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I found the article on special dividends for 2010:

http://seekingalpha.com/articl…..d-for-2010

After 2010, companies with large insider holdings are likely to focus on growing their share price rather than increasing dividends. Long term capital gains will still be favorably taxed at 20% (rather than the current 15%). Companies without growth will resort to buybacks to boost EPS in the hopes of stock appreciation.

and

Look for companies with huge insider holdings and excess cash generation to announce massive special dividends. Management with large stock holdings will recognize that one time only payments make good tax sense. After all, why not hand it out this year and pay 15% rather than wait and get gouged at 39%? 

Thought this was an interesting piece as it relates to ADVC and their special dividend.

Great company. But for OTC stocks like this, it is really hard to get into the play because there is no price protection for order execution.

Last week I placed an order of 0.4 for a few thousand shares of ELST, but only 100 shares got through, although from google finance I see on that date there were total of 4400 shares executed at 0.4.

ADVC announced results for 2009: http://www.sec.gov/Archives/ed…..dex991.htm

Numbers look great.  12% increase in net income on basically flat revenue shows the company is committed to controlling costs throughout the downturn.  Their Edict Systems division is doing extremely well – 9 consecutive years of increasing revenue is very impressive after all of the turmoil in 2008 and 2009.

The newly acquired Merkur division markets primarily to the automotive market, which was hit extremely hard by the economic downtown (see Chrysler or GM).  Revenue dropped significantly (29%) but the company was still able to increase net income by 47%. 

Management is continuing to aggressively streamline the Merkur business and expand into other markets as well.  A combined Edict Systems & Merkur SaaS product sounds like it has real potential.

Love the management analysis too – After reading tons of annual reports and SEC filings, it's refreshing to see information presented in a clear and informative way.

Jae,

I current work at an enterprise software company very similar in many ways to ADVC.  Terms vary considerably in the enterprise market and would be considered 'easy' in most other industries.  The legal and procurement process at these large or even medium organizations is absolutely brutal, and we offer very generous terms, n/90 etc., in order to get the deal signed and close.  I believe this is pretty standard practice throughout most of the industry, at least at the small company stage.

Since margins are so high, I don't believe it has as big of an impact as it would in a razor-thin margin industry like retail or wholesale distribution.  In reality, it is an intangible object that can be likely be 'turned off' for non-payment without additional revenue loss or hassle.

As far as the dividend, it looks like management is trying to reward shareholders and take advantage of the favorable tax treatment in 2010.  From the 8-K: "The purpose of the cash dividend is to reward the Company’s shareholders, many of whom have been shareholders for a very long time, and to enable them to likely take advantage of favorable Federal income tax treatment that is scheduled to expire at the end of 2010."

I read a very similar article on SeekingAlpha saying that there should be a spike in special dividends this calendar year for this same reason. Will try to dig it up.

Thanks again for commenting.  I don't want you to have to comment on every single one of my posts, just trying to start some healthy discussion!

-DrSues02

ADVC – Advant-e Corporation

Company Description: Advant-e Corporation through its wholly-owned subsidiaries, Edict Systems, Inc. and Merkur Group, Inc. develops, markets, resells, and hosts software and provides services that allow its customers to send and receive business documents electronically in standard and proprietary formats.

The company markets its products towards companies that need an e-commerce solution and want to conduct business electronically.  In my opinion, this is a huge potential market – it seems like everyone is doing business electronically over the web these days.  Although e-commerce seems so mainstream to you or me, many industries are taking baby steps and have a lot of room to grow.  ADVC is targeting the grocery and automotive industries now , but according to their most recent 10-K, "Because EnterpriseEC is not industry specific and utilizes both standards-based data formats as well as proprietary formats, any company doing Electronic Data Interchange (EDI) or which wants to conduct business electronically is a potential customer."

Good:

-Median ROE of 35.2%, great margins across the board (median 66.7%, 20.8%, and 13.9% gross, operating, and net margins respectively)

-Company has been FCF positive every quarter for the past 20 quarters and annually every year since 2001.

-After several quarters of decreasing revenue, the most recent 10-Q shows a 4% increase.  More importantly, both segments showed a positive sales growth for the quarter despite continued weakness in the automotive segment.

-Company has declared a $.03/share cash dividend, payable in three installments of $.01 each by no later than December 31, 2009, June 30, 2010, and December 31, 2010.  At the initial announcement price, this represented a 21% annual ROI for those who collected all three payments. 

Bad:

- The acquisition of the Merkur Group has put pressure on gross margins, which have declined from 68.5% in 2006 to 60.7% in 2008.  (gross margins are much lower at the Merkur Group compared to the internet-based Edict Systems).

-54% of outstanding stock is held by the CEO, Chairman, and President, Jason Wadzinski.  Although I like seeing management having a vested interest in the business, I believe there are certain rules around full disclose, independent board members, etc that don’t apply when a person holds such a large ownership stake.

-The market for the company’s services is very competitive with few barriers to entry, so the company will continue to face strong competitive pressures.

- Valuation:

Looking at the first three quarters of 2009, it is shaping up to be the company’s best year for both FCF and profits.  I think the aggressive marks are certainly achievable.

Conclusion

Based on my calculations, the business is worth between $.23 and $.31 per share, with a median value of $.29, leaving a 40% margin of safety from my entry point. 

However, ADVC looks even more attractive with the cash dividends available in 2010.  A .02/share dividend in 2010 is a guaranteed 11% yield and adds a level of support to the stock price.  As a strong, consistent business with great fundamentals, a stock repurchase program, and an 11% yield, I think ADVC is an attractive investment at $.18 or below.

As with all micro-cap stocks, entry point is crucial.

*Long ADVC