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Hello Readers,
For the first time in 2006, we did not close any positions between Newsletters, but we are not overly upset, since many stocks in the Current Portfolio had some nice movement during the last few weeks. And, we will say this again, 2006 should be a pretty good year for the markets, barring unexpected incidents such as terrorism or acts of nature. However, we suspect that there is a pullback looming sometime, soon, because the Russell 2000 is up nearly 10% year-to-date. This usually suggests a little too much froth in the markets.
Here are the headlines since the last Newsletter about companies in the Current Portfolio. Dates in parentheses are when we first recommended them.
Gateway (GTW) (2/5/06). Several mentions in news articles and a product release.
MIND C.T.I. (MNDO) (2/5/06). Year-end results offer no major surprises but company declares a 19¢ cash dividend with a record date of March 14; balance sheet still looks good.
Dynacg (DYII) (1/20/06). Plans to sell its Baton Rouge hospital assets for about $26.5 million in cash.
Castelle (CSTL) (1/5/06) Year-end numbers look pretty rosy, as does balance sheet.
Digital Angel (DOC) (12/20/05). Schedules earnings call for March 8.
AuthentiDate (ADAT) (12/20/05). Names new CFO.
Fusion Telecom (FSN) (12/5/05). Acquires SIP peer-to-peer technology that avoids routing Internet calls through network of users’ computers.
Memory Pharma (MEMY) (11/5/05). Expands Roche Nicotinic Alpha-7 alliance. Releases year-end numbers. Announces positive preliminary Phase 1 cognitive data for MEM 3454.
Iona Technologies (IONA) (11/5/05). Names new CFO. To present at Wedbush Morgan small cap conference on March 2, the day after we post this Newslettter.
Westell (WSTL) (10/20/05). Will present at the Raymond James institutional confab on March 6.
RAE Systems (RAE) (10/5/05). Gets a nice plug in a story at Forbes.com.
Discovery Partners (DPII) (10/5/05). Year-end results show decrease in revenue; balance sheet still looks healthy.
Dyadic (DIL) (9/20/05). Featured in a story at Reuters.com. To present at Wall Street Analyst Forum on March 1, the date this Newsletter is posted.
EntreMed (ENMD) (9/5/05). To present at SG Cowen annual health care confab on March 7.
North American Scientific (NASI) (8/5/05). Gets Chinese okay to sell another imaging system in that country.
Innodata (INOD) (7/5/05). Slates year-end numbers call for March 9.
TeleCommunication Systems (TSYS) (6/20/05). Quarterly and FY results seem okay, as does balance sheet. Extends coverage areas for VSAT SwiftLink global satellite services. Plans to sell Enterprise Division.
Vion Pharma (VION) (5/20/05). Year-end balance sheet still looks healthy.
Verticalnet (VERT) (4/5/05). Several product releases. FY2005 results show revenues down and losses up.
Loudeye (LOUD) (4/5/05). Although revenue growth looks great losses also greatly widen; balance sheet still okay but should get a boost with the $8.25 million recently raised in equity financing. Company faces NASDAQ compliance issue.
Applied Micro Circuits (AMCC) (11/20/04). Signs distribution pact with Arrow Electronics, covering AMCC’s communications and embedded IC portfolio.
Nova Measuring (NVMI) (11/5/04). Stock falls as company says it will restate 2004 results. Introduces the NovaScan 3090 integration on Ebara polishers.
Chordiant (CHRD) (9/20/04). Selected by SNS Reaal Group for credit risk assessments.
Network Engines (NENG) (6/5/04). Jelly Bean chooses NENG Security appliances for VPN access.
Management Network (TMNG) (4/20/04). Year-end revenue numbers show growth with narrower losses; balance sheet still seems good.
OpenTV (OPTV) (3/20/04). Slates year-end earnings call for March 14.
Somera (SMRA) (2/20/04). Stock sinks even more as revenue growth drops. Will seek shareholder okay for reverse stock split. This one’s on the “Endangered List”.
Actuate (ACTU) (1/5/04). Ten new UK local authorities select ACTU’s performancesoft pbeviews in 2005; and Pentagon selects same for its performance management initiative. Partners with Tibersoft to serve food service industry.
AVANT Immuno (AVAN) (12/5/03). This is a good news/bad news story. Company had to axe its heart drug study, but wins EU okay for its rotavirus vaccine, which will garner the company $40 million from GlaxoSmithKline.
Insmed (INSM) (11/5/03). Will release FY2005 results on March 2, the day after we post this Newsletter.
Art Technology (ARTG) (8/5/03). Brokerage firm gives the stock a “buy”. Nieman Marcus Direct extends ATG relationship to expand and grow eCommerce operations.
Monogram (MGRM) (7/20/01). Last issue, we voiced frustration with this one, and despite a spate of upbeat news, we may close this, soon. Brokerage firm rates the stock a “buy”. Collaborates with Merck on HIV study. Year-end results improve over 2004; balance sheet still looks pretty healthy.
Our picks for this Newsletter are a NASAQ-traded maker of food products and an AMEX-listed provider of prepaid communications products.
POORE BROTHERS, INC. (NASDAQ: SNAK) – $2.90. Twelve-month hi-low has been $6.88 – $2.43. Based in Goodyear, AZ, with about 270 employees, this maker of food products, has 20.05 million shares outstanding, $21.41 million in total current assets, $41.8 million in total assets, and $11.56 million in total liabilities, of which $1.7 million is long-term debt. Institutional ownership is around 35%. One analyst gives the stock a “moderate buy”. http://www.poorebrothers.com
What’s this? A company that’s not hi-tech or biotech? Yes, sometimes we have these lapses back to what were once called “basic companies”. With a decent balance sheet and consistent revenue growth, there seems to be good cause for adding Poore Brothers, Inc. to the Current Portfolio. The company recently suffered a loss, but this appears to be a short-term condition.
Founded in 1986 and public since 1997, Poore Brothers makes and distributes snack foods, something most of us can identify with. It’s most recognizable product is the T.G.I. Friday’s brand snacks under license from that company. SNAK also offers salted snack foods under its own brands, which include Poore Brothers, Cinnabon (mall rats know this one), Bob’s Texas Style, and Boulder Potato Company brand batch-fried potato chips, as wells as Tato Skins. The more sarcastic among us would call this “artery food”, but it sells. The T.G.I. Friday’s brand snacks now account for about two-thirds of the company’s net revenues.
SNAK brands are sold directly to major retailers such as Wal-Mart, Target, SAM’s Club, Costco, Kroger, and Albertson’s, as well as select vending operators and convenience stores. Complementing the company’s sales force is Acosta, the well-known food broker.
Recently, the company decided not to launch new products nationally until they are validated through small test markets, which sounds like a good idea. SNAK has also announced that, because of competitive reasons, it will no longer disclose new brands until they are launched into test markets, and that it will no longer provide annual revenue and earnings projections, which also seem like more good ideas. In mid-February, SNAK said it may repurchase up to $3 million of its outstanding common shares between now and February 14, 2007.
For FY2005, ending 12/31/05, net revenues were $75.33 million with $280,484 in net income versus FY2004 net revenue of $68.73 million with $2.13 million in net income. Much of 2005’s earnings drop was attributable to severance costs, service fees due to 2ndQT restatements, and product write-downs.
Putting aside the fact that most of SNAK’s products are not considered health foods, that one fact is probably why the company has had healthy revenue growth.
Our 24-month target for the stock is $5.00 to $6.00.
For more information, contact SNAK’s Eric Kufel at 623-932-6200; eric.kufel@poorebrothers.com
Q COMM INTERNATIONAL, INC. (AMEX: QMM) – $2.50. Twelve-month hi-low has been $5.95 – $2.00. Located in Orem, UT, with about 30 employees, this prepaid communications products provider has 5.9 million shares outstanding, $3.71 million in total current assets, $8.38 million in total assets, little debt, and $1.8 million in total liabilities. Institutional ownership is around 2%. http://www.qcomm.com
Sometimes we go with one that may not have a strong balance sheet but appears to be carving a nice niche for itself. And, Q Comm International, Inc.’s cash position should soon be strengthened by a $3 million private placement that was completed in December, 2005.
Founded in 1992 and public since 1998, Q Comm purchases and resells prepaid telecommunications products over an electronic point-of-sale (POS) system, known as Qxpress. This system includes the Qxpress 200 terminal or VeriFone 3700 series terminal, a data center, and related software, as well as the communication protocols that connect the terminals to the data center. The company offers various prepaid and related products, including prepaid wireless airtime, wireless handsets, phone cards, debit cards, Internet, home phone service, bill pay, ring tones, and games, as well as a range of services that comprise product management, merchandising support, customer support, and engineering. Its Qxpress system provides retailers, brokers and suppliers with a system that processes transactions for various prepaid products, collections, and custom reporting. Q Comm’s products are used by merchants in Canada, France, Australia, the Bahamas, and by several thousand retailers in the U.S.
The Qxpress system is designed to replace the traditional distribution for prepaid products, which consists of vouchers or hard cards, that are subject to such problems as loss, theft and inventory financing, and management issues. Using the Qxpress terminal, a merchant can sell wireless telephone time and other telecom products, add credit to a prepaid debit card, add wireless time to a customer’s account by electronic bill payment or sell other prepaid products.
In mid-February, QMM announced a pact with South Carolina based Vertex Communications to distribute Q Comm’s services to its roughly 600 merchants. Also, at that time, Q Comm made a deal with SouthernLINC Wireless which will promote QMM’s solutions to its network of about 250 dealers in parts of the southeastern U.S.
For FY2004, ending 12/31/04, revenue was $16.57 million with $6.55 million in losses. During the first nine months of FY2005, ending 9/30/05, revenue was $34.58 million with $6 million in net losses.
Q Comm’s potential market is vast, to say the least, and the company seems to be making a lot of headway.
Our 24-month target for the stock is $4.50 to $5.00.
For more information, contact QMM’s Ashley Ammon at 801-226-4222, ext. 6090; info@qcomm.com
Look for the March 20, 2006 Newsletter to be posted on 3/16 or 3/17.
Thank you,
George