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By Ian Wyatt



) -- I've found and interesting small-cap company operating in the mobile technology industry -- one that stood out from the pack because it has morphed two trends into one business model for those on the go.

But there's a catch: This microcap company is looking to make money by giving away their products.

Sound far-fetched? Not really, if you think about other consumer product companies. After all,

Procter & Gamble


(PG) - Get Free Report

Gillette and

Energizer Holdings'

(ENR) - Get Free Report

Schick brands don't make money off the razor handles that they package with the razor blades. They're counting on repeat blade sales to drive profits.

The razorblade comparison isn't far off in terms of widespread use, either. Cell phones have become an integral part of many people's lives, especially smartphones. With integrated browsers and apps to meet any mobile need, we're using our phones to stay in touch with friends and family, check e-mail and play games.

The company I'm looking at is

Glu Mobile

(GLUU) - Get Free Report

, a small-cap company that develops games for handheld units.

The company changed its profit strategy once Niccolo DeMasi took over as CEO a year ago. Rather than trying to make money off the mobile market by selling its popular games, Glu Mobile now tries to sell the concept of microtransactions. It's generating revenue from millions of smaller in-game transactions, usually of a dollar or less, and from in-game advertising.

Glu Mobile's concept is that the users pay their fare for the software by buying add-ons, trinkets and little things that enhance their playing experience in a social atmosphere. By melding the type of game-playing you might encounter over a network using a Wii from


or an Xbox from


(MSFT) - Get Free Report

, with the mobile devices that we depend on, Glu is banking on becoming the ruler of a mobile social-gaming kingdom.

Glu Mobile is not a newcomer to gaming. The company is actually celebrating a decade of development this year. The company went public in 2007, but the stock raised some eyebrows on January 11, when it announced a secondary offering of 7.3 million shares at $2.05 apiece, a deep discount from the $2.34 price where they had been trading. The company plans to use the $13.8 million to speed up development of its gaming community, which is actually a good use of the money.

Glu has an impressive portfolio of top-rated games that includes Beat It!, Bonsai Blast, and Super K.O. Boxing! It also turns brands from partners including Activision, Atari, Hasbro, Microsoft, SEGA, Sony and Warner Bros. into games.

Under the Glu social mobile model, gamers can go head to head in shoot-'em-ups like Gun Brothers, or take control of toys with Toyshop Adventures. In December, 2010, Glu said its Gun Brothers was approaching 3 million downloads, averaging 175,000 a day.

By switching its strategy to free to play, Glu got a head start over its bigger competitors. Moving forward the company plans to release 25 titles each year.

Since DeMasi took over the company's share price has doubled, and its cash position has improved. On January 6, 2011, Glu Mobile's stock hit an all-time high of $2.90, right after announcing at the Consumer Electronics Show a partnership with


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to develop games for



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Android platform.

Glu Mobile still hasn't reached the sweet spot of profitability and has had to tap into the equity markets to raise cash. That always makes investors nervous, but considering the long-term growth potential it appears that the equity raising strategy (vs. debt) is probably the better option. In addition to the recent stock offering, the company received $13.5 million from a private placement in the summer of 2010.

Glu Mobil cut its losses in 2009 to $18.2 million, and indications are that it will report a smaller cash burn for 2010. For the three months ended September 30, 2010, Glu reported a $1.6 million loss, an improvement over a $4 million loss in the year earlier quarter.

With its substantial roster of games and an improving revenue picture Glu Mobile could become a takeover target. Recently old-line Publishers Clearing House announced that it was buying Funtank, which creates online video games for companies including Trident gum,

Walt Disney

(DIS) - Get Free Report

Co. and

Toyota Motor

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Glu Mobile may be on the cutting edge of gaming technology, and it appears to have put in place the financing needed to grow. At the current price, it's definitely worth investigating.


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Until Monday,

Ian Wyatt, editor of

Wyatt Investment Research, founded in 2001 as a publisher of newsletters, offers independent investment research of financial markets, stocks, bonds, ETFs and mutual funds to about 250,000 individual investors. The company is led by founder Ian Wyatt, who serves as publisher and chief investment strategist.