Small Cap Watch List (Track at Marketocracy) member Pre-Paid Legal Services, Inc. (PPD), announced financial results for the second quarter ended June 30, 2007. Membership revenues increased 4% to $106.9 million from $103.1 million for the same period last year. Net income increased 9% to $13.2 million from $12.1 million for the previous year. Diluted earnings per share for the quarter increased 22% to 99 cents per share from 81 cents per share for the prior year’s comparable quarter, higher than the net income increase, due to an 11% decrease in the weighted average number of outstanding shares. According to Yahoo! Finance, there were no Wall Street estimates with which to compare the number.

From an earnings quality standpoint, cash flow from operations grew at a slightly faster rate than net income, which is generally a good sign. Much of the cash flow was returned to shareholders through the buyback plan, but the selling shareholders probably shouldn’t have, as the average transaction price was below $49 and well below the current $68.50 share price. It seems the company can at least spot a good buying opportunity in its own shares.

The press release did not include a balance sheet or detailed cash flow statement, so a more thorough analysis will have to wait for the 10Q.

With the end of the first quarter approaching, it is time to adjust the names in my Watch Lists. I will price all the new lists as of the close on Friday, June 29.

Today I present my planned updates to the Small Cap Watch List. There was a fairly high level of turnover to the list. 12 of the 24 names from the previous run made it to the current list, which was also 24 names. Performance-wise, the list created in March has returned an unweighted average return of 2.6% through June 28, with 80% of the stocks in positive territory. All of the money-losers from the previous list fell out of consideration.
So without further ado, the names on the chopping block from the previous list are: PW Eagle (PWEI), Insteel Industries (IIIN), Allied Defense (ADG - Annual Report), Hartmarx (HMX), Parlux (PARL), Hansen Natural (HANS), FirstFed Financial (FED), Young Innovations (YDNT), ITT Educational (ESI), Rent-a-Center (RCII), Valassis (VCI), and Travelzoo (TZOO). The castaways include four of the five money losers from the previous portfolio (HMX, PARL, YDNT and TZOO) as well as the biggest gainer (ESI).
The new list is:

I will continue to track both lists on StockPickr.