My sympathies to our East Coast subscribers, who are now “enjoying” the heat that ripped through California a week or two ago. And I thought it was hot at the Money Show in Washington, D.C. last week! Of course, the heat is helping to skyrocket natural gas prices and contribute to another big drama right now — the Fed’s response to an economy that is clearly slowing, but inflation that is clearly accelerating.

Janet Yellen, the president of the San Francisco Federal Reserve Bank, gave a speech this week in which she said (please note my translation in parentheses):

• Economic developments have made obsolete the Federal Reserve’s two-year-old strategy of a hiking interest rates at every meeting by a quarter of a percentage point. (“We’re going to pause.”)
• The economy would grow at a slower pace in coming quarters, which should ease inflationary pressure. (“We’re going to pause.”)
• However, there has been no sign of this yet in the economic data. (“We’re not going to pause.”)
• We are at a delicate point for policy, when we are close to the end of the road. (Close, not at? “We’re not going to pause.”)
• There is a slowdown reining in the economy. (“We’re going to pause.”)
• But inflation is too high. (“We’re not going to pause.”)
• But the Fed can’t just continue to hike rates until there are signs that inflation is slowing. "If we kept automatically raising rates until we saw inflation start to respond, we most likely would have gone too far." (“We’re going to pause.”)

Yellen, a voting member of the Federal Open Market Committee this year and considered one of the most influential committee members, said she was not signaling what the Fed would do on August 8. Now that’s the truth!

William Poole, the president of the St. Louis Fed, cut to the chase in his speech and put the chances of an August 8 rate hike at 50-50. That is to say, as was obvious from the recently-released minutes of the last meeting on June 28 and 29, the Fed has no idea what is going on or what to do, so they may as well flip a coin.

Inflation Accelerates — What, Me Worry?

While this drama plays out, the behind-the-scenes action is a little more interesting. The bond market is rallying on days the Fed indicates it might pause, which means the bond vigilantes are not worried about a pause accelerating inflation. That is not what I expected, and I am watching this day-to-day to see if the bond folks really are going to let the Fed get away with pausing while inflation is accelerating. And there is no doubt that it is accelerating:

• The producer price index rose 0.5% in June from May, up from +0.2% in May from April.
• The PPI ex food and energy rose 1.9% year-over-year in June, up from 1.5% in May.
• The consumer price index ex food and energy rose 0.3% in June for the third straight month
• The CPI ex food and energy rose 2.6% year-over-year, up from +2.4% in May.
• The core Personal Consumption Expenditures index, supposedly the Fed’s favorite measure of inflation and the one that usually gives the lowest number, rose 2.9% in the June quarter, up from +2.0% in the March quarter.
• The core PCE was up 2.4% in June on a year-over-year basis, after being up 2.1% in May.

Normally, Treasuries would yield about three percentage points more than the rate of inflation. Just taking the CPI for the last 12 months, up 4.3%, and subtracting it from the 10-year note at 5.0% gives a “real” inflation-adjusted yield of 0.7% — the lowest it has been in 25 years. Using the core PCE of 2.4% gives an inflation-adjusted yield of 2.6% — not as striking, but still well below the long-term average.

Tomorrow, we get the July labor data, the last big numbers before the Fed meeting. The consensus is for 145,000 new jobs, and it probably would take a gain over of 200,000 new jobs to force the Fed to raise rates again. But they may do it anyway, and say that they are looking for at least a slower rate of increase in inflation before pausing. Or they may pause, and then we will see if the bond vigilantes care. If not, the bond folks may know something Wall Street equity strategists don’t: It is too late to avoid a recession, as the housing market continues to collapse. One well-known vigilante, Bill Gross of PIMCO, seems to think that is the case and recently said that the bond market has bottomed.

Earnings Season Winding Up

We have a lot of earnings reports to go through again this week, and I’m sure you have noticed that most of our stocks fall into one of two categories: good numbers and good guidance, or we are waiting for something. In the latter category, I would put the following companies:

Symbol	Stock	Waiting For
BCRX	BioCryst	Clinical news; avian flu to spread to the U.S.
CRXL	Crucell	Avian flu to spread to the U.S.
GILD	Gilead	Truvada sales news; avian flu to spread to the U.S.
BIIB	Biogen Idec	Tysabri sales news
DNDN	Dendreon	Complete FDA filing for Provenge
ERES	eResearch	Turn record orders into accelerating revenues
QLTI	QLT	Dutch auction; Visudyne combination therapy news
VPHM	ViroPharma	FDA to reopen generic Vancocin issue
HNP	Huaneng Power	China slowdown; utility rate increases
UTSI	UTStarcom	Profitability
TKO	Telkonet	EDS contract announcement; financing announcement
ZHNE	Zhone	DSL revenue increase to exceed legacy revenue decline
PLUG	Plug Power	Order acceleration
PKTR	Packeteer	September-quarter earnings
ALVR	Alvarion	End to Israel/Lebanon conflict; accelerating WiMAX shipments
AIRN	Airspan	Accelerating WiMAX  shipments
TRBM	Terabeam	Accelerating WiMAX deployments
MOBL	MobilePro	Call from company about convertible dilution
PLAY	PortalPlayer	Next Apple video iPod intro; Microsoft Zune intro

We make money in these stocks by buying them when others are uncertain about whether the good news will ever come. And then when we’re right, we hold the stocks as they become more and more popular and eventually go to extremes. In addition to financial analysis and valuation work, I am always tracking the specific events that should trigger good returns for your portfolio. Delays, such as at eResearch (ERES) (see below), create buying opportunities. But complete flip-flops in the outlook generate sell recommendations. Right now, after all the earnings reports so far, only MobilePro (MOBL) had the potential to go on the sell list, and I had a reassuring conversation with them today. Dips in these stocks, now or in an October market meltdown, are opportunities to lower your average cost and set up big paydays in 2007 and 2008. We should see a very strong market for 12 to 24 months coming out of mid-October, and you can be planning now what you want to own for that.

Short Sale

It is time to short Google (GOOG). They reported an excellent quarter on July 20, earning $2.23 a share, up from $2.01 in the March quarter. However, they barely beat the consensus for $2.22. Wall Street raised their consensus for the September period from $2.30 to $2.43, and there’s the rub. Recently, Google did a complete reset of their Adwords program that has their users in an uproar. Winning bids suddenly went from the 25-cent to 35-cent area to $5, $10 or $15. No one knows exactly why it happened, but there is a teleseminar virtually every day by someone trying to explain it. I spend a lot of time in the Internet marketing community, and I can practically guarantee this will hurt the September quarter, as people are simply canceling their ad budgets until they can understand what is going on.

In addition, the price of advertising is very sensitive to the early stages of an economic slowdown, and then the volume of advertising is very sensitive to the later stages as well. GOOG took quite a hit Tuesday and Wednesday, breaking very strong support at $379. Today’s $8.16 rally back gives us a low-risk entry point for this short sale. Short GOOG over $350 for a target of $200 in mid-October. Yes, that is a shockingly low target, but Google was the poster child for momentum investors in the whole upswing that ended in May. Use a $385 stop-loss to reduce your risk. If you’d rather do this by buying a put (which you also can do in most 401-K accounts), look at the December $370 contract (GGDXN) or the December $380 contract (GOPXP). If my $200 forecast is accurate, you will make about 500% on your investment. Obviously, don’t do this with money you can’t afford to lose, and if GOOG gets to the $385 stop price, sell the puts and take your 50% loss.

Avian Flu MegaShift

A bird flu outbreak in Laos caused neighboring Thailand to threaten to jail farmers who don’t cooperate in identifying and culling poultry that gets ill. For many of the farmers, the alternative is to have no protein to eat, so this could turn into quite a confrontation.

Right now, we are in the summer lull for bird flu outbreaks, as the fall migrations haven’t started yet and the regular flu season is still some months away. But governments around the world are still planning and budgeting to stockpile vaccines and antivirals, and all of our recommendations in this area now are on the Top Buy list. BioCryst (BCRX) will report earnings on August 9 (I had estimated August 2) and remains a Top Buy under $19 for my $30 target. Crucell (CRXL) should report on August 29 and is also a Top Buy under $28 for a $50 target. Gilead (GILD) already reported, and I am making the January 2007 $60 LEAP (GDQAL) a Top Buy up to $9 for my $20 target.

Biotech MegaShift

Amid the signs that the FDA will finally approve Barr Pharmaceuticals Plan B emergency contraceptive pill for over-the-counter sales in the next few weeks, Dr. Andrew von Eschenbach finally received a confirmation hearing to be the new FDA Commissioner. Senators Patty Murray (D-WA) and Hillary Clinton (D-NY) won’t allow an actual vote until Plan B is approved, but then things should move pretty quickly. The Barr approval will limit sales to those 18 and older, which was the compromise negotiated by Dr. von Eschenbach. Of course, everyone knows this is a face-saving “victory” for those who have been blocking any approval, while it won’t affect usage by girls under 18 one bit. Eschenbach did a good job on this one, and I have high hopes that he will really shake up the FDA over the next couple of years and maybe even be reappointed by the next President, regardless of political party.

In his confirmation hearing, he said: “The FDA of the 21st Century must be prepared to respond to the new opportunities and challenges of science and technology. Through initiatives like Critical Path and Personalized Medicine, we are working to improve the tools we use to more effectively evaluate new products and processes. For example, through the use of biomarkers, we will be able to predict, earlier and more accurately, both the safety, as well as efficacy, of drugs, biologics and devices. This is the pathway that will take us into the era of personalized medicine, where healthcare is tailored to each individual patient, and where the safety of medical products is enhanced by our improved understanding of how they interact with different patients, different drugs and under different conditions.”

We could not have asked for a better nominee. I think he will seize technology as a way to overhaul the FDA, accelerate drug approvals and increase safety testing.

Increased safety testing leads us directly to eResearch (ERES), which preannounced another quarter of very strong orders, yet disappointing revenues, and reported final numbers after the close today. They saw a near-record $35.1 million in orders in the June quarter, above their mid-quarter guidance of $31 million to $34 million. But revenues of $22.8 million were 10% below the low end of their previous guidance for $25 million to $27 million, and they reported a disappointing pro forma of five cents a share, compared to the six cents expected. Obviously, the shortfall relates simply to their customers delaying the starting date of clinical trials.

The strong orders show that customers are complying with the new FDA regulations and ERES is getting a large share of the business. Revenues were up from the March quarter by $1.4 million, and up 29% from last year’s depressed June quarter. They conservatively forecast second half revenues of $47 million to $52 million, compared to expectations for $57 million.

The stock is around $8 in aftermarket trading, which matches the marginal new 52-week low on Tuesday. As I expected, the new management gave conservative guidance for the rest of the year, which will create an excellent buying opportunity tomorrow. ERES is a Top Buy up to $16 for a $30 target.

Geron (GERN) reported June-quarter results on Monday. As usual, the financials don’t mean much — $800,000 in revenues and the third 14-cent quarterly loss in a row. What’s more important is that they used only about $6.5 million in cash for operations and have $180 million in cash on the balance sheet with no debt.

During the call, management said that their stem cell patent portfolio now includes over 260 filings owned or licensed to Geron, and their telomerase patent portfolio has over 90 issued U.S. patents plus over 130 granted in other countries. They are expecting to present some Phase I data for a couple of telomerase programs around the end of this year. GERN remains a good long-term buy under $9 for my $18 target.

ViroPharma (VPHM) beat the June-quarter consensus, reporting $43.8 million in Vancocin sales and 25 cents a share, compared to expectations for $42.5 million and 23 cents per share. Vancocin sales were a record, with prescriptions up 11% sequentially, and far above the $29.2 million booked in the March quarter as wholesalers reduced inventories.

For the full year, they reiterated their revenue guidance of $160 million to $170 million, compared to the $162.9 million consensus, which would be up 27% to 35% over 2005. Operating income will grow 10% to 20% over 2005 numbers.

The bearish argument on VPHM is straightforward: The FDA comment period closes September 26 on ViroPharma’s petition against the approval of a generic version of Vancocin without a clinical demonstration of bioequivalence. They should get a reply from the FDA within six months, or by the end of March 2007. Meanwhile, Strides and possibly Sandoz and Akorn will file for a generic version in the current September quarter, and it could be on the market as early as the end of 2007, unless the FDA grants ViroPharma’s petition. The market is pricing in about a 33% chance that the petition is granted, and the bears think that is too high. So the bears are looking for $177 million in Vancocin sales in 2007 and then sales to fall to $72 million in 2008.

In contrast, I think the FDA will take longer to come back with an answer, with the odds about 50-50 on approval. If the agency does not approve it, ViroPharma will sue and ask for an injunction until the issue is settled. That will tie up the process even longer. Generic Vancocin will be on the market by the end of 2008, perhaps six months sooner than I expected when we bought VPHM. Revenues in 2008 will be in the $190 million area, falling to $85 million in 2009. By then, management will have in-licensed or acquired other drugs to put through their system, and Maribavir will be through its Phase III trials, which start this September. They finished the quarter with $176 million in cash, up $19 million from the March period, and no debt, so they have plenty of resources to expand their pipeline. Their immediate goal is to pick up one or two more products by the end of this year.

ViroPharma is a unique biotech company, because they have a pipeline of both emerging and late-stage products that address large, unmet medical needs, while at the same time they are profitable and produce significant cash flow to fund their product development and growth. In the current quarter, they will start their first Phase III trial for Maribavir in stem cell transplantations, followed by another Phase III in solid organ transplants in the fourth quarter. The Phase II results were terrific, and I expect the Phase III trials will be successful. VPHM will also present HCV-796 Phase Ib combination data this quarter for hepatitis C. VPHM remains a buy under $13 for my $28 target.

Content on Demand MegaShift

Telkonet (TKO) still has not announced either the big government contract with EDS or the strategic financing, in spite of them telling me both would be done by the end of July. But they are coming. The stock moved up after they announced the sale of an iWire system to a major utility that will use it to monitor its energy data. They also recently announced that the Trump Organization added several properties to the high-speed wireless network in New York.

At the FCC monthly meeting this morning, the Commissioners said that they are looking for a push on broadband-over-powerline to provide a viable “third pipe” for rural and underserved areas. As I expected, they shot down requests by the amateur radio community to exclude or prohibit BPL offerings at certain frequencies, saying they didn’t have enough evidence of interference to warrant the extra limitations. Four of the five FCC commissioners said that they had a chance to see BPL equipment in action during a recent field trip to Texas, and encouraging this technology is obviously important to them. That’s good news for TKO, which remains a Top Buy up to $5 for my $15 target.

New Economy MegaShift

Click Commerce (CKCM) reported a slight revenue shortfall, yet beat the earnings consensus on a lower tax rate. The company did $19.7 million in sales, up 48% from last year, and 36 cents a share, compared to expectations for $20.9 million in sales and 34 cents per share. They showed a 14% sequential decline in product license revenue and flat subscription revenue, which led to flat maintenance and hosting revenue. But consulting and implementation revenues grew 7% sequentially, and this area leads their product growth. Right now, they are doing a lot of RFID consulting and systems design, and as those projects are implemented, product license and subscription revenue will accelerate.

Yesterday, they announced a contract teamed with Oracle to update the Air Force’s global logistics system. This is a big deal that will generate substantial revenue for many years, starting in the current quarter. The company has many other large government contracts in the bid process right now, and signed several large commercial contracts in a variety of industries in the June quarter that will start impacting the revenue line by the end of this year.

CKCM was hit for a couple of dollars a share as analysts brought estimates down for the second half of the year, but little has really changed. Estimates for 2006 came down about five cents a share, from $1.40 to $1.35. For 2007, the reduction was also in the five-cent range, from $1.55 to $1.50. So the stock is selling for less than 10X next year’s earnings, and the company can grow 20% or better for at least the next five years. I am making CKCM a Top Buy up to $21, with an unchanged target of $40.

New Energy Technology MegaShift

Gasco Energy (GSX) will benefit from the sharp move in natural gas prices over the last four weeks. Gas went from $5.53 per million BTU to a six-month high over $8 last Monday, and closed today at $7.31. The heat wave that drifted across the country was responsible — not a hurricane or winter freeze that used to move gas prices. Gas is the third-largest source of fuel for U.S. electricity generators, behind coal and nuclear energy. Power demand peaks in the summer as people turn up air conditioners, sparking higher demand for electricity from gas-fired power plants. With Tropical Storm Chris bearing down on the Gulf of Mexico, this price move could be the start of something big. The futures market is saying gas will be over $10 in January, and we could see that by the end of August as hurricane season gets underway in earnest. Buy GSX while it is under $4.50 for a $9 target.

Holly Corp. (HOC) reported a great June-quarter yesterday, with revenues of $1,120.8 million, up 42% from the March period. Fully diluted earnings from continuing operations, excluding the sale of their Montana refinery to Connacher Oil & Gas (T.CLL), hit $1.51 compared to 79 cents last year and 52 cents in the first quarter. The Street consensus was about $1.30 on $1,154 million in sales, so Holly showed substantially better profitability than expected.

Holly produced these numbers in spite of substantial downtime to complete the expansion of their two refineries and install equipment that makes 100% of their production ultra-low-sulfur diesel. They can now produce diesel from asphalt and are in an excellent position to continue to process sour crude, which is what Saudi Arabia has in their much-touted reserves.

The company continued its $200 million share buyback, soaking up $27 million of stock in the June quarter. The Street estimate of $1.10 for the September quarter is far too low — anything from $1.35 to $1.70 is more likely. They will earn well over $4 a share this year, and maybe even $5. Wall Street is seriously underestimating the advantages that Holly has in being able to process sour crude. Even though the stock hit my original target price, I am raising the target price to $60 and the buy limit to $46.

Plug Power (PLUG) reported a disappointing quarter, sold off 18%, and it is now recovering. I was looking for a loss of 13 cents a share on about $3 million in sales, and they lost 15 cents on $2.8 million. I would call this a minor shortfall, but it clobbered the stock because Thomas Weisel Partners cut their rating from outperform to peerperform, and they have been one of the supporters of the stock.

Plug completed the $217 million Smart Hydrogen investment, and intends to do technical work with their Russian partners, as well as open that market. If you are running a cell phone company in Siberia, back-up batteries are unlikely to survive the winter, so you need a more reliable alternative that keeps the system functioning. The company now has $290 million in cash against only $3 million in long-term debt, and they are burning about $11 million a quarter. They now have 126 million shares outstanding.

On the conference call, they did not back down a bit on their sales projections for the year, in spite of the first half’s softness. They have over 150 systems on active duty today located in at least 23 countries. They can leverage that by deploying more at current customers and getting new customers who need uninterruptible power to compete, such as cell phone base stations. The U.S. has four major wireless carriers that have 85% of the market, and PLUG has GenCore systems deployed on the networks of three of them. They also have initial systems at AT&T and Verizon.

The company shipped 41 systems in the second quarter, compared to 27 systems during the second quarter of 2005, and 17 shipments during the March quarter. They received orders for 31 systems in the June quarter and now have 219 systems in the backlog. Orders will have to be very strong in the current quarter if they are going to make their projections, and on the conference call they made it clear that they are on track.

This should be the breakout quarter for PLUG. If we start to see a string of contract announcements, I will make the stock a Top Buy before the September-quarter earnings report. For now, you can continue to buy PLUG up to $7.50 for my $15 target.

Royal Dutch Shell (RDS.A) reported a good quarter and hit my end-of-year $70 target already. I am raising the target price slightly to $75 and think you should continue to hang onto Royal Dutch and not sell during hurricane season.

For the June quarter, Royal Dutch did $83.1 billion in sales and earned $1.13 a share, up nicely from the March quarter’s $76.0 billion and $1.06a share. The consensus was looking for 95 cents a share. Record crude prices overcame production losses in Nigeria and a planned two-month shutdown of their Canadian tar sands project.

In addition to their oil shale projects in the U.S., which is why I recommended the stock, the company plans to invest up to $18 billion in a gas-to-liquids plant in Qatar that will be the largest of its kind. The plant will produce three billion barrels of oil over its lifetime, so the capital cost is only $6 a barrel. Adding operating costs would probably double that, so they will be producing $12 a barrel of equivalent products. Not bad.

The company now thinks unconventional fuels will grow from 5% of their output to 15% by 2014. Royal Dutch produces oil and natural gas mostly in 10 countries, including Britain, Canada and the U.S. They have net proved reserves of 1.3 billion barrels of oil equivalent, not counting Qatar or the Rocky Mountains oil shale. They operate seven refineries with an aggregate capacity of 974,000 barrels of crude oil a day and have 4,000 U.S. retail gasoline outlets. It’s more than doubled earnings in the last year, yet sells for just under 10X this year’s estimate. So, I’m raising the buy limit to $66 and the target price to $75.

Security MegaShift

@Road (ARDI) missed the consensus for earnings, and then said that they had discovered an interest accounting error that will cause them to restate 2005 earnings and the March quarter of 2006. For the June quarter, they did $23.2 million in sales and lost two cents a share, compared to the consensus for $25.4 million in sales and a profit of two cents a share. They had reported $24.7 million for the March quarter and a penny loss, so instead of being sequentially up, they were sequentially down.

ARDI found the interest accounting error while preparing their tax returns. They were booking interest on government home loan securities, where they park their cash, as tax-exempt, but it is taxable. This is not likely to make a significant difference to the bottom line. They had $1 million in interest income in the March quarter, only part of which would have been affected by this, and their tax rate was only 19%. I expect we are looking at something in the range of a $200,000 quarterly adjustment, or less than half a cent a share for the March quarter and a penny for last year.

The weak revenues would be of more concern, but on the conference call management said that they are seeing a longer-than-expected subscriber activation time due to a shift in demand towards much larger customers with more complex solutions. That’s actually good news. Many of these major customers are not interested in the basic track and trace GPS solution. They want to integrate ARDI software applications with existing back office solutions like order entry, maintenance and repair, workflow and scheduling, fleet management, customer relationship management and billing. @Road’s technology becomes part of these customers’ seamless technology of how they fundamentally conduct business.

In addition, new orders were quite strong at 22,000 subscribers, one of the best quarters in the company’s history. The company now expects 70,000 new orders this year, an increase from their previous guidance for 63,000. Telstra, Australia’s leading telecommunications and information services company, ordered 7,000 in-vehicle devices for installation by the end of the year. @Road got this order via Accenture, the global management consulting company Telstra retained to find the best-in-class solution.

AT&T is expanding its deployment of @Road solutions to include their Project Lightspeed fleet of over 2,000 additional mobile workers — field technicians dedicated to Internet Protocol TV installations as AT&T expands its fiber optic network deeper into neighborhoods. @Road already serves about 35,000 of AT&T’s field service technicians.

Although guidance for total new subscriber bookings for this year increased, and installation will accelerate in the last two quarters of 2006, the company still reduced guidance to a conservative $100 million in sales this year, up from $92.9 million last year. This should be the lowest year for growth, with 20% or better annual growth in 2007 to 2009. They confirmed guidance for $129 million in sales for 2007, up 29%. Profit margins will be at the low end of a 47% to 55% range this year, but they are headed up from here.

Although this stock hasn’t done much, I really like the way their business is shaping up. They should return to pro forma profitability in the current quarter, making two or three cents a share. But the real story is revenue growth for the next three years, with increasing profit margins. I’m making ARDI a Top Buy at current levels, and keeping my buy limit at $5.50 and my target price at $8 this year and $10 to $12 in 2007.

Video iPod MegaShift

PortalPlayer (PLAY) reported $34.6 million in sales and a six-cent per share profit (eight cents pro forma), where Wall Street had been expecting $34.9 million and a one cent loss. The company also guided up for the September quarter, where they are looking for $32 million to $42 million in sales, compared to the Street consensus for $25.7 million. They expect to report breakeven to eight cents per share, thanks to cost cuts, while the consensus was for a six-cent loss. The stock immediately started moving up on heavier volume, from $9.74 just before the announcement to $12.05 at today’s close. That was in spite of the CEO announcing that he will leave by yearend to go run venture-backed private companies.

The company said that they expect to stay in the video iPod “through the end of the year,” and that they have won a wireless contract for an unnamed cellular system. On the conference call, they said: “We believe the feature-rich segment of the personal media player market has a lot of innovation ahead. By adding a variety of wireless technologies such as Bluetooth, Wi-Fi, HSDPA, and so forth to our platform, we can enable customers to develop feature-rich players that no longer need to sync by cable with a computer.” That describes Microsoft’s forthcoming Zune to a T, and I still think that they have an excellent chance at this business, especially since they are working closely with Microsoft on the small display that will be on the outside of new laptops running Windows Vista, and probably will be detachable for use as a VoIP handset.

The company is focused on providing highly integrated, cheaper chips for wireless personal multimedia devices, such as audio players, video media players, Preface-enabled personal media displays, cellular handsets and GPS systems. This is not just an iPod company anymore. PLAY remains an excellent buy any time it dips under $11 for my $20 target. I expect to see much higher targets in 2007 and 2008.

WiMAX MegaShift

MobilePro (MOBL) now has Wi-Fi interests in eight cities. Tempe, Arizona, is up and generating revenue. Chandler and Gilbert, Arizona, and Farmer’s Branch, Texas, are being deployed. Yuma, Arizona, is about to start deployment. Cayahoga Falls and Akron, Ohio, are in pilot testing to design and plan the deployment. They are negotiating a contract in Brookline, Massachusetts, where they have been selected as the provider.

I talked to Jay Wright, the CEO of MobilePro, about the renegotiated convertible bond. He is a Georgetown grad with a law degree from the University of Chicago, who worked as a mergers and acquisitions attorney for Skadden Arps and Foley & Lardner, and then became an investment banker at Merrill Lynch. MOBL did the renegotiation to improve cash flow, as the May and August principal payments were postponed. Wright confirmed my calculation that the overall duration of the bond was shorter, which will put more pressure on them in 2007, but said he intends to pay it in cash, not stock. Because it is only at 7.75% interest, he could raise more money, create a sinking fund in a CD at 5% or 5.5%, and pay it off over time instead of calling it in a refinance.

Naturally, he could not comment on the SEC investigation of Cornell Capital, which loaned MobilePro the money. I still believe that this has the potential to be toxic, but after talking to him, I think he has the experience and skill to deal with it in a way that does not hurt the shareholders. With all the new Wi-Fi systems coming online, and the toxic convertible issue on the back burner for now, I am putting MOBL back on the buy list with the buy limit reduced a nickel to 25 cents and the target reduced a dime to 60 cents. However, plan to hold this for another couple of years for much higher prices.

Alvarion (ALVR) did $50.5 million in sales in the June quarter and broke even on a pro forma basis, where the Street had been looking for $49.8 million and a four-cent per share loss. The company guided for $50 million to $54 million in sales this quarter, about in line with the consensus estimate for $53.5 million. They said that they will report pro forma results between a loss of one cent a share and a profit of two cents, again about in line with the consensus for a one-cent loss.

The stock moved up because WiMAX was 33% of revenues in the quarter, and they were just recently certified. They have 70 commercial deployments already. It looks like the upturn finally is here, and ALVR remains a Top Buy all the way up to $9 for an $18 target. The shooting in Israel is a big negative for the stock right now, but it will pass.

 Print This Post