THE SMALL-CAP BEAT

A GEISER CAPITAL CORPORATION WEEKLY PUBLICATION

In this Issue Week of June 5, 2009

• JUNE BEGINS ON VERY STRONG NOTE – ARE THE

BEARS BEEN FINALLY PUT TO BED?
• ON THE ECONOMIC FRONT: A Closer Look
• CORPORATE UPDATES
• SIGNIFICANT EARNINGS SURPRISES
• CHANGING GUIDANCES
• STARS & DOGS….AND ACTIONS
• ON THE PRIVATE FRONT – To Watch For
• LOOKING AHEAD…

JUNE BEGINS ON A VERY STRONG NOTE – ARE THE BEARS BEEN FINALLY PUT TO
BED?

While the past week may have been somewhat choppy with markets making quick gains early in
the mornings to then trade sort of sideways the rest of the day, at the end of week the Russell
2000 had managed to moved up 5.7%, same as the S&P Small-Cap, the NASDAQ increasing
4.7%, but the S&P 500 and the Dow lagging somewhat with increases of 2.3% and 3.1%
respectively for the last week. Again, Small-Caps outpaced the markets with the Geiser Top 20
leading the way.

For those following price patterns and movements, according to P&F analysis, the Russell 2000
and S&P Small-Cap entered a bullish phase last Monday, while the same occurred for the S&P
500, the NASDAQ and the Dow last Thursday. This may be of significance going forward as the
bears may have been finally put to bed.

, WEEKLY MARKET WRAP-UP

52 W Range 52 W % Chg
Close Chg % Low High Low High
Russell 2000 530.36 5.7% 342.59 764.38 54.8% -30.6%
S&P Small-Cap 280.09 5.7% 181.32 402.07 54.5% -30.3%

Geiser Top 20 150.46 6.8% 66.76 295.49 125.6% -49.0%

S&P 500 940.09 2.3% 666.79 1404.46 41.0% -33.1%

NASDAQ 1849.42 4.2% 1265.52 2549.94 46.1% -27.5%
Dow 8763.12 3.1% 6440.02 12750.8 36.1% -31.3%

As indication of a changing mood, on Monday despite mixed data on personal income and
consumer spending, but with the manufacturing index coming in just a tad better than expected,
markets made very strong gains early on to stay put the remaining of the day. While the upward
move was broad based, retailers made the most of it to record a gain of 6.1% with financial and
healthcare stocks lagging somewhat with an increase of only +0.5%.
beginning in the red, markets managed to close marginally higher on the surprising 6.7%
increase in pending home sales for April. The upward move was again broadly based, the
exception being financials with continuing shares issuance to repay TARP funds driving down
stocks. The strongest gains were registered in the small-caps with the Russell 2000 edging up
1% for the day.

After a forth consecutive session of higher closings, a first in nearly two months, markets were
due for some profit taking on Wednesday. Dropping commodity prices put strong downward
pressure on materials and energy stocks, which led losses among stocks for most of the session.
At the end of day, stocks were able to limit their losses by making a strong finish.

On Thursday, after a choppy start early in the morning, the trend improved throughout the
afternoon with the market weighting disappointing, but not surprising, retail sales data against
improving numbers from the labour sector. At the closing, stocks had registered solid gains to
make up for nearly all of the prior session's losses. Gains were strongest in the financial sector
(+4%) with bank stocks making a strong rally, followed by energy stocks (+2%) with commodity
prices rebounding after sliding the prior day. Retailers were off 1.2%, but much improved from
their -3% at the session low.

On Friday, despite much better-than-expected data from the labour market which pushed stocks
higher early in the session, the rest of the day lacked direction with stocks trading sideways to
close in a mixed fashion. Aside from payroll jobs which only felt by 345,000 in May, the highlights
of the day were the weakness in commodity prices along with the Dollar index jumping 1.7% for
the day, its best session since January. At the end of the day, industrial stocks were the best
performer (+0.8%), but that was largely erased by losses from semiconductor stocks (-1.9%),
financials (-1.5%) and materials stocks (-1.1%).

ON THE ECONOMIC FRONT: A Closer Look

The news of the week came on Friday with the employment report for May. While the consensus
was for a loss of 504,000 in nonfarm payroll jobs last May, the number actually came in at -
345,000, a very surprising number pointing out to recovery. Initial claims for the last week came
as expected at 521,000, while the unemployment rate surged to 9.4%, slightly higher than
expected (9.2%), but the surprise largely came from an increase in the labour force as people
seeing a recovery are returning to the market to find a job – generally a positive sign. Yet, with
the average work week dipping from 33.2 to 33.1 hours, albeit marginal, this does not point out to
higher employment soon as average work week should rise prior to an increase in employment.
Although the pace of layoffs is declining, there is little evidence that employers will begin hiring
anytime soon.

As an indication of the current sluggishness, factory orders for April rose only 0.7% after having
dropped -1.9% in March from an originally reported decline of -0.9%. The consensus for April at
+0.9% suggested stronger improvements.

Excluding transportation, orders were up only 0.1% in April. New orders for durable goods
increased 1.7% in April, but nondurable goods slipped -0.1%. Overall shipments decreased -
0.2%, a ninth straight decline. Unfilled orders fell -1.2%, a seventh month in a row and
inventories were off -1.0%, an eighth month in a row. Not much to be excited to say the least. But
taking a positive attitude, with inventories at a level calling for restocking, numbers going forward
should be improving.
The Economic Snap-Shot
Date Economic Release For Actual Expected Prior Revised from
Personal Income Apr 0.50% -0.20% -0.20% -0.30%
01-Jun
01-Jun Personal Spending Apr -0.10% -0.20% -0.30% -0.20%

01-Jun Construction Spending Apr 0.80% -1.50% 0.40% 0.30%

01-Jun ISM Index May 42.8 42.3 40.1 --

02-Jun Pending Home Sales Apr 6.70% 0.50% 3.20% --

03-Jun Factory Orders Apr 0.70% 0.90% -1.90% -0.90%

03-Jun Crude Inventories May-29 +2.87M NA -5.41M

04-Jun Initial Claims May-30 621K 620K 625K 623K

04-Jun Productivity-Rev. Q1 1.60% 1.20% 0.80% --

04-Jun Unit Labor Costs Q1 3.00% 2.90% 3.30% --

05-Jun Average Workweek May 33.1 33.2 33.2 --

05-Jun Hourly Earnings May 0.10% 0.10% 0.10% --

05-Jun Nonfarm Payrolls May -345K -520K -504K -539K

05-Jun Unemployment Rate May 9.40% 9.20% 8.90% --

Consumer Credit Apr -$15.7B -$6.0B -$16.5B -$11.1B
05-Jun

Staying on the positive, the home market received encouraging news on Tuesday. The Pending
Home Sales Index registered an increase of 6.7% from March to April, much better than the
consensus of 0.5%, and all pretty much led by a 32.6% increase in the Northeast. The increase of
April, a third in a row, is largely attributable to Home Prices dropping like a rock over the past
eighteen months or so, and record low mortgages rates. However, mortgages rates have been
increasing in recent weeks and this is likely to slow the pace on the home market going forward.

Contrary to the Chicago ISM index which had showed an unexpected drop last week, the
National ISM Index checked in at 42.8% for May, a tad better-than expected, compared to 40.1%
in April. Historically, an ISM rising above 41% has almost all the time precluded growth in GDP
the following quarter.

On Monday, although reports on Personal Income and Spending for April came in better than
expected, the fact of the matter is that consumers are remaining very cautious on spending and
are not to counted on to lead the recovery. As an indication, real personal consumption
expenditures declined -0.1% in April, slightly better that the -0.2% expected, but personal savings
rate rose to 5.7% versus 4.5% in March – levels not seen since 1995. Looking forward, with
disposable personal rising 1.7% in April, consumers now saving like squirrels prior to winter,
future demand can only be ramp up. The question is when.

Finally, contrary to the recent trend, last week crude inventories increased by 2.87M barils, just
when inventories are still close to record highs. To us, this suggests a softening in oil prices
which, mind you, have risen substantially in recent weeks.

CORPORATE UPDATES

Few major companies reported last week. Again, companies reporting significantly better-than-
expected all registered major upward moves in their stock prices. In the small-caps, those that
caught our attention were;
 SIGNIFICANT EARNINGS SURPISES
ON THE POSITIVE SIDE
Date Company Symbol Actual First Year Y/Y Close W Chg Mkt Cap
Call Ago Rev % %
05-Jun American Wdmrk AMWD 0.22a -0.17 0.00 -1.80% $22.58 17.5% $317.7M
04-Jun Wind River WIND 0.09a 0.05 0.09 -6.10% $11.62 47.3% $890.0M
04-Jun Sycamore SCMR 0.00a -0.03 0.00 9.60% $3.56 19.5% $1.01B
04-Jun Medical Action MDCI 0.11 0.05 0.17 1.10% $11.14 6.3% $178.5M
03-Jun Dynamex DDMX 0.17 0.12 0.37 -18.40% $16.98 9.4% $164.8M
03-Jun ADC Telecom ADCT 0.05a 0.01 0.39 -30.00% $7.59 10.6% $733.0M
02-Jun Bob Evans BOBE 0.69b 0.39 0.52 -1.20% $32.51 26.0% $997.9M
01-Jun PLATO Learning TUTR 0.01 -0.07 -0.20 -4.30% $3.69 19.0% $88.70
ON THE NEGATVE SIDE
Date Company Symbol Actual First Year Y/Y Close W Chg Mkt Cap
Call Ago Rev % %
04-Jun Analogic ALOG 0.24a 0.36 0.50 -6.30% $34.54 -5.3% $442.0M
04-Jun Ciena CIEN -0.25 -0.09 0.40 -40.50% $10.77 -2.1% $976.6M
02-Jun Daktronics DAKT 0.01 0.09 0.14 -5.70% $7.28 -15.1% $295.9M
(a) Excluding non-recurring items; (b) May not be comparable to consensus.

As indicated below, although a change in guidance impacts on stock directions, there is

nothing like beating expectations!

CHANGING GUIDANCES
POSITIVE
Date Company Symbol Period Est Guidance Close Chg % Mkt Cap
02-Jun Blue Coat BCSI Q1 $0.21 $0.20-0.25 $15.88 2.9% $306.1M
NEGATVE
Date Company Symbol Period Est Guidance Close Chg % Mkt Cap
02-Jun HHGregg HGG FY10 $1.09 $0.85-1.00 $15.28 -7.7% $495.8M

STARS & DOGS……AND ACTIONS

Our publisher, Geiser Capital Corp, maintains for clients a list of 20 small-cap stocks expected to
outperform the Russell 2000. In a nutshell, the Geiser Top 20 is rolling weighted index; that is,
stocks are added when their expected returns are above the expected returns of stocks in the
selection and, inversely, stocks are deleted when expected returns are lower than what is
expected from other opportunities.

Last week, the Geiser Top 20 edged up 6.8%, again a much better performance than the Russell
2000 (+5.7%), or the NASDAQ (+4.6%). Since the lows of mid-March, Geiser Top 20 is now up
125%, the Russell 2000 close to 55%, and the NASDAQ, somewhat lagging, but is nevertheless
up a strong 46%.

While outpacing indexes by a significant margin, the performance of Geiser Top 20 was
somewhat of a mixed bag last week. On the positive side, it benefited from a strong showing from
Affymetrix (AFFX) ($6.07), up 26% in the week. Somewhat puzzling, last Thursday it was
announced that the AFFX had lost a U.S. patent appeal in favour of Agilent Technologies (A)
($19.90), and the stock managed to edge up a strong 8% the following day.

Another strong performer last week was JA Solar (JASO) ($5.13), up 21%. JASO was added to
nd
Geiser Top 20 on May 22 at $3.60 as an energy play in light of rising oil prices. Further, as
many stocks in the solar industry, JASO appeared then to have been overly beaten by the
market, particularly in light of the outlook for the company and its sector.

After being Geiser’s Top 20 best performer in the prior week, TriQuint Semiconductor (TQNT)
($5.19) managed another very strong performance, up another 16% last week. On Tuesday, the
Company announced it had been awarded a contract worth $16.5 M by the Army Research
Laboratory (ARL) to pursue Phase III of the development of new high power, wideband gallium
nitride (GaN) amplifiers for a range of defense applications. Phase II of the contract was worth
$15.8 M to TQNT and is now essentially completed, all very successfully.

The Dog of the Week of Geiser’s Top 20 was OmniVision (OVTI) ($10.57) which contracted 7%
last week on declining volumes. This followed a gain of 18% for the stock in the prior week. So, it
may just be usual profit taking.

Briefly, Fuqi International (FUQI) ($15.55) was removed from Geiser Top 20 on Tuesday at
$15.00. FUQI had been added to the Top 20 on May 15 at $7.61; a gain of 49% in less than three
weeks. On the same note, Data Domain (DDUP) ($32.59) was also removed at $31.25, also on
Tuesday. DDUP is currently the object of a take-over battle between NetApp (NTAP) ($18.82)
and EMC ($12.88) (EMC). With the highest bidder being at $30 per share, there are likely better
opportunities elsewhere.

ON THE PRIVATE FRONT – To Watch For

From time to time, we may mention to readers a private equity play when the situation warrants it.
One such case is Nanometrix, a developer of value-added products for the solar industry.

Nanometrix has developed a now recognized expertise in linear coating, a new process enabling
nano particles and molecules to be assembled to form a thin film or monolayer with
unprecedented uniformity and thickness control, all to improve efficiencies and performance of
existing products. Nanometrix’s platform technology offers multiple applications, but the Company
has strategically targeted the solar industry initially, a wise choice given the growth outlook for
this industry, not to mention the current inefficiencies of products in the sector. Slowly but surely,
Nanometrix is embarking on the commercialization of its products with tests with different
important manufacturers.

Last Friday, Nanometrix announced that R. Carter had taken a leading role with the Company as
its new CEO. Carter is known as an aggressive entrepreneur totally dedicated to results. He has
more than 20 years of management experience in both large and small companies and proven
record for increasing shareholder value. We believe Carter to be the right person to bring
Nanometrix to the next level. Over the coming weeks, further developments are to be expected
from Nanometrix, likely more commercial in nature and pointing toward revenue.

Nanometrix is currently seeking a financing of $2 M to move along the commercialization of its

initial products. Along with its financing, the Company is expected to proceed to a reverse take-
over with a public shell in the US and this, from a liquidity perspective for investors, should be of
the outmost importance. This is certainly a story to follow closely.

LOOKING AHEAD…

When looking at upcoming data to be released, the coming week should be on the slow side with
markets essentially looking at the Treasuries, the US dollar and movement in commodities. On
the economic front, aside from the Treasury deficit to be announced for May, investors will likely
focus on retail sales, but following recent corporate results from the sector, expectations should
be on the low side.
 Looking Forward On The Economy
Date Economic Release For Expected Prior
Wholesale Inventories Apr -1.00% -1.60%
09-Jun
10-Jun Treasury Budget May -$175.0B NA

11-Jun Retail Sales May 0.30% -0.40%

11-Jun Business Inventories Apr -1.00% -1.00%

12-Jun Export Prices ex-ag. May NA -0.30%

Import Prices ex-oil May NA -0.70%
12-Jun

On the corporate front, with earnings season essentially off, it should also be a slow week.
Among some of the releases that should be looked at in the small-cap world, we have;

Companies To Watch For

Date Companies Symbol Expt. Yr Ago Yr/Yr Rev Close MKT Cap
FuelCell Energy FCEL -0.30 -0.38
08-Jun 44.6% $3.99 $275.4M
08-Jun Quiksilver ZQK 0.04 0.30 -10.7% $3.49 $447.0M
09-Jun GigaMedia GIGM 0.09 0.20 -6.6% $6.30 $342.4M
09-Jun Pep Boys PBY 0.07 0.10 -10.10% $8.09 $422.8M
09-Jun Rentrak RENT 0.05 0.10 -3.8% $10.77 $113.1M
09-Jun China Medical Tech CMED 0.43 0.53 -15.0% $24.80 $796.2M
Lululemon Athletica LULU 0.08 0.12
11-Jun -0.1% $13.97 $980.1M

Unless the unexpected occurs, we anticipate markets to trade sideways next week and, given the
recent markets’ strength, that may be a well deserved pause.

On this note, have all a good investing week!

Stephane Solis
Editor
The Small-Cap Beat

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