Stockprowler.com | 3/27/00

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Well it was not a very good week... the small-caps are slowly recovering from the big sell off in techs the previous week. Only one Stockprowler previous pick hit a new high this past week: ATMS closed out the week on Friday at the high $8… On a more troubling note, previous pick CAMB has seen its stock price fall to 1 1/8 on Friday, down from a recent high of 4 5/8…It is the opinion of Stockprowler.com that the dramatic drop in the stock price is largely the result of cheap shares from a convertible preferred financing deal being dumped on the market for a nice profit. It is possible that shares of CAMB may even drop below $1 a share… albeit briefly. These convertible preferred financing deals almost always come back to haunt companies just when they are starting to take off. They are usually made when companies are desperate for cash to grow the company and are unable to obtain financing through the usual channels. A similar situation is occurring with SRAM… a stock we had a watch on a few weeks ago. Its stock price fell recently from 4 1/2 to as low as 1 7/16. In both instances the stock prices will likely recover when the dumping of shares is finished.

In the case of CAMB, their last annual report shows 51,073 shares of Series B convertible preferred stock have been issued by the company at a price of $100 per share. Each share is convertible into 500 shares of the company’s Class A common stock. Which means any holder of the convertible preferred shares may convert to common shares at the bargain rate of $.20 per share…not a bad deal. Obviously, these shares can then be dumped onto the market at a substantial profit… the result being that the share price gets driven into the tank. But what do they care, they got the stock dirt cheap. The only way for CAMB to stop the dumping of shares is to exercise their right to redeem the shares of convertible preferred for the purchase price of $100 each “if the market price of the Class A common stock equals or exceeds 500% of the conversion price and the Class A volume has traded with an average daily volume in excess of 50,000 shares for a period of 30 consecutive trading days.” So, that means if the stock price stays above $1.00 per share for 30 straight trading days the company can buy back the convertible shares… that’s if they had the inclination to do so… and the money. Remember, they got into this situation because they needed the money to grow the company. So, that is unlikely to happen. In the meantime buying and selling opportunities will be created as the stock price rises and falls with the periods of heavy selling by those dumping the shares.

Before we get to this week's pick, we would like to offer our bulletin board devotees our runner-up pick, VSTI (OTC:BB). Versus Technology (VSTI) is engaged in the production of infrared locating systems, asset locating systems, passive data collection systems, RF supervisory systems, and portal detection systems. Versus' systems enable the automatic and accurate recording of essential management and business processes by monitoring the precise location of personnel and/or equipment. Versus cutting edge real time technology is highly valuable to government and large corporations concerned with monitoring high security assets. VSTI recently announced an agreement with Checkpoint Systems, Inc. (NYSE) to allow Checkpoint to offer the entire Versus Technology product line through Checkpoint's dealer network. Versus' patented technology will be offered in conjunction with Checkpoint's RFID technology. Looks very promising… Shares outstanding: 38.5 million… Float: 18.9 million. Insiders own 51% and there has been considerable insider buying with no insider selling in the past 12 months. Also, institutions own 14% of the company, which is very unusual for a company of this market cap. VSTI closed at 51 cents Friday on 767,100 shares traded.

And now the Stockprowler.com pick of the week…

Lions Gate Entertainment, Inc. (LGF:AMEX)

Corporate Web site: http://www.lionsgate-ent.com
Shares Outstanding: 30.6 million
Public Float: 23.6 million
Insider Ownership: 23%
Institutional Ownership (19 institutions): 26%
Market Capitalization: $108.9 million
Closing Price Friday: 3 9/16

This week's pick was a runner-up to our March 6, 2000 pick of the week. We have decided to elevate LGF to "pick of the week" status because we feel it has the potential to be a blockbuster. Lions Gate Entertainment, Inc. develops, produces, and distributes motion pictures and television programs. This is the company that has given us recent notable movies like "Dogma", "Last Night", and the recently released "Beyond the Mat". The latter documentary flick offers a stark look at the wrestling world. A media circus has engulfed the release of this film with LGF garnering additional exposure and free publicity on both "Larry King Live" and Geraldo Rivera's "Upfront" on CNBC… In April, LGF is set to release the Kevin Spacey flick, "The Big Kahuna", and another controversial film, "American Psycho".

On March 8, Lions Gate Entertainment, Inc. announced an agreement with Hollywood Software, Inc. to license the latter's TDS2000 theatrical distribution system. Quoting from the newswire, "TDS2000 will be used by Lions Gate's entire North American theatrical distribution operation, and will provide a foundation for the studio to manage the distribution process during a period of planned aggressive growth." In addition, Tom Ortenberg, co-president of Lions Gate Film Releasing, stated, "We expect our film release schedule to expand greatly, with as many as 15 films scheduled for release before the end of this year."

LGF recently finalized a $33 million preferred equity financing deal with a group lead by Paul Allen's media investment firm, Vulcan Ventures. Paul Allen as you may recall was a co-founder of Microsoft. Lions Gate Chairman Frank Giustra stated: "With the completion of this financing, we have strengthened Lions Gate's cash position and added strategic partners who will play key roles in the future expansion of Lions Gate Entertainment." Vulcan Ventures was founded by Paul Allen in 1986… it serves as a vehicle for Allen to invest in "companies which offer products, services or technologies that fit his Wired World strategy and can contribute to or benefit from the technology and strategy of other companies within the group's extensive investment portfolio." For additional information on Vulcan Ventures, you may want to visit the Web site, http://www.paulallen.com. It is significant that Paul Allen has chosen to take a stake in LGF. Allen's group also owns cable giant, Charter Communications. As the Internet and television begin to blur and merge, large amounts of high quality content will be needed to fill the mega channel universe that will be created. It is clear that Allen and others believe that Lions Gate can be leveraged up to fill the void… to provide the new Internet channels with the necessary content.

LGF had a strong FY2000 third quarter. For the three months ended December 31, 1999, revenue was $104.2 million, an increase of $64.2 million or 160% over the same period last year. EBITDA (earnings before interest, taxes, depreciation, and amortization) was $8.4 million up 342% from the same period one year ago. Net earnings for the quarter were $3 million, or $.10 per share versus a loss of $.03 per share in the third quarter a year ago. Clearly LGF is undervalued at current trading levels. LGF closed Friday at 3 9/16 on 182,200 shares traded. The Stockprowler software database has been showing heavy accumulation for the last 3 weeks.

Good trading… Stockprowler