The Microcap Speculator

Worth reading:

• Littlefield Corp. swings to a loss in Q1 - Quarterly earnings for Littlefield (LTFD.OB) came in a bit light. However, if it can pull off the sale of the catering business, this may still be a stock to watch.
• Banks.com, Inc. Adds Record Number of Registered Subscribers and Users During 2008 Tax Season: Financial News - Yahoo! Finance - Think of Banks.com (BNX) as a poor-man’s Marchex (MCHX) but with a little effort it could use Bankrate’s strategies to squeeze more cash flow from its domains
• Global Aircraft Solutions Announces Sale of One 737-200 Aircraft to Pamir Airways - GACF takes another step to improve its balance sheet, but the turnaround is far from complete.
• Onkyo Becomes Latest Microprocessor Patent Licensee - Another big CE name signs licenses the Moore Patent Portfolio, but these deals will never generate enough cash flow to please PTSC investors long term.
• Technical Communications Corporation Reports Results for the Second Fiscal Quarter Ended March 29, 2008 - TCCO rallied into the earnings report but sold off on the news. Though profits dipped a bit year over year, revenue growth was strong and backlog is impressive. Between existing backlog and the new Egypt contract, I highly doubt the dip is deep or prolonged.

DISCLOSURE: No positions.

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Worth reading:

• Patriot Scientific Reports Q3 FY’08 Results - market really hated this one, sending shares down over 20%. I was a very early fan of PTSC but have been skeptical since it peaked. With the big settlements behind it, how can PTSC justify its valuation?
• Candente: Copper Worth Looking At - Otto Rock via Seeking Alpha, on why Cadente is a likely takeout at a much higher price
• China 3C Group Enters into Supply Agreement with Wal-Mart Stores in Zhejiang Province - CHCG needed a little good news after the latest dour outlook.
• YTB International Reports Total Revenue of $141 Million and $3.2 Million Net Income for 2007 - YTBLA is en fuego, rising from below 1 to around 4 in just a few weeks (chart). The funny thing is I never even heard of this company.
• The Short Case for Origin Agritech - Interesting read but imo this stock was rides up and down on the fancy of momo traders.
• BAB, Inc. Reports Profit for 1st Quarter FY 2008 - Earnings hold steady at my favorite publicly-traded bagel company. As long as they do, I’ll keep collecting that huge dividend.

DISCLOSURE: Long CHCG.OB, BABB.OB. No position in other stocks mentioned.

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For the past few months, I have had an ongoing dialogue with a reader who is close to Modavox (MDVX.OB). He’s a large shareholder, so assume that he is talking his book. But the story is certainly worth looking into.

Modavox has two main businesses:

1. Broadcast Media - basically just internet talk radio. This division was responsible for about 80% of revenues last quarter, but its not where Modavox’s future lies.
2. Interactive Media - provides behaviorally-targeted advertising solutions and interactive e-learning platforms.

The numbers in a vacuum are not inspiring. For the first three quarters of its 2007 fiscal year, Modavox inked $2,531,779 in revenues, compared to $2,000,255 in the prior year, and lost $650,207, compared to a loss of $397,491 in 2006. At this run rate, Modavox has an enterprise value-to-sales ratio of 17.85, well above Google (9.11), Apple (3.44), and most other high flyers. Plus, its not profitable. Viewed without context, these numbers give little reason to get excited.

But with this stock, the context matters. Modavox has a few broad patents covering, among other things, behavioral targeting of internet ads. It has already brought a patent infringement suit against Tacoda, now a division of AOL. My source believes that scores of internet businesses could also be infringing on the patent portfolio. Think of Tacoda as a test case. If Modavox prevails and its patents are upheld, Modavox could be the next big patent licensor - the Patriot Scientific (PTSC.OB) of internet advertising. And unlike Patriot Scientific, Modavox is actually practising the technology so it shouldn’t be disadvantaged by last year’s Supreme Court ruling in KSR v. Teleflex.

The technology also could make Modavox an attractive buyout candidate. Both AOL (Tacoda) and Yahoo! (Blue Lithium) have recently bought behavioral advertising companies. I’m not sure if Modavox’s business has sufficient scale to justify a buyout, absent the patent bludgeon. That is why I’m focusing on the growth of the Interactive Media division. Revenues are very small now, but substantial growth here will likely be rewarded by the market and attract suitors.

Despite the potential, I’m not a buyer (yet). Modavox is overextended, and the potential patent and buyout catalysts may take some time to develop, if they do at all. For now, MDVX is on my watchlist. If you have anything to add on Modavox, please leave a comment.

DISCLOSURE: No position.

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Patriot Scientific (PTSC.OB) traders have had a wild ride for the past two years. Since January 1996, the stock shot up from 8 cents to over $2. Now, as the weekly chart below shows, the stock is trying to bottom around $.40.

Whether the bottom holds will likely be dependent on the company’s return to profitability. For a few quarters, Patriot Scientific announced not only substantial profits, but numerous dividends, as its licensing joint venture secured key deals with PC, semiconductor and electronic manufacturers to license the Moore Patent Portfolio, of which the company is part-owner. As the pace and (by most estimates) size of the licensing deals began to subside, operating metrics also deteriorated. Last quarter, Patriot Scientific lost $1.96 million on licensing proceeds to the joint venture of $1.5 million.

Today, the company announced that it had reached a deal with Philips Electronics.  “We welcome the expansion of our program with Philips, a proven worldwide leader in medical equipment and consumer electronics. This agreement further validates the strength and broad scope of the MMP Portfolio,” said Andre-Pascal Chauvin, vice president of licensing for Alliacense, Patriot Scientific’s licensing partner.  More importantly, the company suggested that further deals could be in the pipeline: “It’s pretty common to see the pace of deals pick up as a trial approaches,” said Mike Davis, senior vice president, licensing. “A number of major businesses that have been following the case closely needed a little time to evaluate the recent Markman ruling, and are now moving to capture licenses at current prices and avoid significantly higher royalty rates following trial.”

Bottom line:  This is certainly good news for Patriot, but the size of the Philips deal has not been disclosed and I for one will remain skeptical until I see the company transform its dealflow into a significant, lasting revenue stream.  With a market cap. of $164.33M (per Yahoo!), lofty expectations are still baked into the share price.   Unless PTSC starts delivering  profits soon, shareholders are likely to see more disappointment.

DISCLOSURE:  No position.

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