is trading at a little over 10x next year's earnings estimates, and has had recent insider buying, according to Yahoo! Finance. I'll have to keep an eye on this one.