Danny Furman's  Instablog

When I wrote about this stock in May, it gained about 30% in one day, following reports of a strong Q1 FY09 and a signed deal to provide a 3G portal for China Telecom (CHA), one of China's largest mobile services providers. Since then, ALIF.OB has returned to its prior valuation near 80 cents/share, as volume has disappeared and no other Fortune 500 names have been mentioned in company press releases.

Artificial Life develops mobile web applications for several operating platforms and is a leading producer of iPhone (AAPL) games. The Company boasts operating profit margins consistently over 80% and has grown revenues from $1M in 2006 to $6M in 2007, $22M in 2008 and $14.7M through H1 2009.

ALIF.OB is an OTC stock with a low share price, making it less financially transparent and more volatile than more heavily traded (and valued) equities. While it trades at a trailing P/E under 4 with much improved revenue and profits through H1 FY09, I wouldn't recommend buying shares much higher than current levels unless volume remains high for a week or more. I believe $2+/share isn't unrealistic short term based on financials and fundamentals, however this stock simply isn't popular enough yet to hold onto major gains. Despite technical difficulties, ALIF.OB represents an intriguing value proposition with excellent operating results over the past seven quarters. As recently as late January 2009, during the worst of the downturn, the stock rallied from $0.90 to $1.52 in about a week, before eventually falling to a multi-year low of $0.54 in March. Unlike most OTC equities, ALIF.OB is followed by analysts at TheStreet.com, who assert a hold rating.

Q2 FY09 was a record quarter (as was Q1) and game sales have historcially peaked annually in Q3. Many of Artificial Life's games sell for 99 cents and require no additional equipment for phone owners, making them appealing and affordable in a good or bad economy. With new exposure to China's large and growing mobile customer base, this small multinational tech firm with offices in Hong Kong, Tokyo, Germany and California is well positioned despite missing the recent rally. Additionally, Artificial Life has a pipeline of licensed games and programs ready for Android, Google's (GOOG) platform on which many of China's new 3G phones will operate.

Disclosure: Long ALIF.OB