Advanced Nutraceuticals Ups the Ante

Ticker: ANII
Price: $3.40
Mkt Cap: $16.1 million
Ent Val: $19.7 million
P/E: 9.66

When we reported on Advanced Nutraceuticals last month, the story revolved around the company opting to effectively go private, but retain its ability to trade on the pink sheets. We've written about this concept ad nauseum here at Cheap Stocks, but we see these situations as potential unique sources of excess return. In ANII's case, as you may recall, the company intends to reduce shareholder roles below the magic 300 level via a 1 for 500 reverse split. Those with fractional shares after the split will be paid in cash. Nothing new here.

New Price For Fractional Shareholders
What is new, however, is the price the company will pay fractional shareholders. When we wrote the last report, the company had stated in its June 8, 2006 proxy that it would pay fractional shareholders $3.20 per pre split share. The company recently revised its proxy, dated July 25th, and has raised that to $4.00 per share. This change went unreported in the media, but that's no surprise due to this company's small size.

The revised proxy states the following:

Summary

Based upon the board’s considerations taking into account the above factors, for purposes of the re-purchase of fractional shares, it was determined that the reverse split re-purchase would be based upon $4.00 per fractional share. This value was established based upon the past 30 days’ average closing prices of the common shares which equaled $3.06 increased by a premium of 30% to reflect the board’s estimate of the current fair value of the company. This value was unanimously agreed to by all board members.

The board of directors considered the fact that in mid 2005 a self-tender offer was conducted to re-purchase approximately 19% of the then outstanding common shares at a price of $4.25 per share. A significant motivating factor in the 2005 offer was to attempt to persuade large numbers of smaller shareholders to tender their shares. In addition, under the circumstances, such smaller sellers had no costs to sell their shares. The board of directors determined to re-purchase shares at a 6% premium to the market price of the stock in a further attempt to entice shareholders to sell. Nevertheless, as discussed above, only approximately 2% of the company’s shareholders participated, leaving approximately 4,200 smaller beneficial shareholders holding shares.

The board of directors believes that the reduction in the public market value of its shares in 2006 to the current level as compared to the approximate $4.10 level in 2005 when the self-tender offer was conducted, is due to the following factors, among other market conditions:

1. Erosion in product margins due to significantly higher quality costs to comply with the recently secured National Nutritional Foods Association quality manufacturer certifications and higher raw material costs.
2. Continued price competition as competitive manufacturers attempt to gain and retain market share.
3. Continued increases in interest rates causing higher borrowing costs and lower profits, as well as more investment dollars moving out of the stock market and into interest sensitive funds.
4. The Company’s borrowing of over $4.5 million debt to fund the 2005 self-tender offer.

The company popped slightly last week, trading in the $3.50 range. While the new offer may not mean a whole to those investors who plan on remaining shareholders after the split, it does show that the company is serious about enticing smaller shareholders to get off the books, paving the way for the company to reach the sub 300 shareholder level. This could be an interesting ride.

*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

PICO Holdings: The Poor Man's Berkshire Hathaway?
Company Update

Ticker: PICO
Price: $29.72
Market Cap: $394 million
P/E: 12.9
Price/Book: 1.35
Enterprise Value: $369 million

We last wrote about PICO a couple years ago, we owned it then, and still do. This company is typically not on anyone's radar, but is an interesting combination of businesses and investments.

Graham and Dodd: In Management's Own Words
We acquire businesses which we identify as undervalued based on Graham and Dodd-style fundamental analysis, and our assessment of what the business is worth based on the private market value of its assets, earnings, and cash flow. We favor long-established businesses in basic industries, with a history of operating successfully through industry cycles, recessions, and geo-political disruptions. We also acquire interests in companies where there is significant additional unrecognized value in land and other tangible assets. Our objective is to generate superior long-term growth in book value per share.

When we purchased PICO a few years back, the primary reason was the company's vast Nevada land holding-the company was the largest private landowner in the state-at the time nearly 1.2 million acres. This was old railroad land, certainly not the same quality as some of the other companies we've researched, but it included water rights, a very compelling package at just $13 per share.

Not Just Land and Water
PICO also owns two insurance companies in "runoff" Physicians Insurance Company of Ohio and Citation Insurance Company. Insurance companies in runoff no longer write new business, just service existing policies, and claims on those policies. PICO makes money by managing the investment portfolios associated with these companies, essentially booking the difference between claims and investment income.

European Investment Portfolio
As of 12/31/05, PICO also listed the following holdings:

Jungfraubahn Holding AG: 1.3 million shares or 22.5 % of this Swiss railroad company
Raetia Energie AG: 70,556 shares in this producer of hydro electricity
Accu Holding AG:29,294 shares of this Swiss battery manufacturer

Hyperfeed Technologies
PICO also owns more than 6 million shares, or 80% of Hyperfeed (Ticker:HYPR) which provdes financial market data and data-delivery solutions to the financial services industry. Truth be told, we are not sure why PICO invested in this company in the first place, but it represents is a very small portion of company interests.

First Quarter Results
The company reported first quarter net income of $7.2 million, primarily due to a gain on the sale of investments. The company ended the quarter with $243 million in investments, $54 million in cash, and $12 million in debt.

Stock Offering
In May 2006, PICO completed a private placement of 2.6 million shares of newly issued PICO common stock with two institutional investors, for $30 per share. The offering generated $71.4 million. It is believed that FMR corp, parent company of Fidelity family of mutual funds, was one of the institutions. FMR recently reported that it owns a 15.3 percent stake in PICO.


Conclusion
If you are looking for a steady ride in terms of earnings, this is not the company for you. Management is focused primarily on increasing shareholder equity, and due to the structure of the company, reported earnings will be choppy. That being said, management has done an excellent job of increasing shareholder equity, and the stock price has followed. We can't but help think of PICO as the poor man's Berkshire Hathaway.

*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

My Island Part 2:
Looks Cheap Relative to Hansen Natural (HANS)

Hansen Natural
Ticker: HANS
Price: $45.83
Mkt Cap:$4.17 billion
Enterprise Value: $4.08 billion
P/E: 60

Your Cheap Stocks Editor is the first to admit that we sometimes stretch the limits of sensibility in some of the comparisons we draw here at Cheap Stocks. Last week, we compared the "market value" of a small piece of our little vacation island to St. Joes Corp. We think St Joes looks more attractive in that comparison. This week, we take a look at beverage company Hansen Natural (HANS). This time, our little island wins out.

Sour Grapes
Back in 2003, we had a position in Hansens. We wrote about our experiences in a previous post in March of 2005. In our sob story, we described purchasing Hansen's, at the time a stock no one cared about, riding it sideways, and finally selling it after tripling our money. At the time of the post, the stock had gone from a $40 million market cap company, to a $500 million company. We felt bad. Fast forward to now, and Hansens is now a $4 billion company. That's right, a 100 bagger since we initially purchased shares. We are astonished at this company's metoric rise. Maybe we are also disappointed for not hanging onto the shares.

Sales Explosion
Hansen's 2005 sales were nearly $350 million; double 2004's, and nearly triple 2004's. Net income rose from $20.3 million in 2004 to $63.8 million in 2005. The latest reported quarterly sales were $120 million, with net income of $21 million. This company is on fire, and it's expansion into energy drinks has truly paid off. The balance sheet also looks good: $100 million in cash and marketable securities and no debt.

But....
After a recent 4 for 1 stock split, the company now has more than 90 million shares outstanding, and we are wondering how much room this company has left. Sure, sales may continue to grow, but we don't believe Hansen is worth 60 times earnings. The forward P/E is half that, but one small slip in sales and earnings growth, and watch out. We just don't believe Hansen's can continue to grow at such a rapid pace.

If you are looking for your Cheap Stocks editor this weekend, I'll be on the beach of my beloved (albeit overpriced island), sipping a Hansens, reading St. Joes annual report.

*The author does not have a position in this stock (HANS). This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

My Island Looks Expensive; St. Joes (JOE) Looks Cheap
A View of the Real Estate Bubble
From Your Vacationing Cheap Stocks Editor

St Joes Corp
Ticker: JOE
Market Cap: $3.63 billion
Price: $48.65
P/E: 32
Dvd Yield: 1.4%
Enterprise Value: $3.98 billion
Acres: 800000
EV/acre: $4975

We've been enjoying some rest and relaxation on a small island strip of NJ coast we call our summer home. I've not been completely on vacation, however. As I ride up and down this island, and see the ridiculous property prices, I can't help but to wonder...

And wonder I have, which has given rise to a few calculations. You see, on our little island, I'd estimate there are about 40 properties on each street from bay to ocean. This includes 4 beachfronts, and 2 bayfronts. Based on recent prices, I'd estimate that an entire street worth of property would sell for about $30 million based on the following:

Beachfront home(4 per block): $1.5 million each
Bayfront(2 per block): $1 million
Oceanside(14 per block): $750 thousand
Bayside (20 per block: $ 600 thousand

Total Value/Street: $30.5 million

This is actually a very conservative estimate, and does not include streets, or infrastructure, just private property and homes.

So, theoretically, 130 streets worth of property, or an area of approximately 5 miles by 1/4 mile, or about 800 acres, about 1.25 square miles, would be worth about $4 billion. We know this calculation is a bit ridiculous; if every homeowner on 130 streets put their house on the market, property values would plummet. Still, it is food for thought.

We know of a company that is also worth about $4 billion based on Enterprise Value, St. Joes Corp, which we've written about in the past and have a position in. The company owns about 800,000 Florida acres, more than 300,000 acres of which is within ten miles of the Gulf of Mexico.

St. Joes has had quite a run-up over the past few years, hit $85 in 2005, but now trades for less than $50. This profitable company has no doubt been stung by a pullback and slower growth in Florida real estate. We see tremendous value in these shares for investors with a little patience.

So does Third Avenue Funds, led by the legendary Marty Whitman. Third Avenue owns a huge stake in St. Joes, about 14 percent, and has been adding to positions. We were pleased to note Michael Winer's (Portfolio Manager of the Third Avenue Real Estate Value Fund--while we don't own this fund, we do own Third Avenue Small Cap Value, which also has a position in St. Joes) column much of which focuses on St. Joes in the latest letter to shareholders. This letter is typically fantastic, and I'd urge you to see for yourself. Winer's explaination of why St. Joe's is still safe and cheap is outstanding.

Back to our little NJ island. A real estate agent friend of mine told me the other day that there are hundreds more homes for sale this summer compared to last. Sales are down as much as 50 percent. This should surprise no one.

Finally, I've been thinking. What's more valuable, 800,000 acres of prime Florida land, or 800 acres of a NJ barrier island? I guess value is truly in the eye of the beholder.






*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

Paying for Illiquidity
Another Company Heads Toward Delisting: By Choice
Advanced Nutraceuticals
Ticker: ANII
Price: $3.00
Mkt Cap: $14.2 million
Ent Val: $17.8 million
Ent Val/Ebitda: 4.6
P/E: 8.52


Your Cheap Stocks editor realized today just how off-the beaten path his portfolio building antics have become after listening to Charles Schwab’s automated quote line. You know, Schwab account holders, the familiar voice that will read through your list of current holdings, should you so desire? You know you’ve entered no-mans land when this great voice gives you a ticker only for some of your holdings, and not the company name. Not even Schwab knows the names of these companies. Not even the great voice!

That’s certainly the case for our latest acquisition, Advanced Nutraceuticals Inc, a tiny, but profitable Denver based manufacturer of supplements and vitamins, through its NY based subsidiary Bactolac Pharmaceuticals. Fiscal year end 2005 sales were $22.9 million, up 30 % from 2004’s $17.6 million. Net income was $1.9 million in 2005, down from $3 million in 2004. The company is dependent on 2 unnamed customers for 24.5 % of sales (Q1 2006). 2006 Q1 sales of $6.7 million were up from $5.5 million from the same quarter last year. Net income was essentially flat at $590,000

As of Q1 2006, the company had $1.9 million in cash, and about $5.4 million in short and long term debt. Book value per share as of 3/31/06 was $2.93, so the company does trade at about book value. However, on a tangible book value basis (excluding goodwill) that figure drops to just $1.33. Not a bad balance sheet, but not stellar.

Going Private
Based on fundamentals alone, it’s doubtful that we’d have taken a position in ANII. Not that the fundamentals are bad, they are actually quite good. But what caught our eye was the fact that ANII is yet another company seeking to avoid Sarbanes Oxley and SEC filing, essentially going private while maintaining a listing on the pink sheets. (An avid Cheapstocks reader alerted us to ANII’s intentions a few months back, after reading the proxy) We find these situations rather interesting, for a couple of reasons: Companies going this route save money by avoiding SarBox, and SEC filing in general, and since many of the companies are very small, the savings can be relatively significant. Furthermore, key personnel, such as the CFO, often spend a great deal of their time on compliance related issues. Going private removes these constraints, allowing management to spend more time on growing the business(We know, that's only positive if management is competent). Furthermore, going private may telegraph that management feels the company is undervalued, and wants a bigger piece of the pie.

The Downside
Going Private is not a free lunch for shareholders. Despite the potential positives, there are negatives. First of all, companies effecting the GPT transaction often shut off communications with shareholders. Remember, they no longer are required to file with the SEC, so financial information can be difficult to acquire—even if you are a shareholder. Some such as Avoca, are very forthcoming, as we’ve previously reported, but as shareholder, you may be on your own. Another major downside is that in order to meet the requirements to avoid SarbOx, and SEC filing—getting the number of shareholders below 300—the fallout is that liquidity disappears.

Getting There
There are a few ways to shrink to less than 300 shareholders, the one we see most often is the reverse stock split. In this transaction a company will split 1 for 100 (Avoca), 1 for 500 (as ANII intends, 1 for 5 (Scheid Vineyards), or any way it believes will be effective. Once the split occurs, this will leave many shareholders with fractional shares which the company redeems for cash—hence the reduction in shareholder roles. But that’s not the only reduction—with a reverse split comes a reduction is shares outstanding. Depending on the magnitude of the split, this can be an overwhelming reduction in the float. Avoca, for instance now has just 8 thousand shares out. If ANII’s proposed split commences, they’ll have just 9 thousand. Bye-bye liquidity, bye-bye daily trade volume, not that there was much before anyway. Post-split, shares are difficult to find, and difficult to sell. Hence, these companies are only for those with longer time horizons, patience, and the wherewithal to contend with a lack of information.

Going private could also be negative if management has an agenda not in the best interest of shareholders. Since they are no longer beholden to SEC reporting, financial shenanigans will be easier to hide. Finally, these companies virtually close the doors to further financing by shutting down communications with the outside world.

A Calculated Risk
We were compelled to take a small position in ANII. The combination of decent fundamentals, and the prospect of going private sealed the deal. Please note the words “small position”. The rules and benefits of diversification still apply here.


The Proxy

The company’s recent proxy outlines the reasons for the proposed de-listing; this is a move that must be approved by shareholders. However, in this case, it’s a moot point because management owns nearly 69% of the outstanding shares.

Rather than drone on, we thought it beneficial to delve into the actual proxy. The following is directly from the proxy:

Why are we proposing the reverse split?


________________________________________
The purpose of the reverse split is to reduce the number of shareholders of record below 300, which will enable us to terminate the registration of our common stock under the Securities Exchange Act.


By terminating our registration under the Securities Exchange Act, we hope to:


• Achieve significant savings in ongoing legal, accounting and other administrative costs associated with being a public company and related to the reporting process and shareholder communications required by the Securities Exchange Act;


• Avoid significant expenses and efforts that would be necessary for us to comply with additional procedures relating to internal control that otherwise are required by year-end 2007 under the Sarbanes-Oxley Act and SEC regulations; and


• Enable management, employees, and the board of directors to focus their efforts on the operations and management of the Company’s business, rather than the reporting processes.


The primary purpose of the reverse split is to reduce the number of holders of our common stock below 300, which will enable us to suspend filing periodic and annual reports with the SEC and to no longer incur the significant costs of complying with the reporting requirements of the Securities Exchange Act. The elimination of those requirements will allow management to refocus the time spent preparing reporting documents and engaging in securities law compliance activities to the pursuit of operational and business goals. In considering the proposed amendments, our board of directors considered the benefits and costs to us and our shareholders set forth below.
• We believe that as a result of the reverse split we will be able to realize cost savings of at least approximately $200,000 annually by eliminating the requirements to make periodic public reports and by reducing the expenses of shareholder communications, including legal expense ($60,000), audit and accounting expense ($40,000), printing expense ($15,000), postage ($8,000), data entry, stock transfer and other administrative expenses ($5,000), as well reduced staff and management time ($75,000) spent on reporting and securities law compliance matters. In addition, we will avoid the costs of initial compliance with the internal control over financial reporting systems requirements of the Sarbanes-Oxley Act, currently expected to be required for public companies of our size by year-end 2007, which are estimated to range from $150,000 to $200,000, and continued annual costs of related compliance and reporting in amounts not determined. Our board of directors believes that the increased disclosure and procedural requirements will result in continuing increased legal, accounting and administrative expense, and diversion of board of directors, management and staff effort without a commensurate benefit to our shareholders.


• Given the limited trading in our common stock, our board of directors does not believe that the costs of reporting are justified. Our earnings are sufficient to permit our expected growth and we are not dependent on access to the capital markets to obtain additional financing. If it becomes necessary to raise additional capital, we believe that there are adequate sources of additional capital available through private or institutional sales of equity or debt securities, although we recognize that there can be no assurance that we will be able to raise additional capital when required, or that the cost of such capital will be attractive.


• The reverse split is expected to result in the cashing-out at a price determined to be fair by our board of directors of the equity interest of approximately 2,950 record shareholders (98%) of our common stock who own less than 500 shares of our common stock on the record date.


• Our board of directors has determined that the price to be paid for the shares of our common stock to be cashed out in the reverse split is fair, and that the transaction is fair to our remaining shareholders.


• The reverse split will enable small shareholders to divest themselves of their positions without the expenditure of efforts disproportionate to the value of their holdings, without transaction expenses and at a price which reflects the current market value of our common stock.


• The reverse split and deregistration will have an impact on the ability to trade our common stock, as our common stock will not longer be available for quotation on the OTC Bulletin Board. Trades will continue to be the result of direct communications between buyers and sellers, although a market may develop in the “Pink Sheets.”


• Operating as a private company will allow management to better focus its efforts on the operations of the company.


• The reverse split and deregistration will permit a significant number of our shareholders to continue as shareholders and to enjoy the benefits of share ownership, including dividends, when, as and if declared, and potential capital appreciation. Currently, under our senior credit facility we are prohibited from paying dividends. At the same time, we will be relieved of significant expense and diversion of management time and effort, which may result in improved operating efficiencies and reduced need for additional compliance-related employees, and in potentially increased net earnings.
Effects of the Reverse Split on Cashed-Out Shareholders
Upon consummation of the reverse split, shareholders owning less than 500 shares immediately prior to the reverse split will:
• Receive $3.20 in cash, without interest, per share;


• Not be required to pay any brokerage commissions or other service charges in connection with the reverse split;


• No longer have any equity interest in the company and therefore will not participate in our future potential earnings or growth, if any, as a shareholder; and


7
________________________________________
• Be required to pay federal and, if applicable, state and local income taxes on the cash amount received for the purchase of fractional shares. See “Special Factors–Certain Federal Income Tax Consequences.”


Effects of the Reverse Split on Remaining Shareholders
The effects of the reverse split on shareholders owning 500 or more shares immediately prior to the effective time of the reverse split will include:
• Continued Ownership of Shares. Shareholders who own 500 or more shares immediately prior to the effective time of the reverse split will continue to be shareholders of the company;


• Increased Ownership Percentage. Remaining shareholders will have an increased ownership percentage in the company as a result of the reverse split;


• Decreased Liquidity. The liquidity of the shares of our common stock held by remaining shareholders will decrease by the reverse split due to the reduced number of shares of common stock outstanding and the fact that our common stock will not longer be available for quotation on the OTC Bulletin Board; and


• Decreased Access to Information. If the reverse split is effected, we intend to suspend our reporting obligations to the SEC under the Securities Exchange Act. As a result, we will no longer be subject to the periodic reporting requirements and the proxy rules of the Securities Exchange Act.

The Good, the Bad and the Ugly
We think the company does a pretty good job of outlining it’s reasoning behind the transaction. As always, enter at your own risk. We'll update you on our progress.

*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

The Top Ten Net/Nets by Market Cap


We admit, this is not our favorite research to distribute here at Cheap Stocks, but it happens to be popular with our readers. This new list has several new names on it, and your editor still holds LKI and DPII.

What's most interesting about this current list is the fact that most of these companies are cash rich. In fact, four of the ten currently trade at a negative Enterprise Value (OLGC, DPII, INHX, IBPI). Yet, only one is making money, LKI, which trades at 42 times earnings.

The net/net area is still weak these days, (compared to 2001-2003, that is) in terms of sheer numbers of companies trading below NCAV, and in terms of quality. Time was Circuit City, Deb Shops, Ambassadors Intl, Duckwall Alco, Silverleaf Resorts, and GIII Apparel, among others, graced this list. Currently, we are left with primarily unprofitable companies burning through relatively large piles of cash at different frequencies.

Not that we are wanting a longer list--typically, you'll get just that during prolonged market downturns--and we are not advocating such conditions. In the meantime, we'll keep turning over rocks.


Company: Audiovoxx
Ticker: VOXX
Current Price: $12.24
Industry: Electronics
Mkt Cap: $274
NCAV: $322.2
Cash: $178.6

Company: Orthologic Corp
Ticker: OLGC
Current Price: $1.62
Industry: Biopharma
Mkt Cap: 66
NCAV: 70.4
Cash: 73.8

Company: Network Equipment Technologies
Ticker: NWK
Current Price: $2.75
Industry: Biopharma
Mkt Cap: 67
NCAV: 67
Cash: 86.3

Company: Lazare Kaplan
Ticker: LKI
Current Price: $7.97
Industry: Diamonds
Mkt Cap:65
NCAV: 79.6
Cash: 8
See last week’s report

Company: Discovery Partners
Ticker: DPII
Current Price: $2.47
Industry: R&D
Mkt Cap: 65
NCAV: 79.5
Cash: 79.5
See Report

Company: Inhibitex
Ticker: INHX
Current Price: $1.82
Industry: Biotech
Mkt Cap: 55
NCAV: 64.9
Cash: 77.2

Company: Zomax
Ticker: ZOMX
Current Price: $1.52
Industry: Electronic Tech
Mkt Cap: 49
NCAV: 57.2
Cash: 42.9

Company: Qualstar Corp
Ticker: QBAK
Current Price: $3.02
Industry: Electronic Storage
Mkt Cap: 37
NCAV: 42.4
Cash: 34

Company: Strategic Distribution
Ticker: STRD
Current Price: $3.02
Industry: Distribution Services
Mkt Cap: 36.6
NCAV: 39.8
Cash: 79.5

Company: Intrabiotics Pharmaceuticals
Ticker: IBPI
Current Price: $3.52
Industry: Distribution Services
Mkt Cap: 33
NCAV: 48.8
Cash: 48.8


*The author has positions in DPII and LKI. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.

Looking Through the LENS:
Another Cheapie? Or Just a Cigar Butt?
Company: Concord Camera
Ticker: LENS
Price: $.66
Avg Volume: 80000
Market Cap: $18.9 million
NCAV: $44.6 million
Mkt Cap/NCAV: 2.36
Enterprise Value: -$9.0 million

I admit it, at first glance, there really is not much to like about this company. Judging by its current price, and fact that its enterprise value is negative, most investors hate it too. Concord Camera has had it’s share of problems over the past several years, including lawsuits for patent infringement, as well as suits brought by shareholders.

A Terrible Business
Florida based Concord is in the disposable (single use), 35mm, and digital camera business. That’s not a great place to be, given the intense competitive environment, and competition that includes some big names such as Canon, Fuji, Hewlett-Packard, Kodak, Olympus, Nikon, Sony, Pentax, Konica/Minolta, Panasonic, Samsung and Vivitar. Manufacturing and assembly of Concord products is done in China, and products are sold worldwide. The company ceased manufacturing digital cameras in the fourth quarter of 2005, and now purchases these from outside manufacturers. Company products include the following brand names: Concord, Keystone, EasyShot, Le Clic, Fun Shooter, Polaroid, and Jenoptik


Dependent on Contracts and Retailers
This micro-micro cap company is highly dependent on a few retailers, namely Wal Mart, and Walgreen which represented 22.6% and 11.7% of 2005 sales. Dependence on one or two retailers is not always a good thing, especially for a tiny struggling company that has very little pricing power (at least thats what we suspect). Wal Mart could take its business elsewhere pretty easily, a move that would devastate this company.

Terrible Results
Concord continues to lose money quarter after quarter, and sales continue to fall. The company has not turned a profit since 2003. FY 2005 sales were $174.3 million, down 14% from 2004s $203.1 million. 2005's net loss ballooned to $44.9 million from $31.2 million in 2004.

Whats to Like
If you are ready to short LENS at this point, we certainly wouldn't blame based on the companies seemingly dismal situation. But, hold on. There is something to like about this company afterall. Despite mounting losses, a tough operating environment,
LENS is awash with cash, on a relative basis, anyway. Amd the company is currently trading well below net current asset value.

The Balance Sheet
As of 4/01/06, the company had $29.5 million in cash and short term investments. (There's an additional $8.2 million in restricted cash, but we'll leave that out). That equates to $1.00 per share in cash. Furthermore, the company is trading well below its NCAV: Here's the calculation:

Current Assets: $79 million
Current Liabilities: $32.6
Long Term Liabilities: $1.7
NCAV: $44.6 million
Mkt Cap: $18.9 million

In Ben Graham's terms, this is a true net/net, because it trades for less than 2/3 of NCAV. (That certainly does not mean that Graham would like this company!)

Negative Enterprise Value
One other intersting fact is that LENS' Enterprise Value(EV) is negative. For anyone new to the concept of EV, it is a more meaningful measure of market valuation than market cap. EV represents the entire value the market (or acquirer) places on a company. It represents all claims common and preferred shareholders, and bondholders have on a given company. It is calculated by adding market cap, prefered equity, and debt, then subtracting cash & short term marketable securities.
A negative EV sends a strong signal: The market has little or no hope, and would rather give it away for nothing. (This is theoretical of course)

Here the EV calculation for LENS:
Market Cap: $18.9
Debt: $ 1.6
Preferred: 0
Cash & ST MS: $29.5

EV: ($ 9.0)

What this tells you, is all else being equal, buyers of LENS are being paid to purchase shares. In reality, its not quite that simple, but you get the point.

Institutional Ownership
Surprisingly, there is a decent amount of institutional ownership, just over 24%.
Here's the top 5:
Dimensional Fund Advisers: 6%
Howson Tatersall: 3.3%
SC Fundamental LLC: 2.7%
HSBC 1.8%
UBS O'Connor 1.4%

Conclusion:
This one is not for the feint of heart. There are a whole lot of negatives that might ultimately sink this tiny ship. However, if the company can keep it's cash burn rate low (was about $4 million last quarter, that includes changes in cash and S/T MS), and find a way back to profitability, this may be an interesting story. The company has very little debt ($1.5 million ST, no long term), so interest payments are not a huge weight. Furthermore, there were some encouraging signs in Q3; while the company still had a sizable loss ($4.7 million), that is down sharply from the same quarter last year ($14.8 million). So, maybe we are reaching a bit, but we are just looking for a pulse. A deep value investor might look at this company and say that for $.67 per share, they are getting in return $1.00 in cash and ST MS, plus $.50+ in tangible assets (LT assets, PP&E). We know theres more to the story. We know that a patent infringement case might get in the way, or a canceled contract might send sales further. Still, we'll be watching, trying to see if there's any life left.

Please do your own due diligence with this company; read the 10K or recent 10Q's, and as always proceed with caution. And remember, the principles of diversification apply to net/nets too.

*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.