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Decemeber 13, 2006 Stock Pick: Applied Innovation, Inc. (AINN)

Stock Price: $3.13

Applied Innovation provides hardware and software applications that drive operational efficiency and improve quality in wireless, wireline and converging networks. The company's industry-leading solutions include sophisticated remote site management, 3G network data quality monitoring and logical security of critical networks.

AINN reported third quarter revenue of $7.7 million with net income of $548,000, or $0.04 per share. For the first nine months of 2006, AINN reported net income of $2.5 million or $0.16 per share. Fourth quarter revenue is expected to be in the $5.0 million - $6.0 million range with anticipated margin pressure. We believe the fourth quarter is already priced in.

The company generated cash flow from operations of $4.5 million for the first nine months of the year. AINN is trading at a PE of only 14.36 and a price to sales of only 1.41. AINN is trading significantly undervalued at a market cap of only $48.09 million.

The company has a clean balance sheet with cash and investments of $36.2 million and assets exceeding liabilities by a 9.5 to 1 ratio. AINN has cash per share of $2.37.

AINN is trading at it's book value of $3.15. There are 8.66 million shares in the AINN float.

It will only be a matter of time before the market finds AINN and by a look at the volume it looks like Wall Street is beginning to find it.

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