Turning the corner on 2007, and looking forward to 2008, we are faced with increasingly challenging conditions in the broader economy. Tightening credit markets and rising prices are threatening to weigh on consumer confidence and could undermine corporate spending and investment. In spite of this, and due principally to a series of Fed rate cuts since September, the markets have been surprisingly resilient. In terms of performance year-to-date (as of December 21)  the DJIA is up 7.95%, the S&P 500 is up 4.65% and the NASDAQ is up 10.79%. However, small caps have had a tougher go of it, with the DJIA Small Cap Index posting a 3.15% gain and the Russell 2000 in negative territory, down 0.34%.

If inflationary pressures continue to accelerate, the Fed will likely be constrained with respect to further rate cuts in 2008. In which case, uncertainty about whether the U.S. economy will be able to avoid a recession coupled with an increasing acknowledgement by the Street that the Fed might not be able to act as aggressively could lead to more instability in the markets.

Against this backdrop, we continue to be pleased with the performance of many of our portfolio companies.

·         American Software, Inc. (Nasdaq: AMSWA) continues to make strides having now reported 27 consecutive quarters of profitability and 14 consecutive quarters of sequential revenue growth. As economic conditions in North America remain challenging, American Software is in a solid position from a balance sheet standpoint, with approximately $76 million in cash and investments ($2.99 per share) and no debt. Management has reaffirmed its positive outlook for the third quarter of fiscal 2008, which will end December 31.

American Software’s stock has been an outperformer, up year-to-date approximately 20% and given American Software’s fundamental outlook, we think the stock is very attractive at its closing price on December 21 at $8.50.

·         Despite the fact that the housing market woes continue and the outlook, at least over the near-term could get worse, U.S. Home Systems (Nasdaq: USHS) is well-positioned from a cash position to withstand the slump, and has employed some smart marketing strategies to help keep new orders on a growth track. In the third quarter, it reported an increase of new orders of 3.6% driven by its recently launched in-store marketing program. U.S. Home Systems has $7.5 million in cash and cash equivalents (close to $1.00 per share). As of Friday’s close at $4.97, its stock is trading toward the low-end of its 52-week range ($4.63-$16.00) and at a price that we think is extremely cheap, given the management’s proven ability to execute and a strong balance sheet which will enable it to weather the storm in the housing sector.

·         Raser Technologies (NYSE: RZ) has been making strong moves from both an operational and stock performance perspective. In a broader market environment where stocks have struggled, Raser is up 167% YTD, at $17.30 as of the close on December 21. We attribute the stellar performance to an extremely bullish trend in the clean and renewable energy sector that has been driving solar and geothermal technology stocks. Raser is moving out of pre-revenue development stages and we expect that its “monetization” model (with no debt service, zero fuel cost and higher margins) will enable it to scale revenue growth dramatically for the foreseeable future.

Renewable Energy Is Poised to Outperform

Year-to-date, the solar sector is up on average more than 200%, with First Solar (Nasdaq: FSLR) up a remarkable 783%. As noted above, geothermal stocks have been on a tear as well and money has also been flowing into companies developing and commercializing fuel efficient technologies. Despite the fact that ethanol and biodiesel companies have lagged on a relative performance basis, we expect recent legislation in Washington to get this sector back on track as well. Overall, investor momentum in clean technologies continues to accelerate as demonstrated by the fact that venture capital in North America and Europe invested a record $1.74 billion in the third quarter and $3.64 billion since January. In the week ended December 21 alone, we counted more than $540 million that was invested in clean tech companies, funds to invest in clean tech companies and IPO’s.

In 2008 we intend to expand our focus on the renewable energy sector. This past year we added Raser Technologies and Comanche Clean Energy (currently in registration) to our roster. Comanche is a promising vertically integrated Brazilian ethanol and biodiesel producer that we expect to begin trading in the first quarter of 2008. We look forward to announcing further progress of Raser and Comanche as well as adding further renewable energy companies to our roster that we believe have differentiated, if not disruptive, approaches to addressing the energy markets over the long-term.

We hope you all enjoyed a positive, healthy and joyous holiday season and we look forward to bringing you all more positive developments in the year ahead.

Cordially,

The Hayden Team

Glowpoint, Inc.

(OTC BB: GLOW)

Industry: Diversified Communications Services

 Sector:  Technology

Corporate Headquarters:

225 Long Avenue

Hillside, NJ 07205

Tel: 312-235-3888

Fax: 973-391-1901

Website:

www.glowpoint.com

Glowpoint, Inc. (OTC:GLOW.OB), is a premiere broadcast-quality, IP-based managed-video services provider. Glowpoint offers video conferencing, bridging, technology hosting, and IP-broadcasting services to a vast array of companies, from large Fortune 100^® enterprises to small and medium-sized businesses. Glowpoint’s managed-video services are available bundled with Glowpoint’s quality-network offering or as a value-added managed-video service across other networks. Glowpoint is exclusively focused on high-quality, two-way video communications, and has been supporting millions of video calls since its launch in 2000.

 Investment Highlights

• Glowpoint has been selected as a Global Provider of a Polycom Branded Video Network Operations Center (VNOC) service offering

• Largest customer (locations) is US Trustees with more than 100 sites subscribed

• Churn rate averages approximately .05% monthly

• Average age of customer is 3.25 years (excluding new customers in the last six months)

• Five consecutive quarters of core revenue growth

• Approximately 70% of revenue is recurring revenue

• New customers sign a minimum 12 mo. contract, however, since 1/1/07 50% of signed contracts have been multi-year (2,3,4 year deals)

• Glowpoint has one patent and eight patents pending

Liberator Medical Supply, Inc.
(OTC BB: LBMH)

Sector: Services

Industry: CATV Systems

Corporate Headquarters:

2979 Gran Park Way

Stuart, Florida 34997

Tel: 772-287-2414

Fax: 772-781-3867

Website:

www.liberatormedical.com

Liberator Medical Holdings, Inc. is publicly traded under the symbol (LBMH), and, through its wholly owned subsidiary, Liberator Medical Supply, Inc. offers over 5,000 products to Medicare-eligible patient populations. The Company is recognized as a leading name in the direct-to-consumer medical supplies industry and is an Exemplary Provider accredited by The Compliance Team. Its unique combination of marketing, industry expertise, and customer service has demonstrated success over a broad spectrum of chronic conditions. Company management is recognized for its innovative success in using advertising to drive sales, and for offering a simple, reliable way to purchase medical supplies needed on a regular, ongoing, repeat-order basis with the convenience of direct billing to Medicare and private insurance.

Investment Highlights

· Fast-expanding company in fast-expanding market with huge future growth potential                         

· Highly experienced management team with prior market-making success in medical supply industry

· High ratio of revenue returns on advertising dollars

· High incidence of re-occurring sales

· Strong third party payer support

· Vast, diversified multi-product lines

Onstream Media Corporation

(Nasdaq: ONSM)

Industry: Diversified Communications Services

Sector:  Technology

Corporate Headquarters:

225 Long Avenue

Hillside, NJ 07205

Tel: 312-235-3888

Fax: 973-391-1901

Website:

www.glowpoint.com

Onstream Media Corporation (“Onstream”) is a leading online service provider of live and on-demand Internet video, corporate web communications and content management applications, including digital media services and webcasting services. The Company’s customers have included 78% of Fortune 100 companies including America Online, Warner Brothers, Sony, General Electric, eBay, Dell, Intel and Nokia, to name just a few. Ontsream Media’s operations are comprised of two operating groups: Digital Media Services and Web Communications Services.

Key Differentiators:

1. All enabling technologies are supplied by single source. Customers can avoid the expense and hassle of using multiple disparate systems that might have interoperability constraints.

2. Automated. Customers can benefit from Onstream’s automated platform and avoid expense and time of manual professional services. An example is Onstream’s encoding and meta-tagging capability for video.

3. ASP Model. Subscription based program enables customers to leverage multi-million dollar technologies for a fraction of the cost.

Investment Highlights

• Since the April 27, 2007 acquisition and integration of Infinite Conferencing, Onstream Media has achieved positive net cash flow from operating activities, before changes in working capital components.

• Ongoing webcasting business grew by approximately 35% to $1.5 million on a year-over-year basis for the three months ended June 30, 2007—and recently reported record revenue growth of 70% for the month of October on a year-over-year basis.

• Inclusive of the acquired audio and web conferencing business, the Web Communications Services Group recorded total revenue growth of 148% during the quarter over the prior year period.

• Onstream Media has announced that it is a member of the Qwest Communications International team that has been awarded a stake in Networx Universal, the largest communications services contract in the world valued at approximately $48 billion over the next 10 years. The Company estimates that this project will begin generating revenues by the first quarter of FY 2008.

• Established significant strategic relationships with industry leading companies such as or including Akamai, Adobe and Fibercross (division of Cisco) and has become an approved video hosting service by eBay available to all online auction sellers.

• Management has announced guidance of $4.1 million in revenue by the fourth quarter of FY 2007, and gave guidance in 2008 in excess of 40% year over year growth.

Raser Technologies

(NYSE Arca: RZ)

Sector: Energy and Power
Industry: Electricity and Industrial Electrical Equipment

Corporate Headquarters:

Raser Technologies Inc.
5152 North Edgewood Drive
Suite 375
Provo, UT 84604
Phone: 801-765-1200

Website:

http://www.rasertech.com
 

Email:

investorrelations@rasertech.com
 

Raser is an environmentally focused technology licensing and development company operating in two business segments:

• Raser’s Power Systems segment is seeking to develop clean, renewable geothermal electric power plants and bottom-cycling operations, incorporating licensed heat transfer technology.

• Raser’s Transportation and Industrial Technology segment focuses on using Raser’s Symetron™ technology to improve the efficiency of electric motors and other industrial and transportation applications.

Having secured geothermal resources in six states, Raser has initiated development on 55 megawatts of production that will begin delivering electricity to approximately 55,000 homes by the end of calendar year 2008. The Company plans to commence development of 100MW of power per year over the next three years and 150MW thereafter. Raser plans to utilize binary geothermal plant technology which can utilize water temperatures down to 200 F degrees and be rapidly deployed through a strategic alliance with United Technologies who will supply the modular power systems. These geothermal projects currently have production tax credits associated with the production of “green” energy which Raser intends to monetize through a structure that will allow a tax equity partner to use the substantial tax credits in exchange for the initial capital to the build out of the facility and pay fees to Raser for several years thereafter. Raser’s management has extensive experience in the power sales market and is currently short-listed with several energy companies for power purchase agreements.
 

Investment Highlights

• Using a modular binary system, Raser can generate electricity at lower geothermal temperatures, resulting in a more rapid deployment (12-18 months) and no environmental concerns.

• Raser has secured substantial geothermal resources in six states.

• Currently developing 55 megawatts of production with the first project to be completed in the second quarter of 2008 and the remainder by the end of the year.

• Management forecasts that they will initiate construction on 100MW/year for the next three years and 150MW/ year after that point.

• Currently 25 states plus the District of Columbia have renewable energy portfolio standards which mandate a certain percentage of their energy come from renewable sources such as geothermal power.

• Geothermal power is base-load electricity that can be delivered to utilities 24 hours a day—356 days a year.

• The Company has formed a strategic alliance with United Technologies (supplies power system) to facilitate Raser’s modular rapid deployment strategy.

• Raser’s Transportation and industrial Symetron™ technology received Frost & Sullivan’s Hybrid Motor Vehicles Technology Innovation of the Year and Motors & Drives Product Innovation of the Year awards for 2007.

Client Updates

Alpha Pro Tech is a leader in protecting people and environments. APT develops, manufactures and markets innovative disposable protective apparel products for the industrial, clean room, medical, dental and food service markets and its Alpha Pro Tech Engineered Products division manufactures and develops a line of construction weatherization products including house wrap, roof underlayment and mold resistant framing sealant. APT products are utilized by some of the largest names in pharmaceutical and semiconductor sectors. Its Engineered Products division sells proprietary and technologically superior products to the construction industry.

Update: Revenue Growth Validates New Distribution Strategy

Alpha Pro Tech’s third quarter ended September 30, 2007 saw revenues increase 4.0% to $9.3 million from $8.9 million in the comparable quarter in 2006. The increase was primarily due to increased sales of Disposable Protective Apparel and Infection Control products, validating the new distribution strategy, partially offset by a decrease in Engineered Product sales. The decrease is primarily related to a 40.8% decrease in sales of house wrap, partially offset by a 20.5% increase in sales of roof underlayment. The decrease relates to a change in the Company’s distribution strategy, in which the Company decided to move forward on a non-exclusive basis with its distributor, which led it to source product from other suppliers and to ultimately discontinue purchasing from Alpha Pro Tech. In addition, the downturn in the housing market hurt sales, primarily the house wrap line, as fewer houses are being built and distributors are keeping inventories low. Net income for the quarter was $916,000, or $0.04 per basic and diluted share (based on 25.6 and 26.0 million shares, respectively) compared to net income of $882,000, or $0.04 per basic and diluted share (based on 24.1 and 25.1 million shares, respectively) for the third quarter of 2006.  The Company's Board of Directors authorized the repurchase of up to an additional $1.5 million worth of the Company's outstanding Common Stock. In addition to the $1.5 million, there is approximately $0.5 million available from a previously announced buyback, making a total available to repurchase of approximately $2.0 million. Subsequent to the quarter end, the Company announced that the Engineered Products Division will private label its RexSynfelt^® roof underlayment product to Allied Building Products Corp. under the brand name TRI-BUILT “Weather or Not”® Synthetic Felt. Allied Building Products Corp. has nearly 200 locations nationwide and has a strong roofing focus selling to contractors and builders.  It also announced that it has been awarded a vendor number to provide a large national chain of building and home improvement products with its RexSynfelt^® roof underlayment product.

American Software develops, markets and supports a comprehensive portfolio of integrated business applications to global corporations. These include enterprise-wide supply chain management, Internet commerce, financial, warehouse management and manufacturing packages for both brick-and-mortar and e-business firms. American Software also owns 86% of Logility, Inc. (NASDAQ:LGTY), a leading supplier of collaborative value chain planning solutions via the Internet. The Company derives 50% of its revenue base from ERP (with an installed customer base of 200 customers), and 50% from Logility Supply Chain Planning (with an installed customer base of 1,100 customers).

Update: 27th Consecutive Profitable Quarter

American Software’s second quarter 2008 ended October 31, 2007 saw revenues increase to $23.6 million, or 17%, from $20.2 million in the second quarter of fiscal 2007. GAAP net earnings were approximately $2.5 million or $0.10 per fully diluted share compared to $1.8 million or $0.07 per fully diluted share for the same period last year. Adjusted net earnings, which exclude stock option compensation expense and acquisition-related amortization of intangibles, were $2.8 million or $0.11 per fully diluted share for the quarter ended October 31, 2007, compared to $2.1 million or $0.08 per fully diluted share for the same period last year. The Company also announced a dividend of $0.09 per share.

Arabian American Development Co. is a leading provider of specialty petrochemicals. The Company’s specialty chemical subsidiary, South Hampton Resources, owns and operates a 97 acre petrochemical facility in southeast Texas. The Company’s products are sold exclusively as intermediate components to manufacturers competing in various markets such as expandable polystyrene (Styrofoam), polyethylene, adhesives, building foams, synthetic rubber and food processing. Arabian American Development Co. is the vendor of choice for the industry with approximately 60% of the North American market share for C5 solvents (expanding agents). The Company is also a leader in the production of C6 solvents, which are typically used in adhesives, rubbers, and flow enhancers. The Company holds ownership and rights for the Al Masane mine in Saudi Arabia that when put into production are expected to produce significant quantities of copper, zinc, gold, and silver; it also owns approximately 55% of the capital stock of a Nevada mining company, Pioche-Ely Valley Mines, Inc.

Update: Petrochemical Plant Expansion On-Track for Q1 2008 Opening

Arabian American Development Co.’s third quarter ended September 30, 2007 saw revenue of $28.0 million, up 3% sequentially compared to $27.1 million for the second quarter 2007 and up 1.8% compared to $27.5 million for the third quarter 2006.  The Company reported net income of $382,000, or $0.017 per basic and $0.016 per fully diluted share (based on 22.9 and 23.3 million shares, respectively) compared to net income of $515,000, or $.023 per basic and $0.022 fully diluted share (based on 22.9 million shares) for the third quarter last year. Expansion of the petrochemical facilities, which will double capacity, remains on-track for a first quarter 2008 completion. The Company received official notification that the Ministry of Commerce and Industry for the Kingdom of Saudi Arabia has approved the formation of the Al-Masane Al-Kobra Mining Company (ALAK).  The Company added two additional Board members, achieving its goal of an independent Board of Directors and bringing the total Board to seven. Subsequent to the quarter end, the Company applied for, and is awaiting approval of, a listing of its Common stock on the NASDAQ Global Market.

The Company also regretfully announced that John Alston "Jack" Crichton, the Company's Chairman Emeritus, died at his home in Dallas on December 10, 2007. He was 91.

AXS-One is a leading provider of high performance Records Compliance Management (RMC) software solutions. For almost 15 years, AXS-One’s proven archiving and electronic records management software has been used by major organizations worldwide, including leading Financial Services companies, to address their requirements for regulatory compliance, corporate governance and legal discovery while reducing their costs and delivering measurable ROI. The AXS-One Compliance Platform™ enables organizations to significantly reduce the risk and cost of managing growing volumes of disparate electronic records, including e-mail and instant messages, reports, file systems, SAP output, desktop documents, images and other digital records. By providing a single, scalable archiving platform, all records are managed according to corporate records policies from initial capture and indexing through archiving, retention, search and ultimate destruction. AXS-One’s robust legal case management tools let users respond quickly and accurately to the growing pressures of regulatory audits, e-discovery and litigation support.

Update: AXS-One Reports Revenue Increase for Q3, Year-To-Date

AXS-One announced increased revenue for both the third quarter and nine-month period ended September 30, 2007. The Company also announced a $3.75 million convertible note financing. Total revenues for the third quarter were $2.5 million, an increase of $0.3 million from the third quarter 2006 revenues of $2.2 million. License revenues for the third quarter were $0.5 million, compared to $0.5 million in the third quarter of 2006. The net loss from continuing operations was $4.6 million for the third quarter, down from a loss of $5.2 million in the third quarter of 2006. The Company reported a net loss after discontinued operations of $4.6 million for the third quarter of 2007, or $(0.13) per diluted share compared to a net loss after discontinued operations of $2.8 million in the third quarter of last year, or $(0.08) per diluted share. For the first nine months of 2007, total revenues were $8.7 million, up 12%, compared with total revenues of $7.8 million for the first nine months of 2006. License fees were $2.8 million, up 64%, or $1.1 million, from the $1.7 million in license fees for the first nine months last year. The net loss from continuing operations was $10.9 million for the first nine months of 2007, down from a loss of $15.0 million in the first nine months of last year. The net loss after discontinued operations for the first nine months of 2007 was $10.9 million, or $(0.31) per fully diluted share compared to a net loss after discontinued operations of $8.1 million, or $(0.23) per fully diluted share for the comparable prior-year period. On November 13, 2007 , the Company entered into a binding agreement with respect to a $3.75 million convertible note financing with BlueLine Partners, William Jurika and several other investors. The notes, which are secured by substantially all the assets of the Company, mature on May 29, 2009, bear interest at the rate of 6% per year and are convertible into AXS-One common stock at a $1.00 conversion price. The Company also issued warrants to the investors to purchase an aggregate of 3,750,000 shares of common stock at an exercise price of $0.01. If all of the warrants are exercised and all of the principal amount of the notes is converted into shares of common stock, the average purchase price of such shares issued pursuant to this financing will be $0.51 per share. The $3.75 million proceeds of these notes strengthen the Company's $2.5 million cash position as of September 30, 2007. The Company also has a $2.5 million bank credit facility, none of which is presently drawn.

On December 11, AXS-One announced the release of the AXS-One Compliance Platform 3.7, the much-enhanced version of its award-winning flagship product. Optimized for scalability and policy-driven data retention, Version 3.7 is the first and only archiving solution to provide comprehensive, integrated functionality to ensure that records pertaining to a specific case or cases are preserved and managed, in line with litigation hold orders and that an auditable chain of custody supports testimony requirements.

BSQUARE is a solutions provider to the global embedded device industry, including smart phones, PDAs and other electronics. BSQUARE’s teams collaborate with smart device makers at any stage in their device development with the goal of delivering quality, lowering project risk and accelerating time to market. BSQUARE’s solution portfolio includes software and hardware development, systems integration services, reference designs, board support packages, middleware, and applications. As a full service provider, device makers can also license BSQUARE’s best-in-class software products and operating systems. Since 1994, BSQUARE has completed hundreds of successful projects and has become a trusted partner to smart device makers worldwide. BSQUARE’s diversified, blue chip customer base includes Advanced Micro Devices, Fujitsu, Hewlett Packard, Microsoft, Mitsubishi Electric, Motorola, NEC, Siemens and Texas Instruments.

Update: Fourth Consecutive Profitable Quarter; Opens Office in Japan

The Company’s third quarter ended September 30, 2007 was BSQUARE’s eighth consecutive quarter of year-over-year revenue growth, fourth straight profitable quarter and fourth consecutive quarterly increase in cash and marketable securities. Total revenue for the quarter was $13.6 million, up 18% from $11.5 million in the prior year period. Total revenue for the first nine months of 2007 was $43.8 million, up 23% from $35.7 million in 2006. Both increases were driven by strength in all major revenue components. The Company reported net income for the quarter of $359,000, or $0.03 per diluted share compared to a net loss of $235,000, or $0.02 per diluted share, in the prior year. For the first nine months of 2007, the company reported net income of $1.5 million, or $0.15 per diluted share compared to a net loss of $(1.2 million), or $0.12 per diluted share, in 2006. Subsequent to the quarter end, the Company hired a new Japan country manager and opened an office in Tokyo, which along with BSQUARE’s office in Taiwan will support Asian customers. BSQUARE also announced it had signed a Windows Mobile and Windows CE Board Support Package (BSP) Licensing Agreement with Texas Instruments for its OMAP™ Platform under which BSQUARE will customize and resell the system software to OEMs approved by TI, as well as provide system integration services. The Company also announced that it has acquired NEC Corporation of America’s Adobe® Flash® Technology Consulting and Distribution business and is now a worldwide authorized distributor of Adobe Flash Lite^™ software, which supports Adobe Flash® Player functionality for mobile and embedded devices.

With more than 15,000 customers, CAM Commerce designs, develops, markets and services highly integrated retailing and payment processing solutions for small to medium size traditional and eCommerce businesses based on the company’s open architecture software and branded point of sale offering, X-Charge. These integrated solutions include inventory management, point of sale, accounting, credit and debit card processing, Internet sales, gift card, customer loyalty programs, and extensive management reporting including its proprietary, lead product, X-Charge. The X-Charge payment processing services are provided on a transaction-based business model. X-Charge provides merchants with a fast and secure payment-processing platform that can be used by any Windows-compatible personal computer. Merchants can use X-Charge as a stand-alone credit card terminal or integrate it with existing POS (Point of Sale) applications. X-Charge software eliminates the need for two transactions when processing a credit card thereby speeding up the POS transaction, and integrates Gift Cards for even the smallest retailer.

Update: 104% Increase in Net Income on 32% Revenue Increase for Fourth Quarter

CAM Commerce’s fourth fiscal quarter saw an 104% increase in net income on a 32% increase in revenue. During the fourth quarter of fiscal 2007, the number of new X-Charge payment processing accounts installed increased 45% to 1,601, as compared to 1,101 new accounts installed during the same quarter of fiscal 2006. As of June 30, 2007, the company had more than 12,000 payment processing accounts representing approximately $3.5 billion in annual payment processing volume. Revenues for the fiscal year ended September 30, 2007 increased 18% to $32.2 million, compared to $27.2 million for fiscal year 2006, based on the strength of a 51% increase in X-Charge payment processing revenues. Net income for the fiscal year ended September 30, 2007 increased 78% to $4.7 million, or $1.12 per share, compared to $2.6 million, or $0.64 per share, for fiscal year 2006. Pre-tax profit margin for fiscal year ended September 30, 2007 was also a record at 23% compared to 16% for fiscal 2006.

Based on the results, the Board of Directors declared a quarterly cash dividend of $0.30 per outstanding share.