am i missing something

I have done quite a bit of research into this stock and for the life of me I cannot work out why it is so cheap. The obvious question... what am I missing?

It has a market cap is $22m, with net cash of $12m, ie. you are paying an enterprise value of $10m for a business that spends $9m p.a. in R&D (which is fully expensed), and delivered $3.0m of EBIT and $4.6m of net operating cashflows in FY 11. Its current dividend stands at 6.8%.

They reinvest significant % of revenue back into R&D and have just completed their latest release of new products and product upgrades, which should provide another uptick in sales revenue growth. Management have considerable skin in the game, with the 2 founders controlling 86% of the stake, and it is a pleasant surprise to see that its largest shareholder and MD, Tony Walls only receives a relatively modest salary of $170,000.

With this sort of valuation I would assume that there prospects are pretty dire.

However my reserch is quite to the contrary - the company now boasts over 400 public sector customers (including a long term contract with the Dept of Defence). Customers are sticky, and they generates over $17m of recurring licence / maintenance fees each year. This forms a critical mass of customers that provides them with natural upsell opportunities that the government agencies that its customers interacts with.

They should also begin to benefit from the significant investment in its product suite. Its cloud based software platform was launched late last year. This will join people, information and processes from multiple government agencies via a cloud based platform. Management have also stated that they are expecting a step change in the level of sales activity on the back of this launch.


Anyone car to share their thoughts?