Micro-Cap Corner

First Call/Thomson Financial Insiders' Chronicle, July 23, 2001

In February 1999, Michael Anthony Jewelers, Inc. (AMEX: MAJ) rejected a premium $6 takeover bid from rival jeweler OroAmerica, Inc., characterizing the bid as "inadequate" and not in the best interest of the company or its shareholders. When the stock bottomed at a buck-and-change nearly two years later, the board, not to mention investors, must have had some serious second thoughts--no doubt, some still do.

If ChiefExecutive Michael Paolercio is among them, he's not letting on. In fact, Paolercio has used the stock's slide to boost his personal stake in the company from around 10% to roughly 22%. In June, three other executives joined the club; though admittedly, with relative baby steps. All together, the four insiders picked up 39,500 shares at $2 to $2.20 per share.

Though the company reported a year-over-year sales increase for Q1 in May, gross margins were down, and the jeweler posted yet another loss--$.03 vs. $.07 one year ago. As evidenced by the late-year sell-off, investors are losing patience. And perhaps with reason: the stock trades at a fraction of book value. Whether this is a sign of a bargain remains to be seen. Management appears to think so.

Medical device maker Cyberonics Inc. (NasdaqNM: CYBX) fought off an even more aggressive suitor last September. And here too investors must look back in anguish at Medtronic's $26 hostile bid--especially given that Cyberonics ran up to nearly $30 in the wake of the announcement. Unfortunately for those who supported the deal, Medtronic declined a proxy fight, citing management's "unwillingness to negotiate."

Despite a 40% slide, insiders at Cyberonics also seem to think the market has got it wrong. From May 14 through June 27, three insiders purchased a combined 24,350 shares at prices ranging from $11.58 to $14.54 per share. VP, Sales Shawn Lunney, led the way among buyers, picking up 17,350 shares. VP Burke Barrett and CEO Pamela Westbrook purchased 5,000 shares and 2,000 shares, respectively.

Sales for Cyberonic's lead product, an implant to control seizures in patients with epilepsy, have been disappointing of late. In response, management has focused its efforts (and hopes) on a similar product to treat bipolar disease. Supporters argue that Cyberonics has learned from the mistakes made in launching the epilepsy treatment (low market awareness, insufficient sales staff), and insist that these mistakes will not be repeated.

Speaking of bipolar, since the buying began in May, Cyberonics has rallied some 30%; though the most recent purchases weren't far from today's prices. It's interesting certainly that two of the recent buyers sold Cyberonics at nearly $25 last year, while Ms. Westbrook purchased the stock at $9 back in November 1998.

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