it was an interesting article nonetheless...

That's not VII...

That article is referring to Vicon Motion Capture Systems. I don't think there's any affiliation with Vicon Industries.

This is Vicon Motion Capture's website...

http://www.vicon.com/

note that VII's website is http://www.vicon-cctv.com

AEY is still AEY.

SCOM and Abbott link up ...

just another reason why any value microcap investor HAS to have SCOM in their portfolio...

Humira has a $1 billion annualized run rate for Abbott and they're filing for more indications for the drug as I type...

The explosion in home injectable pharmaceuticals is one more catalyst SCOM can add to the mix. Not only does SCOM's mail back service keep the syringes out of the trash, it also gives Big Pharma an invaluable touch-point with their customers.

SCOM sends Abbott data on each patient's sharps container and let's them know if John Q. Patient is taking his Humira or not. Abbott then has a service rep call Mr. Patient and find out why he's not taking his meds. This is a powerful tool for pharma as more and more compounds are self administered at home and not under the watchful eye of a physician.


Follow the link and see for yourself...

http://myhumira.com/Disposal/Default.aspx

Now SCOM just PR'ed their support of the Bill....

I beat their PR team to the punch...LOL!

SCOM had a monumental day ....
and nobody noticed....

I continue to believe that SCOM is the best story in the Microcap universe and here's why...

(I sent this out last night)

~~~PASTE~~~


[08/7/2007] SCOM - I'll bet the champagne is flowing at SCOM's offices today...

12:17:40am
2007-08-07

I'm going to pass along a lesson I learned on Sunday just in case anyone ever finds themselves in a similar situation...When you're participating in your first ever Poker Run through five small town taverns in Southern Illinois, DO NOT try to keep up with the beer consumption of the leather chaps wearing, bandana domed, Harley Riders. Especially when you're driving a 505hp '07 Z06 Vette that doesn't belong to you. I'm sure I had a great time, and I hope when I see some of the pictures my wife took I'll actually remember portions of it.

With that sage advice out of the way, I think the markets have set themselves up for a very turbulent day on Tuesday. I am not in the growing camp of folks who think the Fed is going to signal some dramatic shift in their bias towards inflation tomorrow.

Certainly they might change a word or two in the policy statement, but for the Dow to have it's biggest point gain since 2002 and for the bulk of it to be concentrated in the financials seems like a trap to me. I just don't think the Fed will signal a shift away from inflation concerns to focus on the possibility of a recession from the liquidity crunch we're seeing now. My guess is the markets are little changed tomorrow until the statement is released from the Fed, and then we promptly give today's gains back. Just my hunch, we'll see how it plays out.

Now in an environment like this, we've discussed how it's prudent to shun some of the purely growth oriented stories and focus on names that have broad secular catalysts in their favor. We discussed HDIX for the diabetes epidemic that's in our nation's future and we talked about Aldabra II warrants as a very low risk / high reward way to leverage into an infrastructure acquisition. Tonight, I hope to point out one more catalyst behind the single most talked about name on this site by yours truly - SCOM. Such is the beauty of SCOM - there is a powerful cross current of catalysts in the firm's favor and honestly, they would have to be one of the most inept management teams ever assembled not to take advantage of this fact.

Just off of the top of my head we've got some of the most compelling themes in the investing universe in this little unknown firm. Namely, environmental concerns, health provider safety, the explosion of home injected pharmaceuticals, the diabetes epidemic, and accidental HIV contraction concerns. The suits at SCOM could literally drop the ball on marketing to half of these issues and still have robust growth ahead of them. In market's as volatile as this, it's comforting to know that all of your eggs aren't in one proverbial basket.

Now before I put up what I think has to be the most positive development for SCOM since I've been covering the name, follow this link below and you'll be directed to a list of EVERY time I've mentioned SCOM in the past. If you're new to the story or need a refresher - this is the place to start...

Link to all past SCOM content..click here


I've talked at length about the legislative measures that states like California and Massachusetts are taking to ban needles from the public trash system. Measures like those from proactive legislatures will spread throughout the US, but I'll take a nice mandate from the Federal Government anyday. Especially when that mandate is explicitely for the purpose of forcing Medicare to pay for "Sharps-by-Mail" syringe disposal for home injecting diabetics. If I thought I heard Champagne corks popping at SCOM's offices today, just wait until this measure passes and is signed into law.....


~~~PASTE~~~

Isakson Introduces Legislation to Allow Medicare Coverage for Safe Needle Removal for Diabetics
Potential Savings from Reduced Injuries Could be Substantial

WASHINGTON (Auagust 3, 2007)

– U.S. Senator Johnny Isakson (R-Ga.) today introduced legislation to allow Medicare coverage of safe needle removal for insulin-dependent beneficiaries to reduce the number of accidental injuries, infections and subsequent costs associated with their treatment.

“Of the 20 million Americans affected by diabetes, nearly 8 million qualify for Medicare,” Isakson said. “Many of the complications from diabetes can be prevented through proper needle use and disposal, and it is our responsibility to provide the means necessary to keep these patients healthy.”

Over 1.3 million Medicare beneficiaries are dependent on insulin to manage their condition. Improper disposal or mishandling of insulin needle and syringes often results in further health complications.

Specifically, the Medicare Safe Needle Disposal Coverage Act of 2007 will allow coverage of safe needle removal, decontamination and destruction devices, as well as coverage of needle and syringe disposal through a sharps-by-mail program. On average, insulin-dependant Medicare beneficiaries inject themselves three times a day. The entire population injects themselves 1.4 billion times annually, making accidents inevitable.

Medicare currently spends over $130 billion annually for medical treatment and complications of diabetics. Potential savings to Medicare could be substantial if only a fraction of these complications could be prevented through safe and effective needle disposal.

U.S. Rep. Mike Ferguson (R-N.J.) introduced an identical bill in the House of Representatives.


~~~END PASTE~~~



Earnings for SCOM are due next week. The stock is thinly traded so if you don't own any yet, grab a few shares here at $3.00 and wait to complete the position until after the earnings results. If it dips under $3.00 then add aggressively. I'm just not sure how much longer this thing can stay under the radar - there's just too much going on here....

In the next day or so, I'll see if I can dig up the entire text of the proposed legislation....

Microcap tech = VCST...

This is my take on them from when the CSCO link was 8-k'ed...


~~~PASTE~~~

[11/13/2006] VCST - Just found a pretty nice partner...CSCO...

02:42:32am
2006-11-13

Viewcast (VCST) rocketed last Friday from an open at $.19 to a close of $.38. Why would I be discussing it after a move like that? Several reasons...

1) Combined volume for all of last week was just over 3million shares. Taking an average share price of $.25/share - that's only $750,000 changing hands all last week.

2) While $750,000 worth of VCST trading last week is certainly significant and probably a record for the firm, I don't think it accurately represents implications of the news VCST issued. What was the news??

~~PASTE~~

ViewCast Chosen as OEM Supplier to a Global Network Leader
Thursday November 2, 3:59 pm ET
PLANO, Texas--(BUSINESS WIRE)--ViewCast Corporation (OTCBB:VCST - News), a leading global provider of high-quality audio and video communication products, today announced that an original equipment manufacturing (OEM) agreement has been signed with one of the global leaders in networking for the Internet pursuant to which ViewCast will sell and license certain products for resale on a stand-alone basis and/or as incorporated into their products. The first order has been accepted by ViewCast and begun shipping.

The one-year renewable agreement initially calls for ViewCast to supply Niagara® GoStream, a single channel, portable encoding appliance, and the Niagara PowerStream Pro, a dual channel, rack-mount encoder, that will be re-branded and integrated into their digital media solution offering according to certain agreed upon product specifications. Organizations increasingly seek to use business-quality, dynamic video and audio to quickly and easily connect customers, employees, partners or students. Users of systems such as ViewCast's Niagara can create, manage and deliver live and on-demand digital media in various formats to multiple wired or wireless connected devices.

~~END PASTE~~


Now, what this PR doesn't say, but a subsequent 8-k filing did, is that the "global networking leader" referred to is none other than CISCO (CSCO).

Now certainly, a tiny little firm with a $9million market cap like VCST could sign a contract to supply toilet paper to CSCO and the stock would double like it did Friday. We see micro-caps launch into the stratosphere frequently just by finding some small way to link themselves to a multi-billion dollar industry leader. Just a couple weeks ago, as an example, little known IMMG soared due to a press release that touted the fact that Microsoft had chose the company to design the retail display kiosk for the Zune media player.

VCST's deal with CSCO is different. Let's connect the dots. Here's what VCST is in the business of building....

~~PASTE~~
ViewCast.com, Inc., doing business as ViewCast Corporation, engages in the design, development, and marketing of video communications products and services worldwide. The company’s products address the video capture, processing, and delivery requirements for various applications and markets. Its products include the Osprey line of video capture cards, the ViewCast IVN (Interactive Video Network) systems, and the Niagara line of video encoding systems and servers, as well as related application software, such as SimulStream and Niagara SCX. These products are installed in computers, appliances, or within a communications network and are used for various audio and video communication applications, including corporate communications, information gathering, security, training, distance learning, conferencing, Internet video, and broadcast applications.

~~END PASTE~~

Now we know from the Press Release that Cisco has signed a one-year agreement to purchase VCST's Niagara system video encoders. The Niagara line is built specifically to create, manage and deliver live and on-demand digital media in various formats to multiple wired or wireless connected devices.

Bearing the functionality of this product line in mind, let's take a closer look at where VCST says CSCO will be deploying the product....

~~PASTE FROM GRAPH 2 of VCST PR~~~
Niagara® GoStream, a single channel, portable encoding appliance, and the Niagara PowerStream Pro, a dual channel, rack-mount encoder, that will be re-branded and integrated into their digital media solution offering according to certain agreed upon product specifications.

~~END PASTE~~


So let's see what CSCO has planned for their "Digital Media Solution". Keep in mind that CSCO's revenues for the just reported quarter were nearly $10billion dollars. It would be virtually IMPOSSIBLE for CSCO to sell anything of VCST's and not double or triple their (VCST) current annual revenue of just over $12million. That sounds like a bold statement but consider what CSCO has said about their "Digital Media System"...this is where VCST's hardware is headed.....

~~PASTE FROM CSCO 10Q on 11/9/06~~
New Product Introductions

* Cisco TelePresence, a new emerging technology solution that creates in-person experiences between people, places and events whether they are across town or across the world.

* Cisco Digital Media System, a new emerging technology designed to enable organizations to use business-quality, dynamic video and audio to easily connect customers, employees, partners or students anywhere, anytime.

~~END PASTE~~



In my humble opinion, any new product introduction that's going to make it into it's own bullet point in CSCO's quarterly results Press Release equals MUCH higher prices for VCST in the future. Consider the sheer scale of some of the 'early-adopters' of CSCO's TelePresence and Digital Media efforts....


~~PASTE FROM CSCO 10Q on 11/906~~

Major Customer Wins

* AT&T completed initial testing of Cisco's TelePresence Meeting Solution to help ensure network interoperability and performance; Verizon Business is expected to soon begin testing the technology.

~~END PASTE~~



Ideally, I would like to see the stock give us a nice dip to buy in the morning. Perhaps down to the $.30 level. Even at these prices, VCST is still trading at under 1 x sales. Considering the revenue train they just hitched a ride on, I think the shares are a bargain here. I would step in incrementally and look to be an opportunistic buyer of dips. Not everyone will piece this puzzle together like we just did.




Related Industries: New Pick - News Event - Overlooked Potential - Short Term - Tech -

Initial Stock Price: $.38

Quick ZYNX question....

Is anyone concerned about their ability to collect their receivables?

I'm just going through the most recent 10Q and noticed that their receivables as of 3/31/07 are $1.82 million and their allowance for "uncollectable" accounts is $1.49 million.

Don't know if I've ever seen such a ratio of uncollectable/receivables before...

Any input is appreciated...

Re: "How can I use this in my stock trading?"...


The moment I read about the halt on certain seafood imports from China, I thought that HQS would make a nice short. Honestly, I'm not necessarily surprised that it's not down dramatically - but I am surprised that there are still buyers for the stock here at $10 considering all of the headwinds with the USDA.

Here's the note I wrote about it at the time. Fair Warning - It's lengthy, so if HQS doesn't interest you, save yourself the time and go to the next post.


~~~PASTE~~~

[06/29/2007] HQS *short* - With love from China: Tainted Fish...


2:33:50am
2007-06-28


First off, lot's of new members tonight as the marketing arm of xxxxxxxxxxxxxxxx.com went into turbo mode and actually posted a quick note in the WWAT message board on Yahoo. Of course this is largely a tongue-in-cheek comment because as long time members are aware, the growth of this site has been fueled largely by word of mouth and I'm forever grateful for that. Occasionally though, when something like WWAT goes from $.20 to $1.50, I take a moment to let folks know that Insighter's were aware of the story month's before the dramatic move in the stock. Thanks to all the members here, new and old, for giving me a forum to vent my obsession with micro and small cap stocks.


I'm going to take a few moments here to discuss HQ Sustainable Maritime (HQS) as it serves as a facsimile for the newer members to get a feel for my skill set and the value proposition that xxxxxxxxxxxxxxxx.com offers. Essentially, I have a photographic memory for stocks. I look at literally dozens and dozens of charts and read even more business descriptions every night. Being the geeky freak of nature I am, I remember virtually all of them. Remember in "Rainman" when Dustin Hoffman would mutter about watching The People's Court? "Definitely, Wapner at 4pm" , "People's Court - Wapner - 4pm". Well sadly, that's me. I'm constantly reading the news. I've got 26 RSS Feeds streaming headlines 24/7. When I'm in the car, my XM is on Bloomberg or CNBC (but only when Bloomberg's in commercial - those Oprah & Friends ads make me want to puke)

When I hear or read a story or a headline, tickers go through my head like a streaming quoteboard. Needless to say, when I read about a U.S. detainment of fish from China, I'm in savant mode immediately - "Definitely, short HQS" "Tainted Seafood, HQS is hurt". The next step in the process is to trudge through the rest of my work day, hurry home to spend a precious 3 hours with my wife and 2 boys (Reece 4 and Harry 2) before they hit the sack. Then, I bound up the stairs and hit the workstation to pound out my thesis for the days content on the site. Such is my job task until about 3 am when my late night snack (Diet Coke and Creamy JIF) trans-fat high wears off and I pass out on the pillow for a blissful 4 hours sleep.

With that background out of the way, let's move on to the motivation for a short call on HQS.


We've all heard about the spate of recalls and warnings on goods imported from China in the last few months. It all started with the melamine in pet food, then there were the always fun deadly lead Thomas the Tank Engine toys, and most recently tainted toothpaste. Well, there's a fresh alert out tonight for Chinese fish products and my guess is that this will get a ton of press as it now appears that any consumables from China should be avoided. That is unless you're a fan of violent diarrhea, and kidney failure.


Here's the scoop

{the bold and italics were added by me for emphasis}

~~~PASTE~~~


June 29, 2007
F.D.A. Curbs Sale of Five Seafoods Farmed in China
By ANDREW MARTIN
In the latest move against Chinese imports, the Food and Drug Administration yesterday effectively blocked the sale of five types of farm-raised seafood from China because of repeated instances of contamination from unapproved animal drugs and food additives.

The F.D.A. said it decided to take the action after years of warnings and even a visit to Chinese fish ponds that resulted in no signs of improvement. But Dr. David Acheson, the F.D.A.’s assistant commissioner for food protection, stressed that the seafood posed no immediate health threat, though long-term consumption could result in health problems.

“There’s been a continued pattern of violation with no signs of abatement,” Dr. Acheson said.

The seafood announcement comes after a string of reports in recent months about Chinese imports that have failed to meet American health and safety standards: pet food ingredients, toothpaste, toy trains and tires.

The seafood move, however, may have the broadest impact on China, the world’s biggest producer of farm-raised fish. The country is also the biggest foreign supplier of seafood to the United States, accounting for 22 percent of the total imports.

The seafood named in the F.D.A.’s “import alert” are shrimp; catfish; eel; basa, which are similar to catfish; and dace, similar to carp. Some of the contaminants cited have been found to cause cancer in laboratory animals, while others may increase antibiotic resistance. Under the import alert, the seafood can be sold in the United States only if importers provide independent testing that shows the seafood does not contain the contaminants.

Officials at the Chinese Embassy in Washington did not respond to messages seeking comment.

The announcement fueled concerns about both the integrity of Chinese products and the effectiveness of the American system for identifying contaminated food.

“The list continues to grow of Chinese imports that are dangerous to American consumers,” said Senator Richard J. Durbin, Democrat of Illinois. “There reaches a point where I think it’s clear, if China wants to live in the 21st century, then they have to produce to those standards.”

After the F.D.A. announcement, Mr. Durbin and Representative Rosa L. DeLauro, Democrat of Connecticut, called on federal officials to establish a food safety agreement with China.

Ms. DeLauro, a frequent critic of the F.D.A.’s oversight of food safety, also questioned why the agency waited so long to act.

The banned substances, primarily antifungals and antibacterials, have been used by some Chinese farmers to prevent disease among their seafood. Because they are often crowded into ponds, farmed fish and shrimp can become sick as the quality of the water becomes polluted by waste and feed.

“You may have 10 to 20 times the density of fish as in a natural environment,” said Robert P. Romaire, professor of aquaculture at Louisiana State University.

American regulators allow the use of a limited number of antibiotics. But Mr. Romaire said some of the Chinese farmers used antibiotics indiscriminately.

None of the antibiotics and food additives found in the Chinese seafood — nitrofuran, malachite green, gentian violet and fluoroquinolones — are on the approved list of regulators. Long-term exposure to nitrofuran, malachite green and gentian violet, which are also illegal in China, has been shown to cause cancer in laboratory animals.

Fluoroquinolones are allowed in Chinese aquaculture. Nevertheless, they are not permitted in fish in the United States because their use may increase antibiotic resistance for people.

The problems with contaminated Chinese seafood imports date back at least six years. Before this week, the F.D.A. had issued other, more narrow warnings about contaminated Chinese seafood beginning in 2001.

In the fall of 2006, F.D.A. officials went to China to inspect aquaculture operations and found “the residue control program ineffective.” The agency increased its inspections of Chinese seafood, starting last October, and, officials said, found that 15 percent of the samples were contaminated.

China’s seafood shipments to the United States were valued at $1.9 billion in 2006, a 193 percent increase over 2001, according to the Department of Agriculture. The biggest American imports from China are shrimp, tilapia, scallops, cod and pollock, federal statistics show, although only shrimp was affected by yesterday’s announcement.

Several Southern states, which have their own catfish and shrimp-farming operations, have already blocked the sale of some Chinese seafood. Their rules say that the seafood can be sold only if it passes testing that proves it has no contaminants.

The state of Alabama announced its ban after testing found 14 of 20 samples contained fluoroquinolones. Mississippi officials found that 18 of 26 samples of Chinese catfish were contaminated with fluoroquinolones.

“We are saying all Chinese seafood that comes in here has to be tested prior to sale,” said Bob Odom, Louisiana’s agriculture and forestry commissioner. “The simple reason for that is we found a lot of it that is contaminated.”

The F.D.A. maintains a database of imported products that are prevented from entering the United States because they do not comply with American standards. In May, for instance, the agency turned away 165 shipments from China, 49 of them seafood.

Monkfish was rejected for being filthy and unfit to be eaten, the records show. Frozen catfish nuggets were turned away because they contained animal drugs. Tilapia fillets were contaminated with salmonella.

The problems were even worse in April, when 257 shipments from China were rejected, including 68 of seafood. Frozen eel contained pesticides, frozen channel catfish had salmonella and frozen yellowfin steaks were filthy, the records show.

In a report on the F.D.A.’s oversight released in May, Food and Water Watch, a Washington-based nonprofit group, found that more than 60 percent of the seafood that was rejected at the border by the F.D.A. came from China.

The group’s report also found that the percentage of seafood shipments that were pulled out for laboratory analysis declined in recent years, from 0.88 percent in 2003 to 0.59 percent in 2006. Over all, about 2 percent of seafood imported from 2003 to 2006 received either a sensory examination for color and smell or a more detailed laboratory analysis.

Of the seafood that was refused at the border, filth was the top listed reason and salmonella was second, with shrimp accounting for about half of those cases, the report found.

Of the shipments rejected for animal drug residues in 2006, 63 percent were from China, the report found. Vietnam ranked second in rejections for animal drug residue, 11 percent.

F.D.A. officials said yesterday, however, that the agency inspected a higher percentage of Chinese seafood imports — 5 percent — because of continuing concerns about farm-raised fish from that country.

~~~END PASTE~~~




Now let's examine how HQS is vulnerable here and a nice candidate for a short sale trade on this news....



Let's see what they do...

~~~PASTE~~~


HQ Sustainable Maritime Industries, Inc. (HQS), incorporated on September 21, 1989, is principally engaged in the business of aquaculture through co-operative supply arrangements, ocean product harvesting, and processing and sales of farm-bred and ocean harvested aquatic products, as well as production and sale of marine bio-products and healthcare products. HQSM's products include black or Nile tilapia and white leg shrimps, which are sold in the People's Republic of China market, as well as exported to locations in the United States, Canada and some European countries. Its subsidiary, Jiahua Marine Bio-Product Company Limited (Jiahua Marine), is engaged in the production and sale of marine bio-products and healthcare products in the People's Republic of China. The principal products of Jiahua Marine are shark cartilage capsule, shark liver oil and shark liver (soft gel).

Tilapia

Tilapia is farmed throughout many countries around the world. Although there are many species of tilapia, only a few species are farmed for human consumption. The most common species that are farmed commercially is the black, or Nile, tilapia, which is grown in ponds, cages or rice fields. The Company exports varying quantities of tilapia in different forms to the United States, Europe, Asia and other regions. In addition, the Company is launching a marketing and distribution initiative in the United States and Europe with its TILOVEYA brand tilapia. HQSM's tilapia products are sold mainly in the form of whole round frozen, gutted and scaled, boneless-skinless tilapia fillets and boneless-skin-on tilapia fillets. The Company's principal operating subsidiary with respect to its seafood products is Hainan Quebec Ocean Fishing Co. Ltd. (HQOF).

Shrimp

The Company's principal shrimp product is the white shrimp. Its shrimp is exported to the United States and Australia in the forms of head-on shell-on shrimps, headless shell on shrimps, peeled tail-on shrimps, peeled and deveined shrimps, peeled and undeveined shrimps. All orders are packaged in accordance with the requirements of the buyer, either block or individually quick frozen.


~~~END PASTE~~~


HQS also has a health product division that sells products in China made primarily from Shark cartilage, but about 75% of the firm's $39 million in 2006 sales came from the aquaculture operations. Clearly, HQS is vulnerable to any disruption in the U.S. market as the growth in their sales is coming from recent link-ups with Kroger and Sam's Club. It should be noted that tilapia isn't named in the most recent USDA alert, but shrimp is and that's roughly half of HQS's farmed fish sales. Moreover, it's not a stretch of the imagination that the American consumer might be just a wee bit hesitant to purchase ANY seafood that's got a country of origin label stating that the product is from our dear friend's in China. One could even foresee the possibility that U.S. retailers dramatically reduce their purchases of all farm raised fish from China in response to the myriad bad publicity that seems to keep popping up day after day.

Frankly, HQS was probably due for a big pullback even if this news hadn't broke tonight. The stock has been on an amazing run since the first of the year rocketing to $13 from $4. An impressive move to say the least, but it's hard to see what has got buyers of HQS so enthused. Let's take a peek behind the scenes...

* In the most recent quarter (ended Mar. 31) the company lost $.23/share.

* Revenues were up 14% but margins slipped and gross profit was virtually flat despite the increase in sales

* They're actively diluting the stock
- outstanding shares have jumped by 1million from Q1 2006 to Q1 2007
- recently filed an SB-2 to issue and sell another 4.5million shares

* With a trailing EPS of $.09 - the company is priced for perfection at a P/E ratio of over 100.
- any disruption in an already slowing revenue growth should significantly contract the P/E ratio



I'm thinking that HQS is about to face some very significant headwind in the face of their U.S. sales efforts on the heels of this USDA crackdown. HQS markets itself as a "toxin free" fish producer and kudos to them for that initiative. However, the American consumer is growing more skeptical of Chinese imports everyday and the media will continue to stoke this fire as long as the Chinese firms continue to operate substandard facilities. In short, I think HQS is no longer deserving of the premium price it's trading at currently and is an attractive short that should be trading closer to $5 than $10.


Related Industries: China - New Pick - News Event - Short Candidate -


Initial Stock Price: $10.10

For DFNS followers...

I know there are a few DFNS followers here so I thought I'd pass this along. I sent this note out a few minutes ago...


~~~PASTE~~~


[07/10/2007] DFNS - Good news when a budget cut is actually an increase...


12:33:50am
2007-07-10

Granted, DFNS hasn't done much since I put it up right here at $.55 a couple weeks ago. However, you'll remember in that post I noted that the election of Ehud Barak to the Head of Israel's Ministry of Defense should bode well for DFNS as Barak is very Hawkish on defense.

It appears as if Barak's presence is indeed having an impact as the rhetoric about an impending flare up with Syria has given him the political capital to stave off some drastic cuts in defense spending.

Read this closely and note that while there were budget cuts (fiscal responsiblity and budget restraint was a pillar of P.M. Olmert's campaign), the cuts have been pared back so much that they actually still represent an increase in the Israeli Defense Force's budget. The bulk of the cuts in spending come from administrative expenses and a few very costly high-tech projects. Neither of which are the domain of DFNS which specializes in personnel protective gear.

When reading this, keep in mind that I've bolded some parts for emphasis and also note that this is an opinion/editorial piece penned by someone who clearly thinks the Defense budget is bloated and is bemoaning the fact that the proposed cuts in spending were cut in half. Nevertheless, the crux of the article is illustrative of the fact that DFNS should continue to see money flowing from the IDF.

~~~PASTE~~~


Last update - 02:40 07/09/2007
A leaner defense budget
By Haaretz Editorial

Notwithstanding his haughty rhetoric about the importance of sticking to the budget's goals and implementing a responsible fiscal policy, the prime minister gave in yesterday and lowered the planned cuts by half. Instead of NIS 1.2 billion in cuts proposed by the treasury, he decided to slash only NIS 600 million.

The greatest opposition to the cuts came from the Labor Party's cabinet members. Education Minister Yuli Tamir says cuts in education are out of the question, while the defense establishment under Ehud Barak says cuts in the army are impossible.

The defense establishment's demands are terribly excessive, in view of the fact that the government has increased the defense budget considerably this year - a great deal more than the proposed reductions. This means that in reality the defense budget will increase, but even this is not enough for a system that is always hungry.

This is the most powerful interest group in the Israeli economy, and it knows all too well how to frighten the prime minister and the government. A senior military source said that if the defense budget is cut, it will undermine the implementation of the lessons of the Second Lebanon War, the training of the conscripts and reservists, and procurement. The army may even have to postpone renewing its empty stocks and cause important projects - such as the acquisition of a tank defense system - to stall.

And just to make sure we fully understand what they are talking about, various sources in the defense establishment leak stories about expectations for a war this summer with Syria. Chief of Staff Gabi Ashkenazi said recently that "we are preparing for an escalation in the North and also in Gaza." If that is not enough to scare, then the army is also quick to tell us about the 5,000 missiles in Syria targeting the heart of Israel. Who can stand up to such intimidation?

The basic question regarding the possibility of conflagration in the Golan Heights is whether the solution is a budgetary one. The Brodet Committee, established after the failures of the Lebanon war to assess the defense budget, concluded that "there should be no link made between the results of a battle and the many shortcomings that emerged, and the bigger question of the budget."

The Brodet Committee ruled that the army is fat, wasteful and poorly managed, so it must prepare a plan to become more efficient across the board. For example, it must do away with unnecessary commands and reduce manpower, while cutting salaries and the employment conditions of career officers in rear units. It should raise the retirement age significantly for those serving in units not in the front (which is most of the army), and all non-military services should be outsourced.

Furthermore, the existence of procurement and construction offices in both the Defense Ministry and the Israel Defense Forces should be canceled, as should the funding of large delegations abroad and military attache postings, which are nothing but perks handed out at the taxpayer's expense. These and many more actions will only make the army more efficient and improve its preparedness.

But if Olmert gives in once more and decides to boost the IDF's budget, this will mean the fat and inefficient IDF will only become fatter, heavier, more wasteful, and even more poorly managed.

~~~END PASTE~~~


I continue to think that DFNS represents a nice medium term opportunity throughout the Summer and into Q3 while the comps are still relatively easy.



Related Industries: New Pick -


Initial Stock Price: $.55

CAAS - Chinese Chrysler's coming soon....


[07/5/2007] CAAS - Chinese built Chrysler's coming soon...

01:18:40am
2007-07-05

First off, I hope everyone had a safe and happy 4th of July holiday! Mine was going great until I, and my wife and kids got front row seats at St. Louis' annual 4th of July Parade. Sounds harmless enough, right? It was, until the always hysterical (sarcasm) prank where the team of fake firefighters pretend to toss a bucket of water on the crowd only to reveal that the bucket is filled with confetti. Yes, this is the same old gag the Harlem Globetrotters have been doing since the late '70's. Except in 2007 it's not enough to have a bucket of confetti. No way. Now someone has decided that the prank is only funny if you hook up giant firehoses to even more giant containers full of confetti and absolutely cover an unlucky group of spectators with it. Evidently someone forgot to mention to the pranksters that in 2007 virtually everyone who plans to spend a day outside in July, lathers themselves and their kids up with sunscreen. Picture my entire family, the blanket we were sitting on, any open beverage, and all the gear that goes along with toting a 2 and 4 year old - covered from head to toe in several pounds of sunscreen adhered confetti. Good times indeed.

Anyhow, enough about my holiday. Tonight we're going to look into the prospects for CAAS (China Automotive Systems). CAAS is a Chinese (of course) manufacturer of power steering systems and components. CAAS is a holding company for seven separate business units. The operations under it's Great Genesis Holdings Limited division comprise the power steering subsystems business. There are three distinct units within Genesis that sell into diverse automotive markets...

*Shashi Jiulong Power Steering Gears Co., Ltd.
Jiulong engages in the production of integral power steering gears for heavy-duty vehicles.

*Jinzhou Henglong Automotive Parts Co., Ltd.
Henglong is engaged in the production of rack and pinion power steering gears for cars and light duty vehicles.

*Shenyang Jinbei Henglong Automotive Steering Systems Co., Ltd.
Shenyang focuses on power steering parts for light-duty vehicles.



CAAS is doing business with virtually every automobile manufacturer in China. They've got relationships with over 60 unique manufacturers comprising everything from light trucks, to cargo vans, and scaling up to heavy trucks. The lionshare of CAAS' business comes from China's light duty passenger vehicle makers. Namely Chery, Brilliance, and Geely. These mainland manufacturers are seeing unprecedented demand in China as the burgeoning middle and upper class segments of their society now have the purchasing power to own an automobile.


The company's results have been illustrative of the growth in the Chinese auto industry....

* On a year over year basis - sales are up 50%

* On a year over year basis - EPS is up 40%

* Q1 saw revenues at a record $28.5 million vs. $21 million in Q1 '06 (up 35%)

* Q1 operating income rose to $5.2 million vs. $2.6 million in Q1 '06 (up 98%)

* Q1 EPS rose to $.07 fully diluted and taxed vs. $.05 in Q1 '06 (up 40%) and up 15% sequentially from Q4



Looking at the stock on a trailing P/E basis, we can see that it's not exactly a value play at 31x the trailing 12 month EPS of $.23. However, keep in mind that CAAS will probably better last year's revenue of $96million by at least 30% in 2007 putting the revenue around the $125 - $130 million range. If net margins maintain their current levels (and there's currently no reason to believe they won't) at around 11.5%, CAAS should book EPS of at least $.40/share fully diluted and taxed in 2007.


There's good reason to believe that CAAS growth rate isn't about to slow any time soon. This is fresh off of the wires tonight and as you read it, remember that Chery is one of CAAS' largest customers....

~~~PASTE~~~
Chrysler to sell Chery A1 hatchback in U.S. in 2008
By Tian Ying and Jeff Green
Bloomberg News
Wednesday, July 4, 2007

BEIJING: Chrysler will introduce a Chinese-made small car in the United States next year that retails for about half the price of its cheapest model, as it seeks to win back market share from Toyota and Honda.

Chrysler will begin selling Chery Automobile's A1 hatchback in the first quarter of 2008, Chery's president, Yin Tongyao, said in Beijing on Wednesday. The 1.3-liter A1 sells from 53,800 yuan, or $7,100, in China. Chrysler's least expensive U.S. model is the $13,850 Dodge Caliber, according to the Web site Edmunds.com. Yin did not say how much the A1 would cost in the United States.

Chrysler, which will be the first U.S. automaker to import cars from China, also plans to cut production at home after reporting a loss last year and slipping to fourth place in U.S. sales. Working with Chery will allow the company to add models able to compete with Toyota, which makes the Yaris, with less investment.

"It can be very unprofitable to develop new small-car platforms on your own," said Rebecca Lindland, a forecaster for Global Insight in Lexington, Massachusetts.

Chrysler plans to sell current and future Chery models worldwide. Chery may eventually build as many as 100,000 vehicles a year for Chrysler, Yin said at a signing ceremony Wednesday, without a providing a time frame. The capacity can also be expanded in the future, he added.

Chrysler aims to begin selling Chery-made vehicles under its Dodge brand in Latin America and Eastern Europe by the end of the year, Chrysler's chief executive officer, Tom LaSorda, said.

The company will decide on any possible equity cooperation with Chery in the future, he added.

DaimlerChrysler announced in May the sale of Chrysler to Cerberus Capital Management, after $680 million in losses last year, ending a nine-year merger. Cerberus, which is based in New York, will invest $7.4 billion as part of the transaction.

Under the agreement, Cerberus will buy 80.1 percent of Chrysler, while Daimler will retain the rest.

Chrysler plans to close a Delaware plant and to cut 13,000 jobs. On Tuesday it reported a 1.4 percent decline in June U.S. sales; Toyota gained 10 percent and Honda 11 percent. Toyota surpassed Chrysler in U.S. sales last year.

Chrysler plans to introduce 32 models from 2006 to 2010, an increase from 21 between 2000 and 2004.

"As part of Chrysler's global transformation, we are finding new ways to bring vehicles to market - faster, more efficiently, with less costs and the same high quality standards," LaSorda said.

Chery, China's first vehicle exporter, expects to raise sales 29 percent this year following a 60 percent increase last year, it said in January.

The company sold about 305,000 vehicles, including 50,000 exports, in 2006.

In the first five months of this year, the Chery had a 4.8 percent share of its home vehicle market, the world's second-largest behind the United States.

Chery has sold vehicles in more than 50 countries and regions, according to the statement. In November, it abandoned plans to export its own-brand vehicles to North America with Visionary Vehicles.

Chinese automakers have begun to target overseas sales as increasing competition at home crimps profit. Carmakers' profit margins in the country averaged 3.1 percent last year, compared with 9 percent in 2003, according to calculations based on figures issued by the country's automakers association.

Vehicle exports from China rose 80 percent from a year earlier to 47,000 in May. Last year, the tally almost doubled to 342,400, according to the customs bureau.

General Motors' South Korean unit filed suit in Shanghai against Chery in 2004, claiming that the Chinese automaker's QQ minicar was a copy of its Matiz model. The two sides settled the dispute out of court in 2005. Terms were not disclosed.

~~~END PASTE~~~




Undboubtedly, the new Chery made Chrysler's will be equipped with power steering, and CAAS will be the benefactor. There's also a deal that was announced back in May that's helping to fuel CAAS' growth for this calendar year....

~~~PASTE~~~

China Automotive Systems Signed Supply Agreement with Volkswagen Joint Venture in China
Thursday May 17, 12:01 pm ET

WUHAN, Hubei, China, May 17 /Xinhua-PRNewswire/ -- China Automotive Systems, Inc. (Nasdaq: CAAS - News), a leading power steering components and systems supplier in China, today announced its subsidiary, Jingzhou Henglong Automotive Parts Co., has entered into an agreement with FAW Volkswagen to supply its high quality power steering systems.

The agreement will commence immediately, with a term of one year and an option to extend for a further two years. The power steering systems will be installed in Volkswagen's Jetta and Audi vehicles in China. The first commercial shipment will be delivered by China Automotive Systems on May 21st 2007. Other terms of the contract were not disclosed.

With this supply agreement, China Automotive Systems has entered into Volkswagen's global sourcing system. According to the China Association of Automobile Manufacturers, two key Volkswagen joint ventures in China, FAW Volkswagen and Shanghai Volkswagen, collectively produced and sold more than 680,000 passenger cars in China in 2006. FAW Volkswagen, the number one passenger car producer in China, experienced a robust 40% year over year unit sales growth in 2006. In the first quarter of 2007, FAW Volkswagen's production and sales unit growth accelerated to 55% up from same period in 2006.

"This agreement represents a major step towards our goal of becoming the number one producer in the power steering market in China. After a decade long effort of improving our product R&D, quality control, production scale and after-sale customer services, we have finally become a tier one supplier to one of the largest global automakers. We are very excited about this opportunity to provide reliable and dependable support to Volkswagen's rapid growth in China. As China's passenger vehicle OEM market continues to grow, we remain focused on expanding our market share and strengthening our relationships with major OEMs, like Volkswagen, by providing high quality and competitively priced products. In addition, we continue to improve product quality and ramp up production capacity to prepare for potential opportunities outside of China," said Mr. Hanlin Chen, Chairman and Chief Executive Officer of China Automotive Systems.

~~~END PASTE~~~


Clearly there is a long term secular growth story going on in the Chinese auto industry both within China and soon, ramping exports exponentially through link-ups with the likes of Chrysler and GM. CAAS is poised to benefit as it's steering systems will find their way into most of these vehicles. Trading here at just over 1x sales and with a forward P/E of less than 20x, the stock is priced at a level that discounts the enormous growth on the horizon. We've also got a 52 week low at $6.50 that serves as a firm support level and stop out point for the trade.

Desalination = GHM....


~~~~PASTE~~~

Graham Corporation Awarded $3.6 Million in New Equipment Orders

BATAVIA, N.Y.--(BUSINESS WIRE)--Graham Corporation (AMEX: GHM) announced today that it has been awarded purchase orders totaling approximately $3.6 million for four surface condensers and a specialized high pressure ejector to be installed in a petrochemical facility located in Trinidad and an ejector system to be installed in a U.S.-based oil refinery.

Trinidad Petrochemical Facility

Four titanium-tubed surface condensers and one specialized, high pressure ejector system will be installed in a Trinidad-based petrochemical facility, which is part of an integrated complex that converts Trinidad’s abundant natural gas resources to ammonia, urea, nitric acid and ammonium nitrate. Graham was selected by a German engineering, procurement and construction contractor and Japanese process licensor to supply these surface condensers and ejector, which represent the second purchase order Graham has received for this project. Graham previously announced a surface condenser order for the ammonia portion of this facility in March 2007. Delivery is currently scheduled for the fourth quarter of fiscal year 2008, ending March 31, 2008, with revenue to be recognized on a percentage of completion basis.

U.S. Oil Refinery

An ejector system will be installed in a crude oil refinery located in Arkansas, U.S. as part of planned expansion of the refinery’s distillation capacity to increase its production of transportation fuels. This new ejector will be integrated with existing Graham equipment that was originally installed in 2004. Delivery is currently scheduled for the fourth quarter of fiscal year 2008, ending March 31, 2008, with revenue to be recognized on a percentage of completion basis.

Jim Lines, Graham’s President and Chief Operating Officer, commented, “Our proven experience in providing custom-engineered solutions and reliable, quality products keeps our customers returning to Graham for their equipment needs, as evidenced by these orders from customers we supplied products for in the past. We continue to see strong demand and good opportunities for our products and services in both domestic and international oil refining and petrochemical markets. We believe that our new order pipeline is strong in the near-term, and we remain optimistic about the future opportunities in this strong market expansion.”

ABOUT GRAHAM CORPORATION

With world-renowned engineering expertise in vacuum and heat transfer technology, Graham Corporation is a designer, manufacturer and global supplier of ejectors, pumps, condensers, vacuum systems and heat exchangers. Over the past 71 years, Graham Corporation has built a reputation for top quality, reliable products and high-standards of customer service. Sold either as components or complete system solutions, the principal markets for Graham’s equipment are the petrochemical, oil refining and electric power generation industries, including cogeneration and geothermal plants. Graham equipment can be found in diverse applications, such as metal refining, pulp and paper processing, ship-building, water heating, refrigeration, desalination, food processing, drugs, heating, ventilating and air conditioning.

Graham’s reach spans the globe. Its equipment is installed in facilities from North and South America to Europe, Asia, Africa and the Middle East. More information regarding Graham can be found at its website: www.graham-mfg.com.

Sorry abh3vt. I'll look into those points...

SMID preliminary DD...

Here's a little SMID DD I'm putting together for my site...


~~~PASTE~~~

SMID $2.05

a benefactor of the 10 year multi-billion dollar highway bill that went into effect in 2006?? also benefiting from the infrastructure boom...

recognize these concrete barriers....they are everywhere in STL as our main thoroughfare HWY 40 is in the midst of a 4 year expansion project...

{there's a picture of the JJ Hooks here in my write-up}



Smith-Midland Corporation invents, develops, manufactures, markets, leases, licenses, sells and installs an array of precast concrete products for use primarily in the construction, utilities and farming industries.{edit:nice spaces to operate in right now}

The Company's customers are primarily general contractors and federal, state and local transportation authorities located in the Mid-Atlantic, Northeastern and Midwestern regions of the United States. The Company's operating program has involved producing products, including Slenderwall, a lightweight concrete and steel exterior wall panel for use in building construction; J-J Hooks Highway Safety Barrier{edit: growth driver}, a highway safety barrier; Sierra Wall, a sound barrier primarily for roadside use, and Easi-Set transportable concrete buildings. In addition, the Company produces custom order precast concrete products with various architectural surfaces, as well as, generic highway sound barriers, utility vaults, and farm products, such as cattleguards and water and feed troughs.


They lost .18/share in '06 but posted a blowout quarter in Q1 of '07...

*Q1 is their seasonally weakest quarter..
*8.5mm revs up 21% from 6.9mm in Q1 06
*1.2mm of the increase was from the highway products
*SG&A was down sequentially to 1.4mm from 2.0mm
*pre-tax net income of 640k vs. 335k in 06
*fully taxed & fully diluted eps of $.08 Q1
*heading into a seasonally strong qtr

very EASY comp for Q2 as revs last year were only 6.3mm
net loss last Q2 of $.02/share

could comfortably do another $.08 in Q2...

How to game Israeli politics = DFNS...


I sent this out this morning...



[06/18/2007] DFNS - or How to game Israeli parliamentary politics...

12:13:43am
2007-06-18


Well here we go again. Just like last summer, this one is shaping up to be a turbulent one for Israeli's and Palestinians. Certainly, my objective here is not to speculate on the state of relations between the two groups, but it sure seems likely that we're headed for a summer filled with headlines about conflicts in the West Bank / Gaza Strip area and perhaps Lebanon if the situation escalates.


You may be wondering how this relates to a micro cap stock. Consider that Defense Industries International (DFNS.ob) is an Israel based manufacturer of military protective equipment and supplies...

~~~PASTE~~~

Defense Industries International, Inc. (Defense Industries) is a manufacturer and global provider of personal military and civilian protective equipment and supplies. The Company's products are used by military, law enforcement, border patrol enforcement and other special security forces, corporations, non-governmental organizations and individuals worldwide. The Company's main products include body armor, bomb disposal suits, bullet proof vests and jackets, ballistic wall coverings, bullet proof ceramic and polyethylene panels, very important person (VIP) car armoring and lightweight armor kits for vehicles, personal military equipment, dry storage systems, liquid logistic products, tents and other camping and travel gear. Defense Industries targets its products at three principal markets: the international military and defense market, the civilian market, and the industrial/agricultural market.

~~~END PASTE~~~



What's interesting about DFNS is just how dependent the firm is on attitudes within the Israeli Defense Ministry toward armoring the Israeli Defense Force. Here's some commentary from a filing last year that discusses the relationship...

~~~PASTE~~~

In the second half of 2005, the Israeli Government evacuated the Gaza strip. The evacuation process resulted in large expenses and caused a reduction in the funds that were initially budgeted for the procurement of new products. Additionally, as a result of the Israeli Government’s decisions and the evacuation, the Israeli Defense Forces have indicated that they will slightly reduce their size and that equipment will be stored for long periods in environments that will promote battlefield readiness and the capability of quick deployment. In light of these trends, we believe that our local military business will grow as a result of an increase in the demand for our dry storage systems products. However, the budget for 2006 has not been approved as of yet, and only limited purchases have been made by the Israeli defense forces since January 1, 2006. Accordingly, such increase will probably not be reflected until the second half of 2006.

~~~END PASTE~~~





Subsequently, revenues at DFNS have come down from the $12million level in 2004 to $11.4 in 2005 and $10.6 in 2006. Not surprisingly, '05 and '06 showed no earnings as the firm operated at breakeven in 05 and lost $.02/share in 2006. Obviously, we need to have a reason to believe that things are changing for DFNS sales to the IDM (Israeli Defense Ministry) to justify considering an investment in the stock. Moreover, since conflict with the Palestinians and Lebanon is virtually a given, it needs to be based on more than the presence of armed conflict.

Let's take a look at how DFNS is feeling about their relationship with the IDM more recently. This is excerpted from their last quarterly report..


~~~PASTE~~~

In addition, as a result of the war between Israel and the Hezbollah in Lebanon, which started in July 2006, many Israeli reserve forces were activated, and a large amount of stored equipment was removed from dry-storage compartments and mobilized. In light of this event, we believe that our military business will grow as a result of an increase in the demand for our dry storage systems products, bulletproof vests and other military gear. Such increase was reflected in the fourth quarter of 2006, continued in the first quarter of 2007 and we expect the trend to continue into the rest of 2007. In the first three months of 2006 and 2007, sales to the Israeli Ministry of Defense were $427,393 and $1,541,446 accounting for 23.3% and 39.4% of our sales.


~~~END PASTE~~~





Clearly there's a link between a renewed interest from the IDM for personal protective gear and one of DFNS' best quarters in years. Here's some key points from their Q1 report released on May 15th....


* First Quarter revenues increased by 113% year-over-year; First Quarter net income reached $465,064

* Net revenues for the first quarter increased to $3,914,572 from $1,833,371 in the first quarter of 2006

* Total sales to the local market reached $2,422,411 in the first quarter of 2007, compared with local sales of $1,274,594 in the first quarter of 2006

* Gross profit for the first quarter of 2007 was $1,288,167 compared to $308,898 for the first quarter of 2006

* Net income for the first quarter of 2007 reached $465,064 as compared to a net loss of $156,010 for the first quarter of 2006



More commentary from management regarding a changing attitude at the Defense Ministry toward their products...

~~~PASTE~~~

"We are extremely pleased with our first quarter results. This strong quarter marks a very positive beginning for our fiscal year. Our results for the quarter reflect the beginning of a shift in attitude of the Israeli Defense Ministry towards the importance of personal military protective equipment, as we are witnessing by substantial new orders, which we started to receive in the fourth quarter of 2006. As we have recently stated, we are glad to note that after many years we currently foresee significant growth opportunities in the domestic market segment in 2007 and we believe that this market will propel our future growth”.

~~~END PASTE~~~




As if everything I've pointed out above wasn't providing enough wind at the back of DFNS, I saved perhaps the most important piece for last. There's about to be a major shift in attitude and approach at the Israeli Defense Ministry. I'm trying to think of an analogy to point out how impactful this change is. Think of it as Donald Rumsfeld taking over the Pentagon from someone with an attitude towards conflict of like - umm, I don't know - Rosie O'Donnell.

Ehud Barak takes over as Head of the Ministry of Defense on Monday. Barak is a well known military Hawk who received the Medal of Distinguished Service for his role in the elite Israeli Commando unit known as Sayeret Matkal. Needless to say, Barak knows the value of a well equipped and well protected military force.

This article sheds a bit more light on the way in which Barak is expected to run the Ministry of Defense. This should bode well for DFNS to say the least....


~~~PASTE~~~

Report: Barak planning military operation in Gaza within weeks
By Haaretz Service
Newly elected Labor Party Chairman Ehud Barak, who is set to take over as defense minister on Monday, is planning to launch a military operation aimed at combating Hamas in Gaza, Britain's Sunday Times reported.

The British publication quotes an Israeli source as saying that the operation will include 20,000 troops and will be aimed at destroying Hamas' military capabilities in a short period of time.

According to the source, the Israel Defense Forces will launch the operation if Hamas continues to fire Qassam rockets into Israel, or if terror attacks against Israel are renewed.


According to the Times, Barak has already asked the IDF to draw up detailed plans for the deployment of troops inside the Gaza Strip.

A close aide to Barak told the Times that Israel would not allow a "Hamastan," to rise within its borders, and that an attack on Gaza seems inevitable.

"The question is not if, but when," he said.

Due to the escalating violence in the Gaza Strip in the past week, during which the militant Hamas seized control over the Gaza Strip in bloody battles with rival party Fatah, Barak was granted the defense ministry portfolio by telephone in a hastened emergency appointment.


~~~END PASTE~~~

The Boren's have been buying the heck out of it lately also...

over a million shares in the last year...

Is HRLY a VMC candidate?

If so, here's some DD I posted at my site on 5/24 @ $15.52...
closed today at $17.82 after a $.27/share EPS print this morning for fiscal Q3....


~~~PASTE~~~




[05/24/2007] HRLY - Kisses and makes up with the Feds...

02:22:31am
2007-05-24

I've been looking for some undiscovered ways to play the pockets of strength I've noticed in the aerospace/manufacturing/defense names lately and I think I might have found one - after about 4 hours of searching tonight...

Herley Industries (HRLY) hasn't exactly been a model corporate citizen in the past and the stock (and it's holders) have paid dearly for that. About this time last year, the company and it's CEO were indicted on fraud charges. Seems as if U.S. Navy auditors found some instances where HRLY was overcharging the government for contracted items. As a result, four of their 8 facilities were barred from selling to the government and the stock promtply took a 30% haircut.

Fast forward to today, and the CEO has been replaced, the company reached a settlement with the Government, and all of their business units are again allowed to bid on and be awarded Department of Defense procurement contracts. As luck would have it, the market hasn't fully picked up on the turnaround story that's ocurring here and consequently HRLY shares are essentially trading at liquidation value just as HRLY's backlog is exploding.


What does Herley make/sell?

Herley Industries, Inc. is a supplier of microwave products and systems to defense and aerospace entities worldwide. The Company provides microwave technologies for use in command and control systems, flight instrumentation, weapons sensors and electronic warfare systems. The Company supplies to defense prime contractors, including Northrop Grumman, Lockheed Martin, Raytheon and Boeing; the United States Government, including the Department of Defense, (NASA) and other United States Government agencies, and international customers, including the Egyptian, German, Japanese and South Korean militaries, and suppliers to international militaries. They design and manufacture microwave devices for use in high-technology defense electronics applications. Its products and systems are deployed on a range of profile military platforms, including the F-16 Falcon, the F/A-18E/F Super Hornet, the RC-135 Rivet Joint, the E-2C Hawkeye, the AEGIS class surface combatants, the EA-6B Prowler, the AMRAAM air to air missile and unmanned aerial vehicles (UAVs), as well as high-priority national security programs, such as National Missile Defense and the Trident II D-5.

Telemetry systems

Telemetry systems provide wireless data transmission between two or more sites for recording and analysis. The Company has developed a telemetry system capability that can be configured to meet individual customers' needs. Various components of the system include data encoders, transmitters and flight termination receivers. It also manufactures pulse code modulation (PCM), and frequency modulation (FM), telemetry and data acquisition systems for severe environment applications and its products are used worldwide for testing space launch vehicle instrumentation, aircraft flight-testing and amphibian, industrial and automotive vehicle testing.

Airborne data link system

The Company with its digital capability in data encoding and acquisition elements combined with the radio frequency capability in providing telemetry transmitters and flight termination receivers, offers a full line of narrow and wide-band airborne telemetry systems. These systems help to meet a variety of industrial needs, both domestically and internationally.

Command and control systems

The Company's MONTAGE system affords over-the-horizon C2 using global positioning system guidance and control of multiple targets from a single ground station. The MONTAGE is a flexible, multiple processor design with high-resolution graphics, which can be field configured within minutes to fly or control any selected vehicle for which it is equipped. The MONTAGE is used in support of missile, aircraft and other weapons systems development, and testing.

Transponders

The Company manufactures a variety of expendable transponders, including range safety, identification friend or foe (IFF), command and control, and range scoring systems. Transponders are small, expendable, electronic systems consisting of a transmitter, sensitive receiver and internal signal processing equipment comprised of active and passive components, including microwave subassemblies, such as amplifiers, oscillators and circulators. The transponder receives signals from radars, changes and amplifies the frequency of the signals and transmits back a reply on a different frequency, and signal level.

In range safety applications, transponders enable accurate tracking of space launch and UAVs, missiles, and target drones so that position and direction are known throughout its flight. IFF transponders, which are used in conjunction with the Federal Aviation Authority Air Traffic Control System, enable ground controllers to identify the unmanned targets, drones and cruise missiles on which these units fly and to vector other manned aircraft safely away from the flight path of the UAV. Command and control transponders provide the link through the telemetry system for relaying ground signals to direct the vehicle's flight.

Flight termination receiver

A flight termination receiver (FTR) is installed in a test missile, UAV, target or space launch vehicle as a safety device. The FTR has a built-in decoder that enables it to receive a complex series of audio tones, which when appropriate, will set off an explosive charge that will destroy the vehicle. A Range Safety Officer (RSO), using the range safety transponder will track the vehicle in flight to determine if it is performing as required. If the RSO detects a malfunction in the test or launch vehicle that causes it to veer from a planned trajectory in a manner that may endanger personnel or facilities, the RSO will transmit a coded signal to the onboard FTR to explode the vehicle.

High-frequency communications and IFF interrogators

The Company designs and manufactures high-frequency radio and IFF interrogators. This high-frequency communications equipment is used by the United States Navy and foreign navies that conduct joint military exercises with the United States Navy. The IFF interrogators are used as part of shipboard equipment and are also placed on coastlines, where they are employed as silent sentries.

High power amplifier

The Company designs and manufactures high-power amplifier systems with frequencies ranging from 1. 5 megahertz to 12 gigahertz with power levels from multi-kilowatts up to 15 watts, depending on the frequency. Its high-power amplifier applications include defense communication, electronic warfare, radar and avionics.

Microwave integrated circuits

The Company designs and manufactures complex microwave integrated circuits (MICs), which consist of assemblies that perform many functions, primarily involving switching of microwave signals. The MICs are employed in defense electronics systems and missile programs.

High/Low power integrated assembly

The high-power microwave devices are used in radar system transmitters and in long-range missiles. High-power devices frequently use small amounts of nuclear material to enhance breakdown of high-energy pulses. It also produces lower-power, broadband microwave integrated assemblies for the defense electronics industry. These assemblies combine microwave functions, such as amplification, attenuation, switching of multiple signals and phase, and amplitude control. Their applications include rear warning receivers (RWRs), electronics countermeasure (ECM), systems and sensitive receiver systems.

Solid State Receiver Protector

The Company supplies solid-state receiver protector devices that are able to withstand high-energy pulses without the use of nuclear materials. These high-power devices protect a radar receiver from transient bursts of microwave energy and are employed in almost every military and commercial radar system.

Digitally tuned oscillators (DTOs)

The Company produces microwave sources, which generate signals that are used in microwave oscillators. Its microwave sources are sold to the United States defense industry and to various foreign governments. It specializes in DTOs, a critical component in many electronic countermeasures (ECM) systems.

Simulation equipment

EW Simulation Technology Limited (EWST), a wholly owned subsidiary, designs and manufactures radar threat and ECM simulation equipment for electronic warfare training and test, and evaluation applications. Radar threat and countermeasures simulator products include CHAMELEON, a real-time ECM jamming simulator that uses a variety of ECM techniques and radar target modeling for training and testing of both radar and EW operators, and systems; the RSS8000 Series Radar Threat Simulator that generates real-time user programmable radar threats and provides output configurations in digital (on-board trainer-OBT) and RF (RSS series) formats, and Mobile EW and Radar Test Systems (MERTS), a mobile EW and radar test system providing jamming and radar threat test facility for field use. MERTS provides a turnkey test and evaluation equipment for field applications and includes both the CHAMELEON and RSS8000 systems integrated into one operational unit.

Scientific products

The scientific products are used in nuclear magnetic resonance (NMR) systems. These amplifiers, which have dual mode capability and can be operated in either a pulsed or continuous wave, cover the frequency ranges of 6 to 950 megahertz, with power levels as high as two kilowatts peak power at 10% duty cycle. Scientific customers include original equipment manufacturers (OEM), system manufacturers and research centers.

Medical products
The medical products vary in complexity from single modules, to rack mounted amplifiers, to complete systems. The rack-mounted amplifiers and complete systems include detection/protection circuitry, built-in power supplies, front panel metering and digital, and/or analog interface controls. The medical products are used in magnetic resonance imaging (MRI), systems. All amplifiers have dual mode capability and can be operated in either a pulsed or continuous wave mode, or cover the frequency ranges of 10 to 200 megahertz with power levels as high as 12 kilowatts peak power at 10% duty cycle. Medical customers include OEMs, as well as universities and research centers.







Can HRLY get back in favor with the Department of Defense?

Certainly a valid question considering their checkered past, but all indications are that they are winning DOD contracts with relative ease. Here are the headlines from a few recent wins....

~~~PASTE~~~
Herley Industries, Inc. Awarded $1.1 Million Contract

Tue May 15 22:40:00 EDT 2007

Herley Industries, Inc. announced that Micro Systems, Inc. (MSI), a wholly owned subsidiary of the Company, located in Ft. Walton Beach, Florida, has been awarded a contract for more than $1.1 million to provide electronic hardware to the Navy for their System for Naval Target Control (SNTC) system.
Herley Industries, Inc. Division Receives New Contract Awards

Wed May 9 13:00:00 EDT 2007

Herley Industries, Inc. announced that its Herley Medical Products division in Lancaster, PA, has been awarded contracts in excess of $1.0 million for Medical Amplifiers. Herley Medical Products produces amplifiers for the medical equipment industry at the Herley Lancaster facility.
Herley Industries, Inc. Announces $2.1 Million Contract Award

Tue May 8 13:02:00 EDT 2007

Herley Industries, Inc. announced that its Herley Lancaster division in Lancaster, has been awarded a contract by a contractor to provide microwave electronic components for a U. S. Military helicopter radar system. Options on this contract, if exercised, could bring the total value of this contract to more than $7.5 million.
Herley Industries, Inc. Announces $4.8 Million Contract Awards for EA-18G

Tue May 1 13:04:00 EDT 2007

Herley Industries, Inc. announced that its Herley New England division in Woburn, Massachusetts, has received a $4.8 million contract award from a major U. S. defense contractor to manufacture complex integrated microwave assemblies (IMA) for the EA-18G electronic attack aircraft.
Herley Industries, Inc. Receives Contract Award Of Approximately $2 Million

Wed Apr 25 16:07:00 EDT 2007

Herley Industries, Inc. announced that its Herley Lancaster facility, located in Lancaster, Pennsylvania has received a contract award of approximately $2 million from a large European Defense prime contractor. The contract covers the delivery of flight instrumentation equipment for tracking and range safety for a major European missile program, which will be used by several countries. Deliveries will be over a three year period.

Herley Industries, Inc. Receives Follow-On Contract Award in Excess of $3 Million From U.S. Navy

Tue Apr 24 13:02:00 EDT 2007

Herley Industries, Inc. announced that it has received an option award exceeding $3 million to supply Tactical Instrument Landing Systems (TILS) for both the F/A-18E/F/G and E-2D Naval aircraft.
Herley Industries, Inc. Receives $4.1 Million Add-On Contract Award From Lockheed Martin Space Systems

Mon Apr 23 13:01:00 EDT 2007

Herley Industries, Inc. announced that it has received a $4.1 million add-on contract from Lockheed Martin Space Systems Company Sunnyvale, CA for the production of hardware for the Low Cost Test Missile Kit used in support of the Trident II D5 Missile flight-test Program.
Herley Industries, Inc. Receives $2.4 Million Contract Award to Supply Avionics

Wed Apr 11 13:41:00 EDT 2007

Herley Industries, Inc. announced that it has received a $2.4 million contract award from Composite Engineering, Inc. of Sacramento, CA for its avionics suite for the BQM-167A Air Force Sub-scale Aerial Target (AFSAT). The contract includes Gulf Range Drone Control System ransponders, Identification Friend or Foe transponders, EEDs, Integrated Flight Controllers, Radar Altimeters, and Power Management Units.
Herley Industries, Inc. Awarded $2.6 Million Contract to Provide Test Instrumentation For DoD Airborne Guided Missile Program

Thu Apr 5 14:18:00 EDT 2007

Herley Industries, Inc. announced that its Herley Lancaster division in Lancaster, PA, has been awarded a contract in excess of $2.6 million to supply additional test instrumentation assemblies for an advanced DoD missile program. Production is expected to begin in calendar year 2007 at the Herley Lancaster facility.
Herley Industries, Inc. Receives Add-On Contract For Upgrade Of Navy MEWS II Simulator

Wed Apr 4 15:42:00 EDT 2007

Herley Industries, Inc. announced that Micro Systems, Inc. (MSI), a wholly owned subsidiary of the Company located in Ft. Walton Beach, Florida, has been awarded a contract for expanded capabilities for the MEWS II Simulator installed at a U.S. Navy facility.

~~~END PASTE~~~





It's no wonder that with the recent spate of contract wins with the Feds and defense contractors, HRLY announced last week that their bookings for the current quarter are outpacing estimates by a wide margin. If HRLY can turn these bookings into revenue in the current quarter, they should easily surpass the Q3 performance of last year with it's $45million in revenues and $.11/eps. They've alredy announced the record bookings for Q3 ended April 30 of over $58 million.

~~~PASTE~~~

Herley Announces Record Quarterly Bookings
Wednesday May 16, 11:14 am ET
LANCASTER, Pa., May 16 /PRNewswire-FirstCall/ -- Herley Industries, Inc. (Nasdaq: HRLY - News) announced today that the company had record third-quarter bookings.

Company President, John M. Kelley commented today, "As we prepare for the release of our third quarter financials, preliminary results show that Herley will record third quarter bookings of more than $58 million. The company has had solid bookings for the entire fiscal year. This is a clear indication that customers continue to rely on Herley for quality products, systems, and services. That customer confidence is helping us to build a strong backlog for the future. We believe that bookings will continue to be strong through the fiscal year. Many of the programs in which we have invested our engineering resources are now in the production phase, and some are expected to remain in production for more than ten years."

Herley Industries, Inc. is a leader in the design, development and manufacture of microwave technology solutions for the defense, aerospace and medical industries worldwide. Based in Lancaster, PA, Herley has eight manufacturing locations and approximately 1000 employees. Additional information about the company can be found on the Internet at http://www.herley.com.

~~~PASTE~~~




Is HRLY cheap relative to their peers?

The answer here is a resounding, "yes." One could argue that they have good reason to trade at a discount to their peer group given all of the baggage. However, I would point out that except for your typical class action lawsuit by disgruntled former shareholders, the firm has done a fantastic job of righting itself and putting itself back on solid footing with the DoD, and the contract wins highlighted above are indicative of that. I don't think HRLY should be this cheap relative to the other names in the space...

price / sales ratio = 1.3
industry avg. = 1.6

price / book = 1.07 (yes, the shares are trading AT book value ... if they announced a liquidation tomorrow, the stock would probably trade HIGHER)
industry avg. = 6.84

price / tangible book (backs out goodwill) = 2.00
industry avg. = 12.83





Hidden M&A talk in the filings...

I've demonstrated above that HRLY is dirt-cheap relative to it's peer group. As one would suspect with an undervalued stock that's digging it's way out of a scandal, more than one company has recently attempted to take HRLY out while it's still 'on sale' as it sheds it's baggage. This little nugget hasn't been publicized, but it's in black and white if you read their filings...

This is excerpted from a letter sent to HRLY management by Michael R. Murphy who holds 13% of HRLY shares emploring them to accept the offers in front of them and get rolled up into UTX or Grumman...so far HRLY hasn't shown any interest. This M&A activity behind the scenes, and the fact that HRLY is trading at book value - should provide the stock with a nice floor of support.


~~~PASTE~~~

Board of Directors

Herley Industries, Inc.

101 North Pointe Boulevard

Lancaster, PA 17601-4133

Dear Directors:

We wish to bring to your attention certain actions by management of the Company that we believe should be of great concern to the Board of Directors and Company’s shareholders. In spite of the very high level of interest that many well-financed strategic suitors have in acquiring Herley, we have direct knowledge that Herley management has repeatedly indicated to them that the Company will not consider a transaction, thereby stifling possible offers for the Company. This is unfortunate for the owners of Herley because our analysis shows that Herley is worth at least $30 per share in a change-of-control transaction. This valuation is based on Herley’s growth prospects, the strategic value Herley brings to the active consolidators in the industry, and data available on similar mergers and acquisitions. We presented this analysis, and shared information from our discussions with the specific interested acquirers, in multiple meetings with Myron Levy, Chief Executive Officer, and John Kelly, President. While Myron and John have publicly maintained that Herley’s Board is interested in alternatives to capture unrecognized shareholder value, they have apparently determined not to pursue any of our leads. Instead, management has over time built a record of rejecting overtures that might lead to increased shareholder value.


~~~END PASTE~~~



Related Industries: Government - Medium Term - New Pick - Overlooked Potential - Tech -

Initial Stock Price: $15.52

I had KMGB in a research note....

I sent this to my readers on 5/17 when KMGB was $14.27. It was a research note on two ways to play the rails. PRPX was the other name mentioned in the note....


Here it is ...



~~~PASTE FROM 5/17~~~


[05/17/2007] All Aboard the Rails with Buffett and Icahn...


01:03:51am
2007-05-17


'Tis the season for money managers of all shapes and sizes to release their SEC 13F filings detaling their holdings for the first quarter. There are only a handful of investors in the World who move markets and sectors within the markets when their filings show a preference for a particular industry. Carl Icahn and Warren Buffett are of course firmly seated in said 'handful'.

What do the filings of these two investing guru's have in common? Railroads. Yep, perhaps one of the most boring, un-sexy, dirty sectors of the market has caught the eye of these two mavens. If it were anyone other than these two placing multi-billion dollar bets on rail, pundits would argue that rail is a terrible place to be in a slowing economy as rail is perhaps one of the most economy sensitive sectors in the market. They would also argue that with record fuel prices, margins will be squeezed. Margin pressure and reduced freight loads as our slower economy imports fewer goods from the Far East, don't make for a wise investment thesis the so-called experts would argue.

Let's be clear though, 'so-called' experts are trumped every time by anyone with the last name Icahn or Buffett. Now that their cards are on the table, pundits and market participants buy first and ask questions later. Not surprisingly, the value oriented Buffett sees some very healthy trends for the rail industry even in an economy that's growing below trend...

~~~PASTE~~~

May 16 (Bloomberg) -- Billionaire Carl Icahn bought a $122 million stake in CSX Corp., joining Warren Buffett and TCI Fund Management LLP in purchasing railroad shares.

Icahn held 2.68 million shares of Jacksonville, Florida- based CSX, the third-largest U.S. railroad, as of March 31, according to filings yesterday with the U.S. Securities and Exchange Commission. Buffett's Berkshire Hathaway Inc. and hedge fund TCI also detailed their purchases in the industry, which they disclosed in the past month.

``The rail group has attracted a lot of attention in a year and a half that could've led to a lot of smart people looking into it,'' Tony Hatch, an independent rail analyst based in New York, said yesterday in an interview. ``This group has clearly changed in many ways and has been stronger about talking about how it's changed.''

CSX and companies such as Union Pacific Corp. and Burlington Northern Sante Fe Corp. are benefiting from a tightening in rail capacity starting in 2003 and rising Asian import volume, Hatch said. Buffett, Berkshire Hathaway's chairman, said earlier this month that higher fuel prices and deregulation are making rail carriers attractive investments.

``As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors -- truckers -- roughly by a factor of four,'' Buffett, 76, said at the company's May 5 annual meeting in Omaha, Nebraska.

~~~END PASTE~~~

Buffett summed up the fuel price angle highlighting that the truckers are much more sensitive to high diesel prices than the rails are. What this snippet didn't mention was that many of the rails have actually been able to recoup their fuel costs and then some by implementing aggressive fuel surcharge programs. So aggressive in fact that Congress actually looked into the matter late last year, but took no action other than to 'warn' the rail operators not to engage in such practices. Sure, that will work... (wink, wink).



Since it's not my job to highlight mega cap rails with single share prices that are several times more than I have in my wallet right now (my wife gave me a $10 to start the week and I still have $4 left...thank god for the value menu at McD's!) I thought I'd touch on a couple names that should see not only an increase in investor interest, but a healthy uptick in demand from the rail operators that are flush with cash and profits.




Portec Rail Products (PRPX) $11.71

Portec manufactures, supplies and distributes a range of railroad products, including rail joints, rail anchors, rail spikes, railway friction management products, railway wayside data collection and data management systems and freight car securement systems. They operate through four distinct segments...

Railway Maintenance Products Division (RMP)
The Railway Maintenance Products division offers track component and friction management products and services to railroads, transit systems, and railroad contractors; and wayside detection and operating asset data management systems. This segment offers products, such as standard and insulated rail joints, gauge plates, track mats, curve blocks, and jacking systems, as well as distributes and resells purchased track components and lubricants manufactured by third parties.

Shipping Systems Division (SSD)
The Company's SSD business segment engineers and sells load securement systems to the railroad industry. These systems secure a variety of products and lading onto freight cars. Most of the assembly work for SSD is performed at RMP's Huntington, West Virginia manufacturing plant, although some manufacturing is subcontracted to independent third parties.

Portec Rail Nova Scotia Company
Operationally in Montreal, Canada the Company produces rail anchors and rail spikes at its manufacturing plant in St. Jean, Quebec, primarily for the Canadian railroads, with some products exported to the United States and for other international customers. Rail anchors and rail spikes are devices used to secure rails to ties to restrain the movement of the rail tracks.

Portec Rail Products (UK) Ltd
In the UK, PRPX operates and serves its customers in two different markets. In the rail market, the Company's product lines include friction management products and services and track component products. Prior to December 2006, it produced railway lubrication products at its Wrexham, Wales location. As a result of a business restructuring during 2006, the Company closed the Wrexham, Wales location and moved the rail operations to Sheffield, England. It has recently sold the Wrexham property for $2million. During 2006, the Company announced a business reorganization plan, which consolidated its rail and material handling operations in the United Kingdom from four locations into two, one at the Company's Sheffield, England facility (rail) and the other at its Leicester, England facility (material handling).


As railroads build out thousands of miles of new track to handle the additional capacity they expect while taking share from truckers, PRPX looks well positioned to benefit with their track components. Relative to the rest of the sector, the stock is pretty cheap here. PRPX is trading at just over 1x sales and 2x book compared to it's peers in the rail industry that trade at over 2x sales and nearly 3x book value.

PRPX earned $.48/share fully taxed last year and started 2007 off with an EPS of $.13/share besting Q1'06 by $.02. Revenues were up 18% year over year but the EPS was impacted by $.04/share of non-recurring costs related to the sale of the Wrexham location and SOX compliance. With a forward P/E of around 20 and a $.24/year dividend as a bonus, PRPX should print new highs as the railroad renaissance plays out this summer.










The other name I'm going to discuss in our railroad spotlight is a bit more obtuse in it's relationship to the rail industry....


KMG Chemicals (KMGB) $14.27

How many different industries can you play in one stock? Let's see....

Agricultural chemicals (fertilizer) ... one of the hottest spaces in the market
Hurricane Play ... a sector that will heat up and pop if we have an active storm season
Animal Health ... beef prices are escalating as feed prices soar...need to keep those cattle healthy
Railroad Maintenance ... rail operators building out new freight capacity and adding/repairing track

Believe it or not, all of those angles are present in little known KMGB. Here's the business description...

~~~PASTE~~~
KMG Chemicals, Inc. manufactures, formulates and globally distributes specialty chemicals. The Company operates through purchasing product lines and acquiring companies that operate in the segment of the specialty chemical segment. The Company is involved principally in the manufacture and sale of specialty chemicals in niche markets through its wholly owned subsidiary, KMG-Bernuth, Inc. It sells the wood preserving chemicals, pentachlorophenol (penta) and creosote, to industrial customers who use these preservatives primarily to extend the useful life of utility poles and railroad crossties. Its agrochemicals include animal health pesticides and agricultural chemicals. The animal health pesticides are used on cattle, swine and poultry to protect these animals from flies and other pests. The agricultural chemicals include an herbicide used primarily for weed control in cotton and sugarcane fields and along highways. Sales made to customers in the United States were 97% of total revenues during the fiscal year ended July 31, 2006
~~~END PASTE~~~



That one paragraph covered all the industries KMGB sells into. Evidently, these are nice places to operate right now because KMGB just blew the doors off of any fiscal Q2 estimates anyone may have had for them...

~~~PASTE~~~
Second Quarter 2007 Highlights - versus second quarter of fiscal 2006

Net sales increased 25% to $19.5 million.
Net income more than doubled to $1.5 million or $0.13 per diluted share. Net earnings per diluted share was calculated on 20% more shares outstanding due to the issuance of 1.7 million shares in July of 2006 through a public offering.
First Half Financial Highlights - versus first half of fiscal 2006

Net sales increased 23% to $36.7 million.
Net income increased 116% to $3.0 million or $0.27 per diluted share. Net earnings per diluted share was calculated on 20% more shares outstanding due to the issuance of 1.7 million shares in July of 2006 through a public offering.

"Our solid results for the quarter were driven by strong results in our wood treating segments, as utilities and railroads continued maintenance on their infrastructures at a brisk pace, as well as greater contribution from our Animal Health business. Creosote sales increased 33% to $10.7 million during the second quarter over the previous year. Penta revenues were $6.2 million, versus $6.9 million in the second quarter of last year, due to greater than usual purchases by utilities during the 2006 period in the aftermath of Hurricane Katrina. We believe wood treating demand will continue to be strong for the balance of fiscal 2007. However, demand for creosote treated railroad ties has been at the very top of its historical range through 2007, and we believe that it will likely soften at some point in the future."
~~~END PASTE~~~


My guess is that the railroad tie business will remain at the top of its historical range for quite some time. Increased load factors are putting more stress everyday on an aging rail system in dire need of upgrade and maintenance. Remember too that an active hurricane season will positively impact KMGB also as utilities scramble for penta treated poles to restore power.

Management is also guiding for huge increases in revenue from their new livestock insecticide ear tag...

~~~PASTE~~~
Neal Butler, KMG's President and COO, stated "Our 2007 Ear Tag Marketing Program has been very successful with participation by 100% of our distributors. We are beginning to see follow-up orders as early shipments move to the field. We anticipate that AVENGER will become the leading insecticidal ear tag in this, its first year of introduction, and that revenues in our Animal Health segment will exceed $15 million for fiscal 2007, up from $8.7 million last year." Butler continued, "It is important to keep in mind that our Animal Health sales are seasonally weighted to the second half of our fiscal year. We have been building inventory and receivables associated with this segment of our business, and will continue to do so until our fourth fiscal quarter when payments are due and those receivables convert to cash."
~~~END PASTE~~~

My $.02 on SIF...


from my site...

~~~PASTE~~~



[06/8/2007] SIF - Mr. Market is putting great stocks on sale...


02:05:22am
2007-06-08


IF I didn't work 60 hours a week and have a two toddlers in the house, I swear I would have posted SIF before it ran from a $5 spot to over $20. Be that as it may, there's only so much time for me to spill my stream of consciousness on this screen at night and when a friend of mine told me to look at SIF a couple months ago, I regrettably didn't get past a cursory review.

Obviously here at over $17 SIF has come a long way in a couple months, but I plan to demonstrate that there is still a great buying opportunity here. Moreover, with the way the futures look as I'm typing, perhaps Friday the stock will be discounted even further. Regardless of how much upside I think SIF has, you can't blame anyone who's got a cost basis around $5 for pulling some chips back in a market that looks to be in the midst of a long overdue correction.


First, let's frame the sector that SIF is operating in, aerospace. I'm so enamored with the entire aerospace complex right now that I'm going to try to post on at least one interesting name each night for the next week or so. There is a very robust cyclical uptrend in both commercial and defense related aerospace and judging by the backlogs of industry giants like Boeing and Europe's Airbus, it looks as if it could last several years.

This snippet sums up the state of affairs in the industry pretty succinctly:

~~~PASTE~~~


S&P Equity Research Sees Jet Sales Driving Aerospace & Defense Industry's Long-Term Strength

NEW YORK, June 5 PRNewswire — While soaring fuel prices may be causing angst among consumers, Standard & Poor's Equity Research Services predicts continued strong aircraft sales across the large commercial, regional and business jet markets. Coupled with Defense budget allocations for replacing aging aircraft, tanks and ships as well as ongoing funding for the wars in Iraq and Afghanistan, Standard & Poor's Equity Research Services forecasts long-term overall health for the Aerospace & Defense Industry.

"We expect current record-high commercial aircraft backlogs, continued growth in passenger air traffic, increasing aircraft fleet sizes, and good global economic growth to keep demand for aircraft production and maintenance, repair, and overhaul (MRO) services strong going forward," noted Richard Tortoriello, Aerospace & Defense Analyst for Standard & Poor's Equity Research.


~~~END PASTE~~~



Now let's add some M&A activity to the mix. It should be noted here that SIF is smack-dab in the middle of the precision casting and machining business discussed below...but more on that after the paste...


~~~PASTE~~~

American Capital commits $108M to support Paradigm Precision deals...

American Capital Strategies Ltd. and an affiliate have invested $108 million in Paradigm Precision Holdings LLC for its buyouts of Smith West Inc., Palmer Manufacturing Co. Inc. and Eurocast SA, which are manufacturers of precision machined aerospace engine components.

The investment of Bethesda-based American Capital takes the form of a senior credit facility, senior secured subordinated notes and equity. American Capital Equity Fund I LLC, a fund managed by investment firm American Capital, provided 30 percent of the Bethesda company's equity investment in Paradigm Precision.

Paradigm Precision is a newly formed entity that was established to buy machining suppliers in the aerospace industry. Tempe, Ariz.-based Smith West is a manufacturer of precision machined jet engine components including housings, cases, shroud segments, half rings, combustion liners and torque tubes. Smith West's components are used for commercial, business and defense jet engine platforms.Palmer, based in Malden, Mass., makes and assembles complex aircraft engine parts with a focus on combustion, rotating hardware and structural components. The company's products serve commercial, regional and business jets as well as military and marine procurements. Eurocast, a subsidiary of Palmer, is based in Tunis, Tunisia, and manufactures castings and performs light machining for customers such as GE Aviation, Rolls-Royce and Volvo.

~~~END PASTE~~~



Now let's take a look at what SIF does...

~~~PASTE~~~


SIFCO Industries, Inc., incorporated in 1916, is engaged in the production and sale of a variety of metalworking processes, services and products produced primarily to the specific design requirements of its customers. The processes and services include forging, heat-treating, coating, welding, machining and selective electrochemical finishing. The products include forged parts, machined forgings and other machined metal parts, remanufactured component parts for aerospace and industrial turbine engines, and selective electrochemical finishing solutions and equipment. The Company's operations are conducted in three business segments: Aerospace Component Manufacturing Group, Turbine Component Services and Repair Group and Applied Surface Concepts Group.


~~~END PASTE~~~


The bulk of SIF's revenue and profits come from the Aerospace Components Group...


~~~PASTE~~~

manufactures forged parts ranging in size from 2 to 1, 000 pounds (depending on configuration and alloy) in various steel alloys utilizing a variety of processes for application in the aerospace and other industrial markets. The ACM Group's forged products include original equipment manufacturers (OEM) and aftermarket components for aircraft and land-based turbine engines; structural airframe components; aircraft landing gear components, wheels and brakes; critical rotating components for helicopters, and commercial/industrial products. The ACM Group also provides heat-treatment and some machining of forged parts.


~~~END PASTE~~~



About 30% of the group's revenue comes from United Technologies (UTX) and Rolls-Royce. SIF reported $21.5 million in revenues in fiscal Q2 of which the Components Group accounted for 68% or $14.5million. The operating income for this unit grew 3-fold in Q2 to $2.90 million from $990k in Q2'06 while revenues for the group grew only 22%. This is indicative of the fixed cost nature of SIF's metalworking processes. The cost of each unit they manufacture is lowered in lockstep with how many units they ship. More volume = lower cost per unit and subsequently leads to decidedly higher margins. In the company's own words...

~~~PASTE~~~

The ACM Group’s operating income in the first six months of fiscal 2007 was $4.6 million, compared with $1.1 million in the same period in fiscal 2006. Operating results were positively impacted in the first six months of fiscal 2007 compared with the same period in fiscal 2006 due primarily to the positive impact on margins resulting from significantly higher production and net sales volumes in the first six months of fiscal 2007. The improved margins are due principally to (i) the absorption of the ACM Group’s relatively high fixed operating costs over more units of production and sales and (ii) a $0.3 million reduction in the LIFO provision in the first six months of fiscal 2007 compared to the same period in fiscal 2006.

~~~END PASTE~~~


SIF's other two units are Turbine Repair and a custom plating unit they call the Applied Surface Concepts Group. The good news for SIF shareholder's going forward is that SIF has largely shed it's underperforming Turbine Repair unit. It's easy to overlook this, but make no mistake, one of the hallmarks of effective management is their ability to recognize portions of the business that are broke and either fix them - or cast them off. All too often in such a scenario, the unit/s being sold are practically given away for a fraction of their value as potential buyer's are keenly aware of when a seller is motivated.

This is simply not the case with SIF's disposal of the Repair operations. The repair business, based in Ireland, focused on both aerospace and industrial turbine repair. The aerospace portion was sold off last year for $9.8 million and the sale of the industrial turbine portion should close any day now for $5 million. This is significant because these units were a significant drag on SIF's earnings. Consider that in the qtr ended Dec. 31, the unit lost $1.4 million or $.27/share. In the most recent quarter ended Mar. 31, the repair group lost nearly $.20/share. On an annualized basis, it appears that the turbine repair businesses that have been jettisoned were losing nearly $.65/share. As of next week both of these will be disposed of along with the head count and overhead that accompanies them to their new owner.


Looking ahead to SIF's fiscal Q3 we can begin to see how cheap the stock truly is here at $17 and change. If we back out the non-recurring $2.1 million operating income recorded for the discontinued turbine operation (the portion that was sold in May of '06) we see that SIF's actual operating income was $.13/share. If we take a conservative 8% revenue growth (it was 16% in the March qtr) we come up with sales of approximately $23.75 million. Operating margins should increase dramatically due to the disposal of the underperforming units and if we assume a conservative 12% operating margin we come up with an EPS of approximately $.55 share for fiscal Q3.

This would put SIF's first nine months of fiscal '07 at an EPS of a whopping $1.35/share. For arguments sake, let's say Q4 comes in around $.60/share (this is conservative) and we've got a stock trading at a trailing price/earnings ratio of 9 that operates in a booming aerospace sector, with $2.00/share cash, growing revenues and EPS at a double digit clip, 48% of the stock held by insiders, and in a space with numerous buyouts. Whew! If that doesn't add up to a buy, I don't know what does.

I appreciate the input...that being said, KMGB is up a healthy 21% since I posted the name on 5/17. Not too shabby for a short term investor is it?

LXU is geothermal and fertilizer...

sent to my subs in August @ $9.98....now $20.28..

~~~PASTE~~~

[08/22/2006] LXU - Growth in Geothermal accounts for multi-year highs...


04:36:29am
2006-08-22

Growth investors, take note. LSB Industries (LXU) is en fuego, and the share price is beginning to reflect the fundamentals that are firmly in place here.

Let's take a look at the business units:

El Dorado Chemicals
The chemical business is the second largest producer of ammonium nitrate in the South Central region and the largest supplier of concentrated nitric acid in the U.S. This unit sells largely into the agricultural industry.

It should be noted here, that while ammonium nitrate selling prices have been trending higher than 2005, higher natural gas prices (a major component in the production of the fertilizer) will largely offset these higher selling prices going forward. The second quarter is traditionally the best quarter for companies in this space as its agricultural end users take delivery of fertilizer during growing seasons.

The company anticipates, that the second half of the year will bring declines to the El Dorado unit as drought conditions throughout the South Central region will cause farmers to reduce fertilizer consumption.


Climate Control
This is where the story with LXU gets very interesting. This segment consists of units that manufacture hydronic fan coils, water source heat pumps, and Geothermal products for heating and cooling.

The climate control units focus on the commercial and industrial segments and as a result are insulated from the decline in residential HVAC installations as the housing market softens.

Going forward for the second half, the company has forecasted that increases in the prices of raw materials used in for the company's products (steel, copper)

The intriguing story buried within the climate control segment is large scale geothermal installations by the firms Climate Master unit. LXU is considered to be the US market leader in geothermal and they boast leading market share of:

38% in geothermal heat pumps
44% hydronic fan coils


First half sales in the segment were up nearly 40% and EBITDA was up over 70% and the company exited Q2 with a record backlog. The company is growing geothermal installations at TWICE the industry rate. (60% vs. 30%)

We should take note here, it's not often we find a micro cap name like LXU with a best of breed product and a dominant position in market share.


Now let's take a look at the growth numbers:
-Net income up in Q2 '06 to $6.1mm from $1.5mm last year
-Revenue up to $132mm from $109mm last year
-EBITDA up 78% year over year
-Trading at just .31x sales
-Trading at 10x projected EPS
-Small float of just 6mm shares



Technical analysis and chart observations:
Looking at the chart, we can see that the company's fundamentals are not being overlooked. What we should note when looking at the chart is the fact that LXU is putting in multi year highs here. Monday's closing price was the highest close since October of 2004. Moreover, the volume put in yesterday, was the heaviest for LXU since late in 2000.

A stock that is as thinly traded and relatively undiscovered as LXU is, mandates that we have to raise our risk threshold if we want to participate. Low volume means high volatility so our stop out has to be at a level to account for these swings in share price. In LXU's case I would suggest a stop out near the 50day moving average of $8.59. More risk tolerant investors could place a stop at the 200 day of $7.25. The stock hasn't broke below the 200day since March of 2006.






Related Industries: Energy - Environmental - Medium Term - New Pick - Overlooked Potential -


Initial Stock Price: $9.98

Two profitable rail plays from my site...

From 5/17/07

~~~PASTE~~~
[05/17/2007] All Aboard the Rails with Buffett and Icahn...

01:03:51am
2007-05-17


'Tis the season for money managers of all shapes and sizes to release their SEC 13F filings detaling their holdings for the first quarter. There are only a handful of investors in the World who move markets and sectors within the markets when their filings show a preference for a particular industry. Carl Icahn and Warren Buffett are of course firmly seated in said 'handful'.

What do the filings of these two investing guru's have in common? Railroads. Yep, perhaps one of the most boring, un-sexy, dirty sectors of the market has caught the eye of these two mavens. If it were anyone other than these two placing multi-billion dollar bets on rail, pundits would argue that rail is a terrible place to be in a slowing economy as rail is perhaps one of the most economy sensitive sectors in the market. They would also argue that with record fuel prices, margins will be squeezed. Margin pressure and reduced freight loads as our slower economy imports fewer goods from the Far East, don't make for a wise investment thesis the so-called experts would argue.

Let's be clear though, 'so-called' experts are trumped every time by anyone with the last name Icahn or Buffett. Now that their cards are on the table, pundits and market participants buy first and ask questions later. Not surprisingly, the value oriented Buffett sees some very healthy trends for the rail industry even in an economy that's growing below trend...

~~~PASTE~~~

May 16 (Bloomberg) -- Billionaire Carl Icahn bought a $122 million stake in CSX Corp., joining Warren Buffett and TCI Fund Management LLP in purchasing railroad shares.

Icahn held 2.68 million shares of Jacksonville, Florida- based CSX, the third-largest U.S. railroad, as of March 31, according to filings yesterday with the U.S. Securities and Exchange Commission. Buffett's Berkshire Hathaway Inc. and hedge fund TCI also detailed their purchases in the industry, which they disclosed in the past month.

``The rail group has attracted a lot of attention in a year and a half that could've led to a lot of smart people looking into it,'' Tony Hatch, an independent rail analyst based in New York, said yesterday in an interview. ``This group has clearly changed in many ways and has been stronger about talking about how it's changed.''

CSX and companies such as Union Pacific Corp. and Burlington Northern Sante Fe Corp. are benefiting from a tightening in rail capacity starting in 2003 and rising Asian import volume, Hatch said. Buffett, Berkshire Hathaway's chairman, said earlier this month that higher fuel prices and deregulation are making rail carriers attractive investments.

``As oil prices go up, higher diesel fuel raises costs for rails, but it raises costs for its competitors -- truckers -- roughly by a factor of four,'' Buffett, 76, said at the company's May 5 annual meeting in Omaha, Nebraska.

~~~END PASTE~~~

Buffett summed up the fuel price angle highlighting that the truckers are much more sensitive to high diesel prices than the rails are. What this snippet didn't mention was that many of the rails have actually been able to recoup their fuel costs and then some by implementing aggressive fuel surcharge programs. So aggressive in fact that Congress actually looked into the matter late last year, but took no action other than to 'warn' the rail operators not to engage in such practices. Sure, that will work... (wink, wink).



Since it's not my job to highlight mega cap rails with single share prices that are several times more than I have in my wallet right now (my wife gave me a $10 to start the week and I still have $4 left...thank god for the value menu at McD's!) I thought I'd touch on a couple names that should see not only an increase in investor interest, but a healthy uptick in demand from the rail operators that are flush with cash and profits.




Portec Rail Products (PRPX) $11.71

Portec manufactures, supplies and distributes a range of railroad products, including rail joints, rail anchors, rail spikes, railway friction management products, railway wayside data collection and data management systems and freight car securement systems. They operate through four distinct segments...

Railway Maintenance Products Division (RMP)
The Railway Maintenance Products division offers track component and friction management products and services to railroads, transit systems, and railroad contractors; and wayside detection and operating asset data management systems. This segment offers products, such as standard and insulated rail joints, gauge plates, track mats, curve blocks, and jacking systems, as well as distributes and resells purchased track components and lubricants manufactured by third parties.

Shipping Systems Division (SSD)
The Company's SSD business segment engineers and sells load securement systems to the railroad industry. These systems secure a variety of products and lading onto freight cars. Most of the assembly work for SSD is performed at RMP's Huntington, West Virginia manufacturing plant, although some manufacturing is subcontracted to independent third parties.

Portec Rail Nova Scotia Company
Operationally in Montreal, Canada the Company produces rail anchors and rail spikes at its manufacturing plant in St. Jean, Quebec, primarily for the Canadian railroads, with some products exported to the United States and for other international customers. Rail anchors and rail spikes are devices used to secure rails to ties to restrain the movement of the rail tracks.

Portec Rail Products (UK) Ltd
In the UK, PRPX operates and serves its customers in two different markets. In the rail market, the Company's product lines include friction management products and services and track component products. Prior to December 2006, it produced railway lubrication products at its Wrexham, Wales location. As a result of a business restructuring during 2006, the Company closed the Wrexham, Wales location and moved the rail operations to Sheffield, England. It has recently sold the Wrexham property for $2million. During 2006, the Company announced a business reorganization plan, which consolidated its rail and material handling operations in the United Kingdom from four locations into two, one at the Company's Sheffield, England facility (rail) and the other at its Leicester, England facility (material handling).


As railroads build out thousands of miles of new track to handle the additional capacity they expect while taking share from truckers, PRPX looks well positioned to benefit with their track components. Relative to the rest of the sector, the stock is pretty cheap here. PRPX is trading at just over 1x sales and 2x book compared to it's peers in the rail industry that trade at over 2x sales and nearly 3x book value.

PRPX earned $.48/share fully taxed last year and started 2007 off with an EPS of $.13/share besting Q1'06 by $.02. Revenues were up 18% year over year but the EPS was impacted by $.04/share of non-recurring costs related to the sale of the Wrexham location and SOX compliance. With a forward P/E of around 20 and a $.24/year dividend as a bonus, PRPX should print new highs as the railroad renaissance plays out this summer.










The other name I'm going to discuss in our railroad spotlight is a bit more obtuse in it's relationship to the rail industry....


KMG Chemicals (KMGB) $14.27

How many different industries can you play in one stock? Let's see....

Agricultural chemicals (fertilizer) ... one of the hottest spaces in the market
Hurricane Play ... a sector that will heat up and pop if we have an active storm season
Animal Health ... beef prices are escalating as feed prices soar...need to keep those cattle healthy
Railroad Maintenance ... rail operators building out new freight capacity and adding/repairing track

Believe it or not, all of those angles are present in little known KMGB. Here's the business description...

~~~PASTE~~~
KMG Chemicals, Inc. manufactures, formulates and globally distributes specialty chemicals. The Company operates through purchasing product lines and acquiring companies that operate in the segment of the specialty chemical segment. The Company is involved principally in the manufacture and sale of specialty chemicals in niche markets through its wholly owned subsidiary, KMG-Bernuth, Inc. It sells the wood preserving chemicals, pentachlorophenol (penta) and creosote, to industrial customers who use these preservatives primarily to extend the useful life of utility poles and railroad crossties. Its agrochemicals include animal health pesticides and agricultural chemicals. The animal health pesticides are used on cattle, swine and poultry to protect these animals from flies and other pests. The agricultural chemicals include an herbicide used primarily for weed control in cotton and sugarcane fields and along highways. Sales made to customers in the United States were 97% of total revenues during the fiscal year ended July 31, 2006
~~~END PASTE~~~



That one paragraph covered all the industries KMGB sells into. Evidently, these are nice places to operate right now because KMGB just blew the doors off of any fiscal Q2 estimates anyone may have had for them...

~~~PASTE~~~
Second Quarter 2007 Highlights - versus second quarter of fiscal 2006

* Net sales increased 25% to $19.5 million.
* Net income more than doubled to $1.5 million or $0.13 per diluted share. Net earnings per diluted share was calculated on 20% more shares outstanding due to the issuance of 1.7 million shares in July of 2006 through a public offering.

First Half Financial Highlights - versus first half of fiscal 2006

* Net sales increased 23% to $36.7 million.
* Net income increased 116% to $3.0 million or $0.27 per diluted share. Net earnings per diluted share was calculated on 20% more shares outstanding due to the issuance of 1.7 million shares in July of 2006 through a public offering.


"Our solid results for the quarter were driven by strong results in our wood treating segments, as utilities and railroads continued maintenance on their infrastructures at a brisk pace, as well as greater contribution from our Animal Health business. Creosote sales increased 33% to $10.7 million during the second quarter over the previous year. Penta revenues were $6.2 million, versus $6.9 million in the second quarter of last year, due to greater than usual purchases by utilities during the 2006 period in the aftermath of Hurricane Katrina. We believe wood treating demand will continue to be strong for the balance of fiscal 2007. However, demand for creosote treated railroad ties has been at the very top of its historical range through 2007, and we believe that it will likely soften at some point in the future."
~~~END PASTE~~~


My guess is that the railroad tie business will remain at the top of its historical range for quite some time. Increased load factors are putting more stress everyday on an aging rail system in dire need of upgrade and maintenance. Remember too that an active hurricane season will positively impact KMGB also as utilities scramble for penta treated poles to restore power.

Management is also guiding for huge increases in revenue from their new livestock insecticide ear tag...

~~~PASTE~~~
Neal Butler, KMG's President and COO, stated "Our 2007 Ear Tag Marketing Program has been very successful with participation by 100% of our distributors. We are beginning to see follow-up orders as early shipments move to the field. We anticipate that AVENGER will become the leading insecticidal ear tag in this, its first year of introduction, and that revenues in our Animal Health segment will exceed $15 million for fiscal 2007, up from $8.7 million last year." Butler continued, "It is important to keep in mind that our Animal Health sales are seasonally weighted to the second half of our fiscal year. We have been building inventory and receivables associated with this segment of our business, and will continue to do so until our fourth fiscal quarter when payments are due and those receivables convert to cash."
~~~END PASTE~~~

INRB from my site on 4/30/07...

Congrats to everyone in INRB - just beautiful..


~~~PASTE~~~

[04/30/2007] INRB - Laying a pipeline of profits to the Oilsands...

9:55:17pm
2007-04-29


Well, well - what do we have here? Believe it or not, we've got a profitable, growing pink sheet name with a patented product and deals inked with multi-billion dollar industry heavyweights. Seems hard to believe, I know, but Industrial Rubber (INRB.pk) sure looks like the real deal based on their albeit unaudited financials from Q1 and some background information I've dug up for support.



First let's talk about Canada's Athabasca Oilsands...



~~~Tidbits from Wikipedia~~~

The Athabasca Oil Sands are a large deposit of oil-rich bitumen located in northern Alberta, Canada. These oil sands consist of a mixture of crude bitumen (a semi-solid form of crude oil), silica sand, clay minerals, and water. The Athabasca deposit is the largest of three oil sands deposits in Alberta, along with the Peace River and Cold Lake deposits. Together, these oil sand deposits cover about 141 000 km² of sparsely populated boreal forest and muskeg (peat bogs).


Alberta Government calculates that about 28 billion cubic metres (174 billion barrels) of crude bitumen are economically recoverable from the three Alberta oil sands areas at current prices using current technology.

This volume places Canadian proven oil reserves second in the world behind those of Saudi Arabia.

At rate of production projected for 2015, about 3 million barrels per day, the Athabasca oil sands reserves would last over 400 years.

Capital expenditures in the oil sands announced for the period 2006 to 2015 exceed $100 billion, which is twice the amount projected as recently as 2004. However, due to an acute labour shortage which has developed in Alberta, it is not likely that all these projects can be completed.

Major producing or planned developments in the Athabasca Oil Sands include the following projects:

Suncor Energy's Steepbank and millennium mines currently produce 263,000 barrels per day and its Firebag in-situ project produces 35,000 bpd. It intends to spend $3.2 billion to expand its mining operations to 400,000 bpd and its in-situ production to 140,000 bpd by 2008.

Syncrude's Mildred Lake and Aurora mines currently produce 250,000 bpd. It intends to spend $8 billion to expand them to 350,000 bpd during 2006.




Here's a chart that illustrates the impending ramp in millions of barrels per day (MPD) that's coming between now and 2015...







What does INRB have to do with Oilsands?

By this point most folks would probably assume that the Minnesota based INRB's link to Canadian oilsands would be some sort of land claim in oil-rich Alberta. That's generally a pretty safe guess when talking about petroleum related pink sheet names, but not in this case.

Industrial Rubber is a full service designer and producer of specialty rubber and elastomer products that sells into the mining, aerospace, and automotive markets. The firm went public in 1999 just in time for the bubble to burst in virtually every market they sell into. In the meantime, not only have they fallen off of the major traded exchanges, they've streamlined operations, jettisoned underperforming units and placed themselves firmly on the track to profitability.

In fact, INRB grew revenues by 50% in 2006 vs. 2005 to just over $25million and boosted EPS by 300% to $.12 (fully taxed) from $.03. They've also managed to significantly draw down their bank debt, and open a new plant and they've done it all without issuing new stock. The outstanding stock has stayed static at 5.5 million shares fully diluted, most of which is held by insiders.

Certainly at first glance INRB doesn't seem all that compelling based on the fact that it's trading at roughly 5x sales and a trailing price/earnings ratio of 34. It's INRB's unique postition to capitalize on the enormous capital equipment build-out in the Oilsands that compels us to look closer.


The link to the oilsands lies with an INRB unit known as Irathane Systems based in Hibbing, Minnesota. Specifically, a patent pending pipeline product is attracting the interest of Suncor and Syncrude, two of the Oilsands biggest players. Why are these giants interested in the technology of a little known plastics company? To put it simply, bitumen is some nasty, nasty stuff and it beats the hell out of pipes. You see, when the bitumen is pumped from underground it comes up in a slurry of sand, rock, tar, and other large particle organic matter that is often 200 degrees warmer than the outside of the pipe its being forced through. The heat and friction of this slurry corrodes and eats away at pipelines very quickly. In fact, it's estimated that most oilsands pipeline has a life expectancy of about 2 years.

Needless to say, oilsands operators spend a great deal of capital not only replacing pipe, but lose countless more dollars due to downtime while sections are repaired and face environmental costs when components leak due to corrosion. This is why Irathane Systems patented IRACORE pipe is being shipped to Canada as I type. Witness these deals INRB inked in just the last few months...

~~~PASTE~~~
Hibbing, MN - January 31st 2007 - Iracore International Inc., a wholly-owned subsidiary of Industrial Rubber Products Inc., announces today that it has received an addition to it’s long-term supply contract with Suncor Energy Inc. This entails an additional 43,700 feet of Iracore pipe and pipe components with delivery starting in the 2nd quarter of 2007 and receipt of a purchase order related to this addition with an approximate value of $24,000,000.


~~~PASTE~~~
Hibbing, MN - December 18th 2006 - Iracore International Inc., a wholly-owned subsidiary of Industrial Rubber Products Inc., announces today that it began receiving purchase orders according to the 3 year supply contract between Suncor Energy Inc. and IRACORE Int’l Inc.. These purchase orders amount to $9,793,150 for IRACORE pipe and pipe components to be delivered in the 4th quarter of 2006 and the 1st quarter of 2007.


The results of these pipeline orders to Suncor and Syncrude are having a dramatic impact on INRB's earnings picture. For Q1, revenues leaped to over $14mm meaning that INRB booked in Q1 alone over half of total revenue for 2006, putting them on a run-rate of $56million this year. Earnings per share was a staggering $.44 for Q1 which is enormous considering the $.12 EPS of 2006.


Let's take a look at the IRACORE product and what differentiates it...

~~~PASTE~~~

*Developed a lining material specifically designed for the oil sand industry to improve the wear resistance over other rubber, urethane, chromium carbide overlay, stainless steel and all other miscellaneous wear materials.

*The wear material is resistant to petroleum degradation.

*The wear material is resistant to large particle impingement.

*Improved wear performance in fast velocities.

*Eliminated the cold wall effect of previously tested elastomeric linings when used in the severe environments.

*Developed a material that resists degradation from high temperatures (180°F to 200°F).

*Developed a welded end system that is used with an elastomeric liner that allows field welding, installation, and rotation of long lengths of pipe.

*Improved the pipe joint alignment and eliminated the radial welds.

*Insulating properties of the material and design reduced heating costs of slurry water.

*The material's surface reduces friction loss, saving pumping costs.

*The material's surface reduces and/ or eliminates sandfills.

*Designed a liner that allows the use of alternative types of pipes (such as thin spiral weld) to provide significant cost savings in steel.
*Provides a piping system that results in overall cost savings to operations and maintenance.












~~~PASTE~~~

Dan Burkes’ business year is off to a great start. On January 10, semi-trucks left IRACORE Int’l Inc.’s production facility in Hibbing, Minn., with the first load of Iracore-lined steel pipe destined for Fort McMurray, Alberta, Canada, about 1,000 miles to the northwest.

The shipment capped more than three years of product development and testing, and marked IRACORE’s entry into the Athabascan oil sands, a lucrative new market that has the potential to grow the company more than three-fold in the next few years.

IRACORE is a subsidiary of Industrial Rubber Products, an $18 million company headquartered in Hibbing, Minn., that has for decades served area taconite mines, as well as copper, gold and nickel mines worldwide. It currently employs about 145 total at facilities in Minnesota, Utah and Sudbury, Ontario.

Though entering the petroleum industry may seem a stretch for a company deeply entrenched in minerals mining, the oil sands industry actually bears remarkable similarity to other types of mining.

Athabascan oil sands are typically extracted using open-pit mining methods; the oil sands are removed with large shovels and transported to a processing facility via large production trucks. In oil-sands processing, sand or gravel encased in water and oil are crushed to less than six inches in size and combined with hot water and steam to make a 180-degree Fahrenheit slurry, which is then pumped from the crusher — called a breaker — to the extraction plant. After the oil has been separated from the sand and water, the latter are pumped to tailings basins.

Unlike other minerals, oil sands have only been economically mined in Canada for about 40 years, and the market potential is impressive. The Athabascan oil sands in northern Alberta and Saskatchewan are estimated to hold 177 billion barrels of oil recoverable with current technology. That represents an exceptional opportunity, particularly for a company that has created and makes Iracore lined pipe, a patent-pending specialty elastomer-lined pipe that is critical piece of equipment needed to recover the oil.

Pipe systems used to move oil sands must hold up in harsh environments – the temperature gradient between the slurry temperature inside the pipe and the air temperature outside the pipe is sometimes more than 200 degrees Fahrenheit. In addition, the sand and hydrocarbons in the oil are exceptionally abrasive and corrosive. Most operations use steel pipe with very thick walls, or pipe lined with a chrome - carbide overlay. These options cost between $200 and $1,200 a linear foot, and last at most two years.
Developing a better oil sands pipe was a tall order: the product needed to be large enough to move high volumes of product, durable enough to withstand harsh environments so it lasts longer, and made of cost-effective materials. Dan Burkes thrives on creating solutions to problems like these.

Using technology first developed by another Industrial Rubber subsidiary, Irathane Systems, as a basis, Burkes focused his talented, Hibbing-based team on the problem in 2003. By August 2005, Burkes had his solution: steel pipe segments 30 inches in diameter, 50 feet long lined with a patented Iracore liner, field-tested, with a life expectancy of 10 years.

By July 2006, IRACORE International was formed to handle IRACORE’s first customer, Suncor Energy, the first company to commercially develop the oil sands, provided test sites, and has designated IRACORE its product of choice, an important distinction that allows Suncor to order product from IRACORE without soliciting bids.

Under an agreement signed in 2006, Suncor will take delivery of more than 124,000 feet — 23 miles — of pipe over the next three years. Suncor also weighed in on Burkes’ plans for the location of the IRACORE manufacturing plant. Burkes had settled on Edmonton, Alberta, or Great Falls, Mont., both much closer to West Coast ports and thus to steel pipe arriving from the Pacific Rim. Suncor, however, saw advantages in not uprooting one of IRACORE’s most valuable resources: its people. “They said, ‘all your talented people are here [in Hibbing]. Why train people at a different location when you’ve already got them here producing the pipe we need?’,” Burkes said.

IRACORE changed course and found suppliers throughout the United States. The steel pipe arrives from West Virginia, the rubber is made in Ohio. Urethane is shipped up from Louisiana, while pipe couplings come from Texas. A Wisconsin company handles fabrication.

“We gave them [suppliers] tight specifications, and they met them,” Burkes said. The components come together at IRACORE’s new 50,000 squarefoot manufacturing facility in Hibbing, Minn., completed in November 2006. The $6.0 million expansion project included purchase of the former Noble Industries building, located next to Industrial Rubber’s existing plant, and equipment installation.

Regional economic development entities, including the Hibbing Economic Development Agency and Iron Range Resources —which provided a $1.5 million bank participation loan package — helped bring the project together. “Dave Hart from Iron Range Resources deserves credit for the work he did on this. It was a complex package, and he pulled it together fast,” Burkes said.

Since bringing the new facility on line, IRACORE has added 26 employees, all local hires, from production-line to engineering positions. With the technical challenge solved, Burkes is defining success in terms of customer acceptance. As many as seven other companies have expressed interest in IRACORE’s new product; meeting their projected demand could mean growth to $60 million and could require several additional production facilities the size of the new Hibbing facility in the next 10 years.

“If we can get all seven [possible customers] under contract, that would be success,” Burkes said.



~~~PASTE~~~
Innovative Entrepreneur Award
Daniel O. Burkes, Iracore International, Inc., Hibbing
Since June 2006, Iracore, a subsidiary of Industrial Rubber Products, Inc., has developed solutions for the petroleum industry with their Iracore Hydrotransportation & Tailings Piping System, an innovative liner for pipelines that transport bitumen from oil sand mines. This system prevents pipeline leaks and the environmental consequences therein. Iracore's success can be measured in a number of ways: it has no equivalent competitor; it is replacing imported products with American-made products; its Northeastern Minnesota workforce receives above-average wages and benefits; and it is poised to become a multi-billion dollar company.


~~~PASTE~~~
08 April 2007 15:07
Rubber-lined pipes for oil sands industry

Industrial Rubber Company, Ltd., Bathurst, New Brunswick, Canada, opened a new plant that produces rubber-lined pipes designed for the Canadian oil sands industry in Athabasca Basin containing world’s largest petroleum reserves. The oil sand is highly abrasive material that wears out pipes in a matter of two years. Industrial Rubber Company’s “Iracore “ rubber-lined pipes cost two- to three-time as much as conventional carbon steel pipes but last five times longer





INRB is ultra-thinly traded, in fact, some days it doesn't trade at all. The translation here is of course that if you don't have a stomach for volatility, don't put capital to work in INRB's direction. However, if you're willing to ride out low volume pullbacks and capitalize on them by being an advantageous buyer, INRB sure looks like a story that will be working for some time to come.

There seems to be little doubt now that we'll soon be seeing crude over $70 barrel again, and gasoline prices will be pushing $4.00/gallon in much of the country when the summer driving season reaches it's peak. As a result, investors will start looking for oilsands plays that are 'undiscovered' and INRB certainly fits that bill. As is usually the case, Insighter's will be patiently waiting for the 'herd' to arrive.










Related Industries: Energy - Long Term - New Pick - Overlooked Potential -

Initial Stock Price: $4.15


Related Industries: New Pick -

Initial Stock Price: $4.15

abh3vt...scan back through some of my older posts and you'll see the name of the site I operate.

I don't post a link because I don't want to get accused of spamming.

FRPT - they will get taken out...just a matter of time.

Sent this to my subscribers last night. I've bolded the quotes which indicate the unprecedented scale of the coming MRAP build-out for emphasis.


~~~PASTE~~~

[05/25/2007] FRPT - Hear the MRAP's coming?

01:14:49am
2007-05-25



Force Protection (FRPT) isn't sneaking up on anyone who's followed the OTCBB small cap market for the last few years. I distinctly remember telling some friends about FRPT right when the Iraq war started in 2003 and it was well under $1.00 at that time.

Needless to say, FRPT came along with the right product, a heavily armored personnel carrier specially designed to mitigate the effects of roadside IED's, at just the right time. The stock is now close to $30/share and FRPT has quadrupled revenues each year since 2004.


Now sporting a market cap over $1 billion and pumping out their MRAP's (mine resistant ambush protected) as fast as they possibly can, their fortunes are about to get even more prolific.

The House and Senate both approved the supplemental funding bill for the Iraq war tonight and included in it is an appropriation of over $3billion for MRAP's. Secretary of Defense Robert Gates himself has called the buildout and deployment of MRAP's the military's HIGHEST priority.

FRPT has had some serious order flow already this year, specifically a 1,000 unit order from the Marine Corps in April that totaled a whopping $490million. My feeling tonight is that the influx of orders FRPT and it's vehicle partner General Dynamics is about to see will dwarf the aforementioned order.

For some perspective, Sec. Gates has estimated that the military needs over 17,000 MRAP's yesterday. Of course FRPT can't handle this kind of volume alone and the orders will be spread out over several vendors with competing designs to FRPT's. My guess is though that FRPT will see the lionshare of the business.

FRPT's recent move to the Nasdaq has opened the shares up to an entirely new group of institutional buyers who may have been prohited from owning bulletin board listed issues and as of Q1 nearly 60% of the common stock was held by institutions.


Here's an excerpt of an interview with Defense Sec. Gates from earlier this week...

~~~PASTE~~~
Q Mr. Secretary, on the MRAP issue, can you bring us up to speed in terms of where the services' plans now stand in terms of (hard ?) requirements? You know, May 2nd, your memo said, bring me a plan. Where is that? And I have a quick follow-up on the trip to Aberdeen, if I have a chance.

SEC. GATES: The -- well, I'll just a elaborate a little bit. There are a number of -- there are several different companies that have produced different kinds of MRAP vehicles. The folks at Aberdeen are testing those. They are working 24/7, three shifts a day, seven days a week. They are heavily instrumented so that they can – right down to the fact that when they test against a vehicle, they make sure they test every vehicle on the same soil so that that variable is removed in terms of the impact. And they're looking even at, in some cases, perhaps the seat for the troops in one kind of vehicle are better in a different kind of vehicle. And so they're looking at all of that.

I have asked the deputy secretary, Gordon England, to oversee a group that brings the services, acquisition and all the different elements of the department together so we can move forward as fast as possible. The requirement -- the only requirement that's important to me now is to produce as many of these vehicles and to get them into the field as fast as possible, and to ramp-up, to make selections and get the production under way and get these things into the field.

In terms of what the long-term plan will be, I want to deal with what we can get done in the next six to 12 months first.

~~~END PASTE~~~



~~~PASTE~~~

MRAP Makers Gear Up for Orders
By KRIS OSBORN

With the recent increase in total potential U.S. military orders to more than 21,000 Mine Resistant, Ambush Protected vehicles, U.S. firms in the running for contracts are preparing for large orders on unusually tight deadlines.

“The production ramp-up being addressed is the largest armored vehicle requirement since World War II,” said Mike Aldrich, vice president of Ladson, S.C.-based Force Protection.

Aldrich’s firm has received orders for about 2,000 of its Buffalo and Cougar MRAPs, of which about 600 are already deployed in Iraq and Afghanistan. In April, the Marines placed a 1,000-vehicle, $481 million order for Force Protection MRAPS, the largest order to date.

In anticipation of a possible flood of new orders, Force Protection last fall joined General Dynamics to form a new company, Force Dynamics. While Force Protection is currently making 80 vehicles per month at its Ladson, S.C., plant, the new venture will deliver 400 per month by year’s end, and a total of more than 10,000 category 1 and 2 MRAPs by the end of 2008, Aldrich said.

“This is a different type of vehicle for a different type of war, and it took us a while to figure out how to mass-produce them, but we are ready now,” he said.

Charleston, S.C.-based Protected Vehicles (PVI), which received a $37.4 million Marine Corps order for 60 Golan MRAPs on Feb. 26, is buckling down for more orders.

“We have plans in place to reach higher production capacities,” said Drew Felty, a PVI program manager. The firm’s four-wheel, 13-ton Alpha vehicle is also the basis for the MRAP offered by Wisconsin-based Oshkosh Truck, which received a 100-Alpha, $30.6 million contract Feb. 26. PVI designs much of the vehicle, and Oshkosh adds the armored hull.

“It is the smallest of the MRAPS, at 18 feet long,” Felty said. “The scalable, up-armor package with bolt-on modular armor allows it to adapt to all sorts of environments. You could drive it though Kansas and downtown Fallujah.”
For its heavier, Category II MRAP, Oshkosh is offering the Bushmaster vehicle, currently in service with the Australian and Dutch militaries.

“Its independent suspension makes the Bushmaster extremely off-road capable and enables the protected V-shaped hull under the vehicle to cover the entire length of the vehicle. It isn’t interrupted by drive shafts and power trains,” said Oshkosh marketing manager Joaquin Salas.

BAE Systems makes Cat I and II versions of the RG33 MRAP vehicle. It received a $55.4 million order Feb. 15 from Marine Corps Systems Command (SysCom) for 15 Cat I and 75 Cat II MRAPs.

“We have a flexible manufacturing plan which allows us to leverage the facilities within our company as well as those of key teammates,” said BAE spokesman Herb Muktarian.

Textron Marine and Land Systems’ Armored Security Vehicle (ASV) was rejected by U.S. military testers and is no longer a contender in the MRAP competition. Textron officials said SysCom officials told them that their MRAP vehicle would not be selected for a production contract.

Clay Moise, a Textron development manager, called their test performance “mixed,” and said the firm plans to continue developing the vehicle, which was substantially lighter than the other eight contenders’ entries.

“The ASV is a balance that brings transportability, lethality, protection and mobility,” Moise said. “We’ve learned a lot so far, and the warfighters today will benefit from what we have learned.”

Armor Holdings is offering a Cat I and II Caiman MRAP vehicle, a lighter protected vehicle that draws from the company’s experience in building more than 32,000 Family of Medium Tactical Vehicles (FMTVs) for the U.S. Army.

“We kept it lighter weight to emphasize tactical mobility,” said Chris Chambers, an Armor Holdings vice president. “Our offering is based on the U.S. Army FMTV in terms of power train. Priority one is protection, but we also want to get them to the warfighter as quickly as possible, so we based it on something that is in production, combat proven and instantly supportable.”

Armor Holdings also is building Cougar MRAP vehicles through a collaborative arrangement with Cougar-maker Force Protection, Chambers said.

~~~END PASTE~~~



~~~PASTE~~~

U.S. Military Ground Vehicle Armor Represents a $20 Billion Market 2005 to 2013, According to Vector Strategy

ORLANDO, Fla.--(BUSINESS WIRE)--In their newest report for the armor industry, 2007 U.S. Military Ground Vehicle Armor Forecast, Vector Strategy projects that an estimated $20 billion of military ground vehicle armor will be procured by the US Department of Defense (DoD) for US military forces between 2005 and 2013 (nine years inclusive).

In addition, the industry experiences an unprecedented peak in fiscal year 2007 armor procurement. According to Marcia Price, president of Vector Strategy, "Armor procurement in fiscal year 2007 is 159% the level of procurement in fiscal year 2006 - including base and supplemental budgets now under consideration by Congress."

"This peak is due to the need to repair and replace armored vehicles lost or worn out in current Iraq and Afghanistan operations, to add equipment such as MRAP vehicles to fill recently identified war-fighting needs, to supply armored vehicles to support the surge of additional troops to Iraq, to add and upgrade armored vehicles to improve current and future war-on-terrorism capabilities, and to begin procuring armored vehicles needed to support the Army and Marine Corps plans to add 92,000 active duty troops to the force over the next several years," says Ms. Price.

Fiscal year 2007 and 2008 military ground vehicle armor procurement is sharply driven by large increases in supplemental funding for force protection and equipment reset.

Vector projects that fiscal year 2010 to fiscal year 2013 armor procurement will decline slightly from 2009 levels, but still remain a substantial market for armor industry participants.

Vector forecasts additional armor procurement for fiscal year 2009 to 2013 (above the DoD's base budget for those years) to address contingency operations in which U.S. forces become involved, to fund additional sustainment of combat vehicles, to provide appliqué armor to increase the protection level of mine protected vehicles, and to fund JLTV armor procurement.

In fiscal year 2007, light tactical vehicles such as HMMWV's represent 39% of total military ground vehicle armor procurement; medium and heavy tactical vehicles represent 27% of total armor procurement; ASV's, MRAP, and other mine protected vehicles account for 10% of armor spending in 2007; and combat vehicles, such as the Stryker, Bradley, and Abrams, account for 24% of 2007 armor procurement.

~~~END PASTE~~~


As a sidenote, SPAR is the company that FRPT buys the chassis' from for their MRAP's.

Honestly, I'm staying away from China related names at all costs. It's 1999 all over again in Shanghai and we all know how that movie ends.

I think there will be ample opportunity to buy China related names much cheaper throughout the summer.

That being said, the names that intrigue me the most are:

CIWT
WWMU and
MHJ

The next potential shoe to fall is SRE...

Jeffrey Bussan is the "related party" that 30% of OPBL's trading revs flowed from (not BMO btw)...he's at the energy desk of SRE.

I'm anxious to see if they were mismarking trades for him like they were for Mr. Lee at BMO...

Bussan was another guy in the long line of OPBL customers that were awarded warrants in return for trading volume. The SEC won't like that I'm sure.

On a side note, I looked at the Q1 13G's and saw that a private equity group in California by the name of Insight Capital and Research accumulated over 2.2 million shares of OPBL ALL in Q1!

It boggles my mind that a professional money manager would take such a substantial position in such a 'scammy' company. I almost sent their microcap manager an email asking him if he ever read any of OPBL's filings. The red flags were everywhere.

who got ridiculed for warning everyone that OPBL was a scam back in Feb/March?? Oh yeah...me!

#1 secular growth story in the market...

In my humble opinion is Sharps Compliance (SCOM). I've posted on it multiple times to my readers since early January and thought some of the regulars here might enjoy a brief glimpse into why I feel SCOM has so much wind at their back right now.


~~~PASTE~~~
[05/22/2007] SCOM - My hands are sore from table pounding ...


11:36:52pm
2007-05-21


Hey gang! I'm back from a long weekend of graduation parties, yard work, and a nice little summertime head-cold as a bonus. I sincerely wanted to climb the stairs to compose this post last night, but I just didn't have the moxy to get out of bed last night. Besides, Friday's posts of OMTR (at $16.80) and VSCN (at $16.10) were still working for us on the heels of the AQNT takeout. OMTR is printing $20+ after hours tonight for a two day gain of 20% and VSCN traded as high as $17.35 for a decent 8% return. Just another example of my firm belief that homework pays off exponentially. The only way to know the micro cap names that are going to benefit from an external catalyst such as M&A activity is by doing what I do virtually every night - reading dozens of business descriptions, Q's, K's, and commiting them to memory. I hope everyone knows by now, that even on the nights when you don't see a post or two from me in the wee hours, I'm still up doing my homework and it pays off in situations like a call on OMTR or a call like CYTR (posted here at $1.60 now $4.11) on the buyout of RNAI.

Now, back to the topic at hand, SCOM. Seriously, this has got to be like the 12th time I've posted about SCOM and I'm pretty confident that everyone knows this stoy by now. But just in case, here's some SCOM related posts in a nice orderly fashion that you can click through to bring yourself up to speed. If you've read all these already, then just skip down to the update....


These are in chronological order...there are more, but these are the most in depth...

Jan. 10th

Jan. 30th

Feb. 22nd

Mar. 9th

April 19th

April 26th



~~~SCOM UPDATE #1~~~

With that background out of the way we can get to some fresh news relating to SCOM, and there's plenty of it. First, following closely on the heels of Wal-Mart outlining their plans to open 400 retail clinics in the next couple years (and several thousand within 5 years), Walgreen's is making their presence felt in the exploding retail clinic space. Remember, these clinics are small scale medical waste generators that are perfectly suited for SCOM's business model.

~~~PASTE~~~
Walgreen to buy clinic operator Take Care Health
Wednesday May 16, 5:59 pm ET
By Jessica Wohl CHICAGO (Reuters) - Walgreen Co. (NYSE:WAG - News) said on Wednesday it plans to buy Take Care Health Systems, which operates in-store health clinics, as it moves to offer more patient services in its drugstores. The terms of the all cash deal, which is expected to close next week, were not disclosed. The announcement came after the close of trading on Wednesday. Earlier in the day, the U.S. Federal Trade Commission said a deal between Walgreen, Take Care Health and private equity management firm Beecken Petty O'Keefe & Co. had received clearance from U.S. antitrust authorities. The deal comes after Walgreen's main rival, CVS, bought No. 1 in-store clinic operator MinuteClinic in 2006 and follows an announcement by Wal-Mart Stores Inc. (NYSE:WMT - News) last month that it plans to open as many as 400 in-store clinics in the next two to three years. All three companies hope to attract Americans looking for less expensive treatment options amid soaring health-care costs. Walgreen said that, with this acquisition, it plans to have more than 400 clinics within its stores by the end of 2008, up from 59 currently. Take Care currently operates most of the Health Corner clinics located in Walgreens drugstores. Two other providers, RediClinic and EasyCare, operate clinics in the Atlanta and Las Vegas areas, respectively. A Walgreen spokesman said the clinics operated by the two other firms will eventually be operated by Take Care. In-store clinics have been growing at a rapid clip in the United States as busy consumers look for more convenient hours than doctor's offices provide and millions of uninsured Americans search for a low-cost, quick alternative to long waits in emergency rooms. The clinics offer health care services such as tests for strep throat, but do not offer comprehensive medical care. They are typically located within stores, but the space is leased by clinic operators. Retailers typically gain revenue from the leases, as well as the potential to attract customers to their stores who need to fill prescriptions issued by the clinics. They also hope customers then shop for other items, boosting their overall sales. Take Care, which is based in Conshohocken, Pennsylvania, was founded in 2004 by Hal Rosenbluth, past president and chief executive of travel company Rosenbluth International, and Peter Miller, a former executive at Johnson & Johnson (NYSE:JNJ - News). Beecken Petty, a Chicago-based firm focused on health care investments, had a stake in Take Care. It provided funding last year to help finance Take Care's roll-out of clinics. Take Care operates 50 clinics in Chicago, Kansas City, St. Louis. The company previously said it planned to have 200 centers open by the end of 2007 and 1,000 centers across the country in the next few years. Walgreen shares rose 2 percent to close at $45.28 before the company officially announced the acquisition. The shares of rival CVS/Caremark Corp. (NYSE:CVS - News) rose 1.5 percent to close at $38.12. CVS' MinuteClinic has more than 175 U.S. locations, most located in CVS stores, and plans to add more. Wal-Mart, the world's largest retailer, has said up to 2,000 clinics could be in its stores over the next five to seven years. ~~~END PASTE~~~


Perhaps you're asking yourself why these retail clinics are such an easy target for SCOM's services? That's a valid question, after all, the 800lb gorilla in the medical waste business is Stericycle (SRCL) and certainly with their $3billion market cap they've got the capacity to handle these small site waste generators, right? Yes they most certainly do, but here's the rub - imagine you're shopping at your local supermarket or picking up some prescriptions at Walgreen's, do you want to see a truck with a giant BIOHAZARD symbol pull up and a guy sporting full laboratory protective gear and face shield stroll in and cart out the medical waste? Of course you don't, and believe me, either do the retailers. This is why a mail back program like SCOM's is perfect. They get all of the compliance, environmental, and tracking benefits of SRCL, without the stigma of toting medical waste through the store.



~~~SCOM UPDATE #2~~~

Since SCOM announced the pharma deal back in March, that I predicted in January, I've been conducting my own crude investigation to find out the name of the home injectable drug that SCOM is linked up with. From the beginning, I had suspected that it was Abbott's arthritis drug Humira. As I grew more confident in this assumption I decided to push the limits a bit to get confirmation. Long story short, I phoned SCOM's in house customer service department and played the role of a confused son who wasn't sure which drug his mom had received this sharps container for. Things went off without a hitch and the unsuspecting rep confirmed my suspicion by suggesting that it was probably sent for her Humira, but she can put any additional sharps in the container if necessary and they will dispose of all of them for her.

With this information in hand, I went a bit further up the chain of command at SCOM and now fully disclosed my name and position of admin at Insightertrading.com. When I asked if Abbott was the pharma partner and Humira was the drug in question - I received a brief pause and a terse "I won't deny that assumption." Now, here's why this is important. Abbott has huge plans for Humira as it's since been endorsed by the FDA not only for arthritis but also as the only treatment for Crohn's Disease and Juvenile Arthritis. Humira will be shipping to a LOT of households in the U.S. and more likely than not, a little red sharps container from SCOM will arrive shortly thereafter.

Turns out, SCOM's disposal services fulfill not only the compliance, environmental, and public safety issues posed by home injectable drugs - they also supply the pharma companies with some extremely valuable information. Let's take Humira for example, I've seen estimates that Abbott books about $10,000-$20,000 per year in profit off of EACH Humira user. Yes, you read that right, EACH user. Imagine then if you're Abbott Labs how important it would be for you to make certain that your customers are taking all of their doses and reordering when necessary. What if Grandma stops taking Humira because she's got an upset stomach after the last three doses? Abbott's going to find out because SCOM is going to let them know that Grandma has only sent back 3 sharps and she should have sent back 8 by now. With this information in hand, a helpful customer service rep at Abbott calls Granny and let's her know that the reason she's had an upset stomach is because she forgot to eat her english muffin before injecting Humira. Voila! Granny feels better, takes her Humira at regular intervals, and the executives at Abbott can buy new Bentley Continental's all because of little old SCOM. Moreover, all of this is free and clear of the drug's actual P&L because Abbott expenses SCOM's service as "marketing expense" since it gives them an additional data point with the end user.




~~~SCOM UPDATE #3~~~

This isn't an update so much as just a new way to conceptualize what SCOM is doing. Remember the good ole days when you changed the oil in your {Insert gas guzzler name here} in the driveway and then promptly dumped the old oil behind your backyard fence, or tossed it in the trash in a coffee can? Enter the EPA and BOOM! now there are thousands of Valvoline's and Jiffy Lube's across the country.

Remember when folks just disposed of their old tires anywhere they could toss them without care? How about car batteries? Remember when there wasn't a core charge to prompt you to bring the old battery in for safe disposal? Those days are gone and when we look back now we think about how insane it seems just to dump old tires in a vacant lot or to dump used motor oil in a field. It's kind of like when I think back to riding my bike with all my Voltron (Voltron still rocks by the way) t-shirted buddies 4 feet behind the "Bug Man". Oh how we just loved to soak up all that lovely DDT! Please tell me we weren't the only fools in the nation that thought this was cool? I'd call all my friends and ask them, but most have since died of a mysterious lung disease....joking of course.

Anyhow, I point this out to illustrate what's happening with syringes in the trash. There will come a day, sooner in some parts of the nation than others, where we will be mandated to dispose of syringes and other home used medical waste ONLY in approved containers. What's more, we won't be able to put said containers in the trash with the rest of our municipal waste. The sharps will have to be disposed of by certified incinerators ... a.k.a SCOM. If you think about it, it's amazing we're not already doing this nationwide.

California has ALREADY passed such legislation, Senate Bill 1305 goes into full effect on September 1, 2008. Let's take a look at what the Bill mandates. Keep in mind when reading this that California is consistently ahead of the rest of the nation on public health/environmental issues such as sharps disposal....

~~~PASTE~~~
SB 1305 states that on or after September 1, 2008, no person shall knowingly place home-generated sharps waste in any container used for the collection of solid waste, recyclable materials, or greenwaste; or into any container used for the commercial collection of solid waste or recyclable materials from business establishments. The law further states that home-generated sharps waste shall be transported only in sharps containers and be managed by:
1. A household hazardous waste facility
2. A “home-generated sharps consolidation point”
3. A medical waste generator’s facility, or
4. A facility through the use of a medical waste mail-back container approved by the department

The law has defined home-generated sharps waste as hypodermic needles, pen needles, intravenous needles, lancets, and other devices that are used to penetrate the skin for the delivery of medications derived from a household, including a multifamily residence or household. Home-generated sharps are defined as such to differentiate them from those same sharps produced by a medical waste generator such as a hospital. This is an important differentiation, as a medical waste generator must be permitted, track disposal of their waste, and follow other regulations required by the Medical Waste Management Act. This is not required for home-generated sharps. After all, the goal here is to remove the sharps from the solid waste stream, not regulate self-injectors the same as healthcare providers.


~~~END PASTE~~~

Furthermore, the languarge of SB 1305 states that “a safe, convenient and cost effective infrastructure for the collection of millions of home generated sharps will require a cooperative effort by not only government entities, but large employers as well. Private sector stakeholders are encouraged to both implement mailback programs and promote their use.”

It goes on to mandate that pharmaceutical companies MUST provide their in home injectable customers with an approved method of sharps disposal.




~~~SCOM UPDATE #4~~~

Yet another timely story about a sanitation worker getting an accidental needlestick as a syringe winds up in a trash bag at the curb....

~~~PASTE~~~

Port Jervis vows trash crackdown after sanitation worker is stuck with hypodermic needle

By Ashley KellyMay 18, 2007

Times Herald-Record Port Jervis — The city is planning a code crackdown after a sanitation worker picked up a plastic bag of garbage from the sidewalk last month and was stuck by a hypodermic needle.Public Works Commissioner Vincent Lopez said yesterday that it's the first time a worker has been stuck. But, he said, it's not uncommon for them to come across syringes during their daily rounds.The worker refused medical treatment and is back at work, Lopez said.Under the city code, residents must place plastic bags of garbage in cans and not leave them loose on the sidewalk."This has been a part of the code as long as I can remember, but people have gotten really lax," Lopez said.Mayor Gary Lopriore said the city also plans to enact a law, discussed last year but never passed, that outlines the proper way to dispose of syringes and other sharp objects."There are many folks who are diabetic and others who use the syringe for various medical needs," he said. "Too often some just throw them in plastic garbage bags."Lopriore said the law would require sharp objects to be placed in proper containers before being thrown out."The time has come when we need to enforce our sanitation codes," he said.Code Enforcement Officer Wayne Kidney said leaving garbage bags out often results in littered sidewalks."People are getting away from putting trash bags in a container, which is causing more of a litter problem, especially in the summer when animals tear the bags apart," he said.The city will begin enforcing the garbage bag code on June 1.

~~~END PASTE~~~


I've said it before, and I'll go on record and say it again, I don't know if I've ever seen a company with so many external, secular issues in their favor at one time as SCOM has going for it right now. They've managed to stay somewhat under the radar, but I don't know how much longer that can last.



Related Industries: Environmental - Government - Health - Legislative - Long Term - New Pick - News Event - Overlooked Potential - Pharmaceutical - Retail -


Initial Stock Price: $2.38

hilarious...

Former CEO of Valhalla-based Optionable served time on tax, fraud charges
By ALLAN DRURY
THE JOURNAL NEWS

(Original publication: May 16, 2007)

Kevin P. Cassidy served as chief executive officer of Valhalla-based derivatives trading company Optionable Inc. for more than four years even though he had been in federal prison for tax evasion and credit card fraud, records show.

Cassidy, 47, resigned Saturday, following a 91 percent drop in the value of the company's shares and an announcement that Optionable's biggest customer, Bank of Montreal, had suspended trading through Optionable's brokerage services pending a review. Suspension of Bank of Montreal's business was significant because the bank accounted for 30 percent of Optionable's business in the first quarter.

Bloomberg News reported on Cassidy's record yesterday after the New York Mercantile Exchange, the biggest investor in Optionable, pulled its representative from Optionable's board. An exchange spokesperson did not return phone calls yesterday.

Court records show Cassidy was sentenced to six months for income tax evasion in November 1993 by a judge in White Plains. Four years later, he was sentenced by a judge in Florida to serve 30 months for credit card fraud.

Cassidy was chief executive of Optionable from March 2001 through March 2004 and then worked until September 2005 as a consultant to the company, according to company filings. He became chief executive again in October 2005.

The prisons bureau and court records also raise questions about statements Optionable has made about Cassidy in public documents.

The company says in brief biographies of Cassidy in several filings with the U.S. Securities and Exchange Commission that he was managing director at Capital Energy Services LLC, an affiliated company, since December 1996. Capital Energy is described as an energy options brokerage firm on the New York Mercantile Exchange, and used to be called Orion Energy Services LLC.

But records from the U.S. Bureau of Prisons show he started serving a sentence in October 1997 and was not released for good until March 1999, getting credit for time he spent in custody, included time in a halfway house, during his court proceedings.

The Optionable filings also say Edward O'Connor, now the company president, was a managing director at Capital Energy since 1996. Attempts to reach O'Connor yesterday at the company's offices were not successful.

Nobody was home at the Briarcliff Manor address phone records list for Cassidy.

Because the cases are old, the complete court files were not immediately available yesterday.

But the records that are available and newspaper accounts provide some detail.

The Sun-Sentinel, a newspaper in Fort Lauderdale, Fla., reported in March 2003 that Cassidy was arrested at his business, Hollywood International Travel Club in Palm Beach, and charged with federal credit card fraud. Investigators said the business operated since 1992 and may have bilked customers out of hundreds of thousands of dollars, the newspaper reported.

Investigators said the business bought ads in magazines and newspapers offering discount travel programs to customers who were charged up to $998 in membership fees, the newspaper reported. Customers interested in becoming members got 30 days to look at a videotape before they paid. But the newspaper quoted an investigator as saying some customers were billed within a couple of days of contacting the company and others were billed up to three times as much as they should have been.

The court records that are available show Cassidy pleaded not guilty to several charges, including credit card fraud and money laundering just after his arrest but then agreed in November 1996 to plead guilty to a single count of credit card-related fraud.

The St. Petersburg, Fla., Times reported in May 1993 that Cassidy and his father, John Cassidy, pleaded guilty to tax charges that they used money collected by A-1 International Importing Enterprises Ltd., a company in which they were partners, to pay personal expenses.

It does not appear the company broke any federal securities laws by installing Cassidy as chief executive. John Nester, a spokesman for the SEC, said a felony conviction does not by itself disqualify a person from serving as an officer of a company with public shares.

A public company is required to notify the SEC if an executive has a criminal past that would be of a "material interest" to investors, he said. But the only crimes the law specifies as having a material impact are security violations, he said.

If a party - such as the SEC or an investor - finds an executive with a public company has a history of convictions that was never disclosed, that party can bring a lawsuit claiming that investors had a right to know the information, he said. It would then be up to a judge to decide, he said.

The company did not mention Cassidy's imprisonment in the annual reports it filed the last two years.

Optionable provides natural and energy derivatives trading and brokerage services. The company, which first sold shares to the public in 2005, has about 200 customers - including hedge funds, banks and other investors - who want to limit their investment risk by using Optionable to buy or sell derivatives. Derivatives are futures or options that protect investors against surprise price movements.

One expert on the legal issues facing public companies said most of them would not employ a person with a felony record because it means the company has to face the question of whether to disclose the individual's past. And disclosing it can steer investors away from the stock, Ross Albert, a former senior special counsel to the SEC and now a lawyer in private practice in Atlanta.

"I think it's fair to say felony convictions can render an officer or director almost unemployable," Albert said.
- Show quoted text -

Thanks!

wow - unbelievable post dosequis...

OPBL is headed to the pinks and will see single digits soon enough...

I think it's time to stop looking for a silver lining...


Don't say OPBL longs weren't warned...I posted this in January...

~~~PASTE~~~

I do it everyday (not quite to this extent of course) at my site, www.insightertrading.com.

OPBL was our 13th double since July of 2006.

Skeptical? I understand...

Scroll down to the first post on this OPBL board and look who it's from.

Then go to the I-Hub TIXC board, look at my post there at $2.15. TIXC subsequently ran to $5.90.

Then do a google search on the phrase "insightertrading and HOKU". What I did with that one made the national media.

Congrats to all OPBL longs!


PS - It's time to close the OPBL trade BTW...I wouldn't hold anything other than 'free' shares now. Play with the house's money - not your own. This was a nice opportunity at $1.82 or so, but now it's has vastly more downside risk than upside. OPBL's current valuation isn't even in the same universe of brokers/options firms.


Has anyone noticed that OPBL's OPEX platform was built by two contract programmer's for a shoestring budget of $800,000? I've been in touch with folks at some of the busiest energy derivative desks in NYC and none of them have even heard of OPEX until now.

NYMEX purchased their minority stake directly from insiders at less than half of where the stock is trading now. Remember, management has already guided that their 40% margins will be coming down soon.

CEO has an aggregious comp. package where he gets options at $.60 and then even more stock granted to the tune of 2% of revenue every quarter.

By the way, did you see that he just got 400,000 more shares at $.20/share?

~~PASTE~~
Issued pursuant to a Warrant Agreement, dated as of July 1, 2004, pursuant to which the Issuer agreed to issue Warrants to Pierpont based upon the trading volume of certain customers of the Issuer as set forth in the terms of the Warrant Agreement.

I've spoken with their CFO and he had ZERO clue what the value of their NOL asset was. It could be gone any quarter for all we know.

Why are the operations of a Coffee Shop wrapped up in OPBL's filings?

Why are there many of the same names that were in the scam blow-up that is XNL (Xethanol) in OPBL?

Who is their auditor? Oh, that's right, there isn't one. A financial firm with ties to a seat on the NYMEX and they don't have an auditor? Can you say, red flag?

Here's a link to some other insider's with shady pasts...

http://www.thestreet.com/_tscana/stocks/brokerages/10266218.html


The most ardent longs will hate me for this post, and I sincerely hope I'm wrong. That being said, just file this post away and check back on it in a few weeks, and remember that you had a head's up.

OPBL - It just got much worse....

Buried in tonight's 8k...

~~~PASTE~~~
On May 9, 2007, The New York Mercantile Exchange, Inc., a subsidiary of the NYMEX Holdings, Inc., announced that it will offer options trading for crude oil, natural gas, gold, and silver on the CME Globex electronic trading platform beginning in June 2007. We believe that some of the contracts trading on the CME Globex platform may compete with contracts trading on the Company's OPEX platform. The Company is unable to quantify the impact of this potential competition on its business, including its future results of operations and financial condition.

OPBL - It just got much worse....

Buried in tonight's 8k...

~~~PASTE~~~
On May 9, 2007, The New York Mercantile Exchange, Inc., a subsidiary of the NYMEX Holdings, Inc., announced that it will offer options trading for crude oil, natural gas, gold, and silver on the CME Globex electronic trading platform beginning in June 2007. We believe that some of the contracts trading on the CME Globex platform may compete with contracts trading on the Company's OPEX platform. The Company is unable to quantify the impact of this potential competition on its business, including its future results of operations and financial condition.

Until the SEC and CEDAR are done with OPBL...there is NO point at which it's a bargain...and remember where you heard it first...again.

Re: OPBL - sometimes I hate being this right... this has SEC investigation written all over it...

BMO suspends ties with energy trader Optionable
Tue May 8, 2007 8:23 PM ET

VANCOUVER, British Columbia, May 8 (Reuters) - Bank of Montreal <BMO.TO> suspended its relationship with brokerage firm Optionable Inc <OPBL.OB> on Tuesday, and confirmed two of the bank's commodities traders are on leave pending an external review.

Canada's fourth largest bank said it has also changed the operating structure of BMO Capital Markets "to provide additional oversight of the commodities business," which would now report "within a business line most experienced in the trading and valuation of derivatives."

The announcement came just over a week after BMO issued a surprise warning that its second-quarter results would be stung by a pretax trading loss of between C$350 million and C$450 million caused by changing conditions in the energy markets.

Bank of Montreal is one Optionable's largest customers and the New York firm had been linked in published reports in Canada to the losses. The bank's statement did not elaborate on the nature of the review.

The bank's statement confirmed press reports that two BMO traders had been placed on leave while the bank investigated the losses. The short statement did not say how long it expected the review to take.

No one was immediately available at Optionable's offices in Valhalla, New York, for comment on the BMO announcement.

When BMO announced the loss it said changing energy market conditions had hurt its positions in natural gas, and analysts said the news raised questions about the bank's risk management strategy.

BMO suspends ties with energy trader Optionable
Tue May 8, 2007 8:23 PM ET

VANCOUVER, British Columbia, May 8 (Reuters) - Bank of Montreal <BMO.TO> suspended its relationship with brokerage firm Optionable Inc <OPBL.OB> on Tuesday, and confirmed two of the bank's commodities traders are on leave pending an external review.

Canada's fourth largest bank said it has also changed the operating structure of BMO Capital Markets "to provide additional oversight of the commodities business," which would now report "within a business line most experienced in the trading and valuation of derivatives."

The announcement came just over a week after BMO issued a surprise warning that its second-quarter results would be stung by a pretax trading loss of between C$350 million and C$450 million caused by changing conditions in the energy markets.

Bank of Montreal is one Optionable's largest customers and the New York firm had been linked in published reports in Canada to the losses. The bank's statement did not elaborate on the nature of the review.

The bank's statement confirmed press reports that two BMO traders had been placed on leave while the bank investigated the losses. The short statement did not say how long it expected the review to take.

No one was immediately available at Optionable's offices in Valhalla, New York, for comment on the BMO announcement.

When BMO announced the loss it said changing energy market conditions had hurt its positions in natural gas, and analysts said the news raised questions about the bank's risk management strategy.

And to think I was ridiculed and accused of being a short on OPBL for shedding light on the skeletons in their closet.

The weakness today is undoubtedly from reports that SRE is going to have to curtail their commodities derivitive trading as their risk profile has gone parabolic and Moody's is considering a downgrade.

Remember, I kept telling OPBL longs to watch the connection between OPBL and Jeffrey Bussan as he is the bulk of their trading volume...guess where Mr. Bussan works...

yep.... SRE.