Knobias ClipReport (6-25-2007)

Submitted from Knobias ClipReport.

Friday’s action saw the market fall amid worries of rising global interest rates, hedge fund worries regarding their subprime exposure, and rising crude oil prices. The volatility was a bit disconcerting considering the volume.

Much of the worries over the credit market were due to the collapse of Bear Stearns hedge funds that heavily invested in subprime mortgages.

But the main focus of the day was put on the Blackstone Group (BX) IPO. The private equity firm’s offering raised some $4.1B making it one of the richest in US history.

The IPO was noted as being over subscribed by 10 times the amount offered. With so many institutions wanting the shares, one would think the offering would gain throughout the day. Though the shares did have a large spike during the morning hours, shares fell off throughout the rest of the day.

Another name has recently seen an increase in institutional buying. Industrial Enterprises of America (IEAM) is a holding company with four wholly owned subsidiaries, EMC Packaging, Inc, Unifide Industries, Todays Way Manufacturing, LLC, and Spinwell Holding Company, LLC.

EMC’s business consists of converting hydrofluorocarbon gases (“HFC”) R134a and R152a into branded private label refrigerant and propellant products. Unifide is a leading marketer and seller of automotive chemicals and additives, and Todays Way manufactures and packages the products sold by Unifide.

Spinwell, through its wholly owned subsidiary Pitt Penn Oil Co., LLC, is a leading manufacturer, marketer and seller of automotive chemicals and additives.

Shares of the Company were recently accumulated by Pike Capital which had amassed over 24% of the total shares. The large stake could be a sign of some interesting quarters ahead. As are the buys by CEO, John Mazzuto, which have totaled over 600 thousand shares in the last 9 months.

One reason for the buys could be the recent earnings reports that have showed some improving conditions. Revenue for the third quarter was $17.6 million as compared with $9.0 million for the same period in fiscal 2006, a 95% increase. The increase in revenue over last year was partially due to the inclusion of the Pitt Penn Group, acquired January, 2006, and more importantly due to increased production capabilities.

The GAAP bottom line numbers were somewhat misleading though. Earnings were for a loss of 47c per share versus a loss of $1.60 per share the year before. The numbers included an accounting change from their recent acquisition of Pitt Penn. The inventory accounting method was corrected from average cost accounting to FIFO (First In, First Out).

Absent the accounting correction, results for the third quarter would have been a gross profit of $4.8 million, representing a gross margin of 27.3%, and EBITDA (earnings before interest, taxes, depreciation and amortization) of $3.7 million, or $0.29 per share, calculated using the treasury method, or 13 million shares as of March 31, 2007.

When taking the non GAAP numbers into consideration, the name could be grossly undervalued which would explain the investments from Pike and others. Add to the fact that the company increased unit through-put by approximately 30% through improved operating efficiencies and additional manufacturing shifts even though orders continued to outpace shipments, and the name becomes one to track over the coming quarters. Investors would be wise to watch.