SiliconBeat

Kana Software’s second largest shareholder, Kernan Oberting, reported buying a half million more shares recently, boosting his ownership in the Menlo Park company to 7 percent up from the 5.7 percent stake his investment firm first reported holding Nov. 21, the same day Kana’s hit a 52-week low.

His firm, KVO Capital Management, spent $304,391 buying 515,599 shares of Kana between  Nov. 25 and Dec. 16, paying on average 59 cents per share. That was almost half the per-share price the New Hampshire investor spent gathering 2.36 million shares from Nov. 11 to Nov. 19 for $2.69 million.

Oberting first reported his holdings in Kana, which develops customer service software, on a  form SC 13D, which is used when an investor plans on taking a more active role in the fate of his investment. In that filing, Oberting disclosed having notified Kana’s board of directors that they “would be well served to consider significant changes in business strategy and corporate governance,” including:

• the immediate sale of the company, “given its negative working capital, history of poor management execution, and reliance on” raising more capital or debt financing to remain a going concern.
• the “extremely dilutive” effect that would be caused by by raising more capital “at a price substantially below what stockholders might expect to receive in a sale transaction.”
• immediately cutting expenses “to meet its previously expressed guidance of positive cash flow each quarter, rather than simply continuing to move the goal posts on guidance.”

Oberting is also concerned that Kana’s board has twice altered the terms of the investment held by it largest investor, Nightwatch Capital, since its representative, John Nemelka, joined Kana’s board in 2005. He urged Kana’s board to fill the vacancies on the board of those members who have departed since Nemelka joined it with new, independent directors who have “relevant industry experience.”

Oberting disclosed in his original filing that most of the shares controlled by his firm were held in margin accounts and that “it is not possible to determine the amounts, if any, of margin used” to buy them. Investments bought on margin can become very volatile. If their value falls precipitously, an investor can be forced to sell some of the shares prematurely to repay more of the debt used to acquire them.

Kana shares, which are down 70 percent so far this year, closed Thursday at 72 cents each.