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I have been looking at the ten year cash flow for this company and it is absolutely inconsistent. However, looking at the cash per share, and the NCAV, it seems like an absolute bargain with a >50% MOS. Would you think the inconsistent cash flow is reason enough to ignore the large MOS compared to the NCAV?

Take care

Jae Jun said:

Hi Jim,

I'll be very interested to see how your position in ENWV works out.

I would consider including the 3m preferred shares, especially if the date or price is getting close but for a net net, I don't usually include it. For a long term hold, yes you should calculate it because it could drastically alter the investment thesis.

As for Oak, the more board members they have on board would be much better. As a venture capital firm, they would only be interested in gaining wealth which isn't a bad thing for shareholders if the business is terrible and so is management.

When I went through the ENWV reports, I didn't like the current CEO. I felt that he would prefer to benefit himself rather than the shareholders. He wasn't putting his money where his mouth was so I have no reason to believe that he and management would turn things around.

The CEO says one of their strategy is to grow through acquisitions. That sounds bad to me.

I just wanted to ask a couple of questions about some details in this particular stock. I just want to start by saying that I agree with Jae that it is an ugly business. Whether it has any value as a "cigar butt" can be left open for debate.

First of all, this company has 300,000 shares of outstanding convertible preferred that is owned by Oak Investment Partners XI, Limited Partnership. These 300,0000 share of convertible preferred have a 10:1 conversion ratio, meaning that they can be converted into 3,000,000 shares. This financing was arranged in April 2006.

My first question is more academic, and concerns the correct Net-Net calculation for this stock. Should the value of the convertible preferred stock be determined and subtracted as a liability, should the 3,000,000 shares be added into the outstanding shares, or is there another way to account for these shares?

My second question is more practical. I am curious if anybody here has had any experience with Oak Investment Partners. They have a representative on the Endwave board. Do they have any sort of track record of positively influencing companies such as this? Here is the PR blurb on them:

"About Oak Investment Partners

Oak Investment Partners is a multi-stage venture capital firm with a total of $5.9 billion in committed capital. The primary investment focus is on high growth opportunities in the Information Technology and Communications Industry, Consumer Internet, Financial Services Technology, Healthcare Information and Services and Retail. Over its 28-year history, Oak has achieved a strong track record as a stage-independent investor funding more than 427 companies at various points in their lifecycle. Oak has been involved in the formation of companies, provided growth equity to mid- and late-stage businesses and financed management-led buyouts, as well as spinouts of operating divisions and technology assets. Oak's industry focus and willingness to fund operating losses associated with rapid growth sets Oak apart from traditional private equity investment firms. Additional information can be accessed at Oak Investment's website at http://www.oakvc.com/ ."

Just as an FYI, the CEO of Endwave (also vice chairman and director) for the past 16 years, Ed Keible, retired this week. The President and COO, John Mikulsky, became CEO. He has held this position since 2005, which was the year before the company entered the financing arrangement with Oak Investment Partners. I have no idea if any of this means anything, but it raises a red flag for me that something might be brewing here. I think it will be interesting to see if something develops over the next few months with this company.

Best wishes,

Jim

Full disclosure: I own a very small position in ENWV.