As we anticipated, the third quarter was a volatile one, underpinned by an acceleration of bad news in the housing sector, growing evidence of recessionary pressures, rising oil prices and concerns about its impact on headline inflation and a dissipating sense of certainty about the general corporate earnings outlook in the final quarter. Amidst this backdrop the DJIA hit an all-time high, sold off by more than 11% and then rallied back on the Fed’s rate cut to close within 1.5% of the all-time high again.

We have been encouraged by the progress and performance of several of our portfolio clients in the midst of prevailing economic and market conditions. In this climate, our focus is on remaining committed to maintaining a consistent and proactive messaging strategy to the Street.  This entails providing you with clearly defined metrics and milestones by which to measure our clients' performance which we hope will provide perspective in the midst of broader economic and market uncertainties.

Hayden Portfolio Spotlight

In our last quarterly newsletter, we attempted to outline certain macro characteristics and trends in the economy that bode well for certain of our client companies. This time around, we want to focus on a few companies themselves that we think are worth particular attention here in the fourth quarter.

Amongst portfolio clients that we want to spotlight are BSquare (Nasdaq:BSQR) and Veri-Tek (AMEX:VCC):

• We are encouraged by Veri-Tek’s progress and improving cash flow. Led by an exceptional management team coming from Terex and Manitowoc (leaders in the industrial equipment space), we expect that Veri-Tek will be profitable this year. Management’s guidance for 2007 is $95-100M in revenue with 8%-8.5% EBITDA margin. Longer term, management believes that with steady organic growth, improved sourcing and manufacturing efficiencies, as well as accretive acquisitions the Company can substantially grow from both a top line and bottom line perspective.

• BSquare recently announced its third consecutive profitable quarter and we think the company’s improving business fundamentals are encouraging. The company’s stock has shown significantly more volatility than the Nasdaq over the past quarter, but closed the trading session on September 28^th just $0.02 higher than it closed on the first day of trading the quarter. We are bullish on BSquare’s opportunity for growth, driven by increased shipments of smart phones running advanced operating systems. By 2012, smart phones are estimated to account for more than 22% of all handsets worldwide, up from 10% today.

Our Take on SPACs (Special Purpose Acquisition Corporations)

Over the past quarters, we have seen an increasing number of SPAC deals coming to market and as a corporate communications firm we have had an opportunity based on direct experience and observation to formulate an opinion on the SPAC market.

While SPACs are, on paper, a compelling way to bring companies public in a timely and cost-effective fashion, we frequently see these deals struggle in the after-market due to poor planning. On the positive side, companies that get vended into SPACs benefit from instant access to capital which is sitting in the SPAC’s escrow account.  And while there is often a “pre-baked” secondary financing built into the SPAC’s structure, what often gets overlooked is the fact that these deals are more like reverse-mergers in nature than traditional IPOs, and the after-market should be treated as such.

Traditional IPO’s come with a syndicate and an army of brokers to market the IPO-company’s stock to their books of investors. In the case of an IPO, the syndicate bid is a veritable line in the sand drawn by bankers based on a pretty sophisticated assessment of the supply and demand in the market place for the IPO. The IPO date is then a highly publicized one that is designed to bring the IPO out of the gate with some velocity in terms of liquidity and demand.

On the other hand, SPACs are typically backed by a VC firm, institutional investors and a handful of accredited investors that are ill-equipped to market their SPAC to the Street. In the case of a SPAC, there is no syndicate bid. There is no syndicate. The stock which the SPAC company vends into is already public and typically trades by appointment leading up to the completion of the SPAC transaction. Often, there is selling pressure right out of the gate from investors that funded the escrow account for the initial public SPAC standing by with registration rights. But there is no syndicate of brokers in this case to market the stock to their book of investors.

So it can be a challenging process to establish an after-market for SPAC deals. Firms such as Hayden can be helpful in terms of establishing an institutional audience and getting the SPAC on the radar screen of analysts. We can also be helpful in setting up road shows to create a retail audience.

We have a few suggestions:

•       Be armed with press and other means of pro-actively reaching out to existing and prospective investors. As we noted above, SPACs are actually closer from a functional perspective to reverse-mergers than they are to traditional IPOs. And in the reverse-merger sector, “no news is bad news.” Outside of the institutional and analyst space, the attention that is going to generate a shareholder base and audience is predominantly press and media driven.

•       Have a media relations strategy.

•       Consider a budget for creating broader corporate awareness. For traditional IPO’s, this budget is factored into fees and expenses of going public. Find a good public awareness solution or firm that can work with you to accelerate the spread of your story to a broader database of investors and shareholders.

•       Hire a good Investor Relations firm with a strong database of institutional and analyst relationships that can help build and hold the “tops and bottoms” to your after market.

Our Sympathies Go Out To Comanche

We have spoken in previous newsletters about a private client of ours, Comanche Clean Energy Corporation. Comanche is a Brazilian producer of sugarcane-based ethanol. On September 29, the company announced that a worker was killed, ten others were injured and a minority percentage of the company’s ethanol reserve was lost in an explosion caused by a lightning storm. We want to take this opportunity to formally send our regards, prayers and sympathies to Comanche, the family of the worker who lost his life as well as those other workers injured in the explosion. We look forward to bringing you more upbeat news about Comanche in future newsletters and correspondence.

The Hayden Team 

Document Security Systems, Inc.

(AMEX: DMC)

Document Security Systems, Inc. is a recognized leader in the anti-counterfeiting and brand protection industries, protecting personal identification, vital documents, and critical information from unauthorized or illegal scanning, copying, and digital imaging. As the provider of state-of-the-art security technologies, Document Security Systems is focused on opportunities to provide customized document protection solutions for organizations, companies, and governments around the world. The Company’s technology suite can be delivered on paper, plastic or via the Internet, providing the most secure forms of protection against document theft, counterfeiting, and fraud. This comprehensive suite includes covert and overt technologies that are cost-effective and customizable, involving patented methods of printing in such a way that even high-quality scanners and photocopiers are unable to accurately reproduce the original document. These technologies layer effectively with other tools like RFID and biometrics to provide the foundation layer of security with simple methods of validation and authentication.

Counterfeiting and brand fraud has become a world-wide epidemic, going far beyond currency to include all sorts of printed materials including pharmaceutical packaging, consumer products, financial documents, vital records management, supply chain systems, and government identification cards. Concerns like homeland security, tighter restrictions on immigration and identity theft are putting an increased emphasis on protecting original documents and validating the pedigree of government identification instruments.

Stock Data

(as of August 31, 2007)

FY End: Dec. 31

Stock Price: $13.24
Shares Out: 13.7M

Float: 5.4M
Mkt. Cap: $181.4M
Shareholder’s Equity: $10.5M

Investment Highlights

• The International Chamber of Commerce estimates that 8-10% of the global GNP is counterfeit goods. Accordingly, the Company’s solutions target large and rapidly expanding markets:

• The Department of Treasury estimates that ~$500 billion is spent in the U.S. annually on security

• The U.S. Chamber of Commerce projects that the pharmaceutical industry loses an estimated $32 billion globally

• Initial printing sales carry gross profit margins in the 30-40% range with royalty revenue generating 90% plus gross profit margins

• Document Security Systems has forged Premier Partnerships with a variety of organizations targeting significant market verticals

• The Company’s AuthentiGuard® On-Demand™ product enables Internet delivery of state-of-the-art document protection solutions to the desktop

• In a recent Wall Street Journal article, Hewlett Packard estimates the On-Demand™ market to be $900M annually in India alone

• DSS brings a superior On-Demand solution with a simple online system and without the purchase of additional hardware or equipment.

• Break even revenue run rate stabilized at $3.25 million per quarter

• Recent patent wins in the German Federal Patent Court, allowing for the pursuit of infringement actions against the ECB and security printers in Germany

• Management believes approximately 28% of Euro banknotes are either printed or used in Germany, enabling DSS to seek injunctions and damages in excess of $63 million
   

Conmed Healthcare Management

(Nasdaq: CMHM)

Conmed has provided correctional healthcare services since 1984 and currently services county detention centers and facilities in 22 counties in five states, throughout Maryland, Kansas, Virginia, Washington, and Oregon. Conmed’s full service offering has expanded from staffing and acute care to include mental health, pharmacy and out-of-facility healthcare, and the Company’s plan is to continue to grow in selected geographical markets by providing high quality, cost-effective and fully-compliant healthcare services. The company went public through reverse merger on January 26, 2007. One of the primary catalysts for Conmed’s growth is the constitutional obligation that counties provide healthcare to inmates held within its detention facilities. Overall healthcare spending in the U.S. is approximately $10.31 per inmate per day on an annualized basis, which represents an addressable market opportunity of about $2.7 billion annually. To date, no Conmed-contracted facility has ever failed to pass a state- or national-level audit, which is a significant differentiating feature of Conmed’s business proposition. Conmed today is serving each county with which it has contracted in its 23-year history and continues to win business based on its outstanding track record of meeting or exceeding the standard of care as required by its customers. This is a 100% recurring revenue business model.

Conmed’s services-based business model positions the company well for growth. There is no “bricks and mortar” component, and thus annual capital expenditures are minimal. The contracts which it enters into are multi-year in nature, and contain renewal option terms and certain escalation clauses, and Conmed has no exposure to Medicare or commercial insurance reimbursements. The company has grown its net revenue from $11.7 million in 2005 to $16.8 million in 2006, and reported $11.6 million for the first six months of 2007.

Stock Data

(as of September 25, 2007)

Fiscal Year End December 31
Current Price (as of 9/25/07) $3.25
Price Range Since 1/26/07 $2.01-$5.00
Shares Out: 11.9M
Market Capitalization $38.8M
Shareholders Equity $15.6M
Long-term Debt $0
Cash $6.6M
 

Investment Highlights

• Net revenue for the three months ended June 30, 2007 increased $2.4 million, or 68.2% to $6.0 million from $3.6 million in last year’s comparable period.

• Gross profit for the second quarter of 2007 was $1.1 million, representing an 18.8% gross margin, compared to $591,000 and 16.6% respectively in last year’s same period.

• Announced long-term agreement potentially generating $46 million in revenue over the next eight years with Baltimore County detention center, representing the largest contract in Conmed’s history.

• Announced the signing of two new service contracts with the county of Henrico, Virginia and the County of Jackson, Oregon, potentially generating approximately $18.8 million in total revenue over the next five years.

• Successfully negotiated renewals and expansion of services under contracts covering 11 country detention centers, now representing combined annual revenue of approximately $9.5 million, an increase of $0.9 million from last year’s second quarter.

• $119 million in potential future service contract revenues with 20 county governments signed as of June 30, 2007 and a weighted average term of 5.6 years. Included in this total are renewal extension periods which are at each county’s option amounting to $88 million.
   

Latest Contract Announcement Highlights

• September 28, 2007—Announced $10 million, multi-year agreement with Wicomico County, Maryland.

• September 17, 2007—Announced contract extension with Sedgwick County, Kansas, that increased potential value of contract by 25.2%, to $16.6 million through December 31, 2011.

• September 4, 2007—Announced $4.9 million five-year agreement with Kitsap County, Washington.

• July 31, 2007—Announced $14.7 million, six-year agreement with Harford County, Maryland.

Client Updates

Alpha Pro Tech is a leader in protecting people and environments. APT develops, manufactures and markets innovative disposable protective apparel products for the industrial, clean room, medical, dental and food service markets and its Alpha Pro Tech Engineered Products division manufactures and develops a line of construction weatherization products including house wrap, roof underlayment and mold resistant framing sealant. APT products are utilized by some of the largest names in pharmaceutical and semiconductor sectors. Its Engineered Products division sells proprietary and technologically superior products to the construction industry.

Update: Revenue Growth Validates New Distribution Strategy

Alpha Pro Tech’s second quarter ended June 30, 2007 saw a 7.4% decrease in net sales to $9.1 million from $9.9 million in the comparable 2006 quarter. The decrease was due to decreased sales of engineered products and infection control products. Sales for the Disposable Protective Apparel segment for the quarter increased 5.8% to $5.8 million compared to $5.5 million for the same period of 2006 with most of the increase coming from sales unrelated to the Company's largest distributor, validating the new distribution strategy. Engineered Products segment sales for the quarter decreased by 30.8% to $1.5 million compared to $2.2 million for the same period of 2006. The decrease is directly related to the change in the Company's distribution strategy, in which the Company decided to move forward on a non-exclusive basis with its distributor. The Company has announced a new private label distributor, ABC Supply Co. and its division, Amcraft Building Products, and is aggressively building a direct sales force as well as a network of independent manufacturers' representatives to target the construction market nationwide. Net income for the quarter was $507,000, or $0.02 per basic and diluted share compared to net income of $1.1 million, or $0.05 per basic and diluted share for the second quarter of 2006. Excluding the severance agreement for the Company's former Senior VP of Manufacturing, net income, based on non-GAAP measures, for the quarter would have been $685,000 or $0.03 per share.

American Software develops, markets and supports a comprehensive portfolio of integrated business applications to global corporations. These include enterprise-wide supply chain management, Internet commerce, financial, warehouse management and manufacturing packages for both brick-and-mortar and e-business firms. American Software also owns 86% of Logility, Inc. (NASDAQ:LGTY), a leading supplier of collaborative value chain planning solutions via the Internet. The Company derives 50% of its revenue base from ERP (with an installed customer base of 200 customers), and 50% from Logility Supply Chain Planning (with an installed customer base of 1,100 customers).

Update: 26th Consecutive Profitable Quarter

American Software’s first quarter of fiscal year 2008 marked the 26th consecutive profitable quarter for the Company. Total revenues were $21.7 million, an increase of 8% over the first quarter of fiscal 2007. GAAP net earnings were approximately $2.0 million or $0.07 per fully diluted share compared to $1.2 million or $0.05 per fully diluted share for the same period last year. The Company also announced that its Board of Directors has approved a 12.5% increase to the Company’s quarterly dividend from $0.08 per share to $0.09 per share.

Arabian American Development Co. is a leading provider of specialty petrochemicals. The Company’s specialty chemical subsidiary, South Hampton Resources, owns and operates a 97 acre petrochemical facility in southeast Texas. The Company’s products are sold exclusively as intermediate components to manufacturers competing in various markets such as expandable polystyrene (Styrofoam), polyethylene, adhesives, building foams, synthetic rubber and food processing. Arabian American Development Co. is the vendor of choice for the industry with approximately 60% of the North American market share for C5 solvents (expanding agents). The Company is also a leader in the production of C6 solvents, which are typically used in adhesives, rubbers, and flow enhancers. The Company holds ownership and rights for the Al Masane mine in Saudi Arabia that when put into production are expected to produce significant quantities of copper, zinc, gold, and silver; it also owns approximately 55% of the capital stock of a Nevada mining company, Pioche-Ely Valley Mines, Inc.

Update: Petrochemical Plant Expansion On-Track for Q1 2008 Opening

Arabian American Development Co.’s second quarter saw revenue of $27.1 million, up 14.7% compared to Q1 2007 revenue of $23.7 million. The Company reported net income of $2.2 million, or $0.09 per share compared to net income of $2.6 million, or $0.12 per share for the second quarter last year. Management also stated that preparation continues in Saudi Arabia to monetize the Company’s mining assets, and that management anticipates government approval for joint stock company in the near term. Expansion of the petrochemical facilities, which will double capacity, remains on-track for a first quarter 2008 completion.

AXS-One is a leading provider of high performance Records Compliance Management (RMC) software solutions. For almost 15 years, AXS-One’s proven archiving and electronic records management software has been used by major organizations worldwide, including leading Financial Services companies, to address their requirements for regulatory compliance, corporate governance and legal discovery while reducing their costs and delivering measurable ROI. The AXS-One Compliance Platform™ enables organizations to significantly reduce the risk and cost of managing growing volumes of disparate electronic records, including e-mail and instant messages, reports, file systems, SAP output, desktop documents, images and other digital records. By providing a single, scalable archiving platform, all records are managed according to corporate records policies from initial capture and indexing through archiving, retention, search and ultimate destruction. AXS-One’s robust legal case management tools let users respond quickly and accurately to the growing pressures of regulatory audits, e-discovery and litigation support.

Update: Company Adds new VP, German Channel Partner

AXS-One reported a $0.7 million decrease in revenue for the second quarter, to $2.5 million from $3.2 million in the second quarter last year. The Company strengthened its balance sheet during the quarter with a $5 million convertible note financing with BlueLine Partners and William K. Jurika. Subsequent to the end of the quarter, the Company named Phil Rugani, previously Vice President of IBM's Americas Enterprise Content Management Division, as AXO’s Executive VP, Field Operations. Mr. Rugani brings years of experience in executive sales positions at prominent software companies and a wealth of industry know-how and expertise to his new role. The Company also announced a partnership with best Systeme GmbH, German company specializing in Compliance Archiving Solutions. best Systeme will act as an AXS-One's authorized sales partner targeting the small to mid-sized companies.

BSQUARE is a solutions provider to the global embedded device industry, including smart phones, PDAs and other electronics. BSQUARE’s teams collaborate with smart device makers at any stage in their device development with the goal of delivering quality, lowering project risk and accelerating time to market,. BSQUARE’s solution portfolio includes software and hardware development, systems integration services, reference designs, board support packages, middleware, and applications. As a full service provider, device makers can also license BSQUARE’s best-in-class software products and operating systems. Since 1994, BSQUARE has completed hundreds of successful projects and has become a trusted partner to smart device makers worldwide. BSQUARE’s diversified, blue chip customer base includes Advanced Micro Devices, Fujitsu, Hewlett Packard, Microsoft, Mitsubishi Electric, Motorola, NEC, Siemens and Texas Instruments.

Third consecutive profitable quarter; Microsoft news

The Company’s second quarter ended June 30 was BSQUARE’s third consecutive profitable quarter. Total revenue for the quarter was $15.1 million, up 20% from $12.6 million in the prior year. Total revenue for the first half of 2007 was $30.2 million, up 25% from $24.2 million in 2006, driven by strength in all major revenue components. The Company reported net income for the quarter of $542,000, or $0.05 per diluted share, which compared to a net loss of $88,000, or $0.01 per diluted share, in the prior year. For the first half of 2007, BSQUARE reported net income of $1.2 million, or $0.12 per diluted share, compared to a net loss of $937,000, or $0.10 per diluted share, in 2006.

Subsequent to the end of the quarter, BSQUARE continued to expand its relationship with Microsoft, earning a designation as a Gold Certified Partner and renewing a software distribution agreement.

With more than 15,000 customers, CAM Commerce designs, develops, markets and services highly integrated retailing and payment processing solutions for small to medium size traditional and eCommerce businesses based on the company’s open architecture software and branded point of sale offering, X-Charge. These integrated solutions include inventory management, point of sale, accounting, credit and debit card processing, Internet sales, gift card, customer loyalty programs, and extensive management reporting including its proprietary, lead product, X-Charge. The X-Charge payment processing services are provided on a transaction-based business model. X-Charge provides merchants with a fast and secure payment-processing platform that can be used by any Windows-compatible personal computer. Merchants can use X-Charge as a stand-alone credit card terminal or integrate it with existing POS (Point of Sale) applications. X-Charge software eliminates the need for two transactions when processing a credit card thereby speeding up the POS transaction, and integrates Gift Cards for even the smallest retailer.

Update: 55% X-Charge Growth Leads to Record Pre-Tax Profit Margin and 85% Growth in Net Income

CAM Commerce’s third fiscal quarter saw an 85% increase in net income on a 26% increase in revenue driven by a $1.5 million, or 55%, increase in the Company’s X-Charge payment processing revenues to $4.3 million for the quarter, from $2.8 million in the 3rd quarter of fiscal 2006. Pre-tax profit margin on total revenues increased to a record 24% for the quarter ended June 30, 2007, compared to 17% for the same quarter in fiscal 2006. During the third quarter of fiscal 2007, the number of new X-Charge payment processing accounts installed increased 55% to 1,601, as compared to 1,036 new accounts installed during the same quarter of fiscal 2006. As of June 30, 2007, the company had more than 11,000 payment processing accounts representing approximately $3.3 billion in annual payment processing volume. Based on the results, the Board of Directors declared a quarterly cash dividend of $0.24 per outstanding share.

Capital Senior Living is one of the nation's largest operators of residential communities for senior adults. The Company's operating philosophy emphasizes a continuum of care, which integrates independent living with assisted living and home care services, to provide residents the opportunity to age in place. The Company operates 64 senior living communities in 23 states with an aggregate capacity of approximately 9,500 residents, including 37 senior living communities which the Company owns or in which the Company has an ownership interest and 24 leased communities as well as three communities it manages for third parties. The U.S. Bureau of Census estimates the number of Americans over 65 will surpass 78 million by 2030. The elderly population of 75+ years and 85+ years in the U.S. is 16.6 million and 4.4 million respectively. Both groups are expected to double by 2030, driving strong ongoing demand for CSU’s services.

Update: 24% Revenue Growth and a New Joint Venture

Capital Senior Living’s second quarter resulted in revenue of $46.9 million, up $9.2 million or 24% from the second quarter of 2006. Adjusted EBITDAR (income from operations plus depreciation and amortization and facility lease expense) was $13.4 million, up 40% from the prior-year period. Second quarter 2007 net income was $0.8 million versus a loss of $2.5 million in the second quarter of the prior year. Adjusted cash earnings (net income plus depreciation and amortization) were $3.9 million, or $0.15 per diluted share, in the second quarter of 2007 versus $2.7 million, or $0.10 per diluted share, in the second quarter of 2006. During the quarter, the Company also announced the formation of a joint venture with Prudential Real Estate Investors (PREI®) to develop a senior housing community in Miamisburg, Ohio.

ClearPoint Business Resources is a performance-based, customized workforce management solutions provider. It provides customers with comprehensive workforce management solutions, including vendor management systems, outsourcing programs, staff augmentation, and placement and recruiting services. ClearPoint’s target customers include businesses operating in the transportation and logistics, engineering and technical, allied health and scientific and commercial industries. It offers a value proposition to customers that use contingent labor by engineering solutions based on specific deliverables to help increase productivity and efficiency and create cost savings. ClearPoint’s strategy involves introducing its workforce management services solution to customers that need to fill employee vacancies with temporary workers. This represents an addressable $80 billion market opportunity. The Company offers a comprehensive array of intelligent, customer-focused business-service solutions to enterprise customers such as Penske, Phillip Morris and clients as small as 50 employees.

Update: New Business Strategy To Enable Return to Profitability

ClearPoint unveiled a new franchising strategy designed to help the Company stabilize system-wide revenue and earnings to avoid industry-wide seasonality and increase profitability. The new strategy involves the transformation of the staffing business from heavily ‘bricks and mortar’ to a franchisee model, including several initial franchises run by former employees and officers. The new model includes a recurring 4-8% license fee and offloads much of the costs associated with maintaining a nation-wide temporary staffing model, enabling ClearPoint to return to sustainable profitability in the near term. The franchises will continue to generate entry-level business leads, and the redesigned Company will focus on creating new “managed spend” clients, creating more “high-touch” relationships that result in higher system wide revenues, with more than 80% recurring, and increased operating leverage. ClearPoint’s system-wide revenues for the second quarter ended June 30, 2007 was $54.4 million, up 71% compared to the $31.8 million for the second quarter of last year. The net loss for the quarter was $6.2 million compared to $759,000 for the second quarter last year.

eResearchTechnology, Inc. (“eRT”) is a leading provider of technology and services to the pharmaceutical, biotechnology and medical device industries. eRT provides centralized electrocardiographic (ECG) collection and interpretation services which provides core cardiac safety monitoring for its major pharmaceutical customers. The Company’s Blue Chip customer base includes 28 of the top 50 pharma companies in the world. The Company also provides automated clinical trial software and services that enable the pharmaceutical, biotechnology and medical device industries to collect, interpret and distribute cardiac safety and clinical data more efficiently. The digital ECG diagnostics market currently has a pipeline of over $4 billion. Globally, the pharmaceutical and biotechnology industries spend an estimated $70 billion on research and development for new products, which is expected to grow 10%-11% annually. Approximately three million patients enter clinical trials every year, producing about 150 million case report pages and manifesting over six million adverse event reports per year.

 Update: 17.3% Sequential Revenue Increase and New Line of Business

The Company reported revenues of $24.7 million for the second quarter of 2007, a sequential increase of 17.3% from $21.1 million in Q1 2007 and an 8.4% increase from $22.8 million in Q2 2006. eRT reported net income of $4.1 million, a sequential increase of 84.1% from Q1 2007 and a 146.8% increase from $1.7 million in Q2 2006. This resulted in net income per diluted share of $0.08 in Q2 2007 vs. $0.04 in Q1 2007 and $0.03 in Q2 2006. The Company also launched a new line of business focused on electronic patient reported outcomes (ePRO). The Company has entered into a long-term strategic relationship with Healthcare Technology Systems, Inc. (HTS), a leading authority in computer-administered clinical rating instruments.

Iteris is a leading provider of traffic vision systems and vehicle sensors that enhance driver safety and optimize the flow of traffic. Iteris’ solutions provide innovative solutions for the Intelligent Transportation Systems (“ITS”) market. The Company’s vision-based sensors are an important new safety solution to the automotive and commercial truck markets that make it a market leader in intersection control systems. Iteris’ AutoVue™ lane departure warning (LDW) system (a safety product which addresses the leading cause of passenger fatalities) is the first such product in the market. Iteris’ LDW system is commercially available on three Infiniti platforms (the M35 and M45 and the FX45) and is certified on 19 of 21 heavy truck original equipment manufacturers. To date, 39 U.S. heavy truck fleets have selected the Iteris LDW system representing an estimated 19,000 vehicles. Testing of LDW systems continues with an additional 65 heavy truck fleets estimated to represent more than 134,000 vehicles. Iteris’ sales of LDW units to the heavy truck market increased 35.6% for the fiscal year 2006 including a 475% increase in the North American aftermarket. In the traffic infrastructure segment, the Company’s Vantage™ products are the leaders in the emerging market for vision-based traffic intersection control systems, providing a more reliable, flexible and easy-to-use solution than the traditional vehicle detection technology: in-pavement “inductive loops.” According to a report by Global Industry Analysts, the total worldwide market for ITS was approximately $6.6 billion in 2003 and is projected to grow at a CAGR of 15.8% through 2010.

Update: Revenue Growth Validates New Distribution Strategy

For the first quarter ended June 30, 2007, Iteris reported net sales and contract revenues of $15.8 million, up 14.0% compared to $13.8 million for Q1 fiscal year 2007. The Company achieved a 360 basis point improvement in gross margins to 45.0% in the current quarter vs. 41.4% in the prior-year period. The Company reported net income of $1.1 million, or $0.03 per share compared to net income of $279,000 or $.01 per share in the same quarter of the prior fiscal year.

The Company solidified its market lead in the heavy truck market, announcing that Melton Truck Lines, Inc., a premier air-ride flatbed carrier with significant international cross-border transactions, will make Iteris' Lane Departure Warning (LDW) standard equipment on approximately 1000 new trucks over the next three years.

In the infrastructure segment, Alan Clelland, a 30-year industry veteran, was named Senior VP and GM of the Transportation Systems division effective Oct. 1, 2007 and the Company announced key wins: a $420,000 contract to supply its Vantage video detection systems to the City of Torreon in Central Mexico the Virginia Department of Transportation (VDOT), which selected Iteris to provide technical expertise in system operations, Intelligent Transportation Systems (ITS), traffic engineering and safety as part of two System Operations/ITS/On-Call Services contracts that begin this month. 

Jacada is a leading provider of business process optimization solutions at the desktop designed specifically for in-bound call center operators. Its Workspace and Fusion products enable call center customers to rapidly deploy a new interface that connects disparate systems on the call center agent’s desktop. The results include significantly reduced average agent call handle time and an increased ability for the agent to cross-sell additional products and services. Jacada has partnered with the leading call center outsourcers, infrastructure providers, and systems integrators to co-market and/or distribute its products. Jacada has more than 1,200 customers worldwide including many Fortune 1000 corporations and government organizations, including Vodafone, Capita, Lillian Vernon, Cox Communications, and Embratel.
 

Update: Three "Material" wins and a Partnership

During third quarter, Jacada announced three material contracts for its contact center software and solutions and a distribution partnership with Spectrum Systems, Inc., a leading provider of end-to-end enterprise IT solutions and services to the public and private sectors. Harrah's Operating Company, Inc. and two unnamed public utility providers selected Jacada to provide its unified call center desktop solutions, which reduce average call handle times per call center agent that enable significant cost savings and additional revenue opportunities for call center operators. (Links: first public utility and second public utility). The Company uses the term 'material' to indicate that a contract is valued in excess of $1 million in revenue. Spectrum selected Jacada as an IT solution provider within its General Services Administration/Federal Acquisition Schedule program.

For the Company’s second quarter, total revenues were $5.1 million compared to $4.8 million in the second quarter of 2006. GAAP net loss, for the quarter was ($681,000), or ($0.03) per share compared to a GAAP net loss of ($1.1 million), or ($0.06) per share in the second quarter last year. Management reiterated its guidance of 23% to 27% growth for the full year 2007, based on the visibility in its backlog and delivery schedule for the remainder of the year.
 

Manatron is the nation’s leading provider of property tax systems and services for state and local government. Manatron’s software and services enable state and local governments to maintain and update real and personal property values, create assessment and tax rolls, produce property tax bills, collect property tax payments, manage delinquent accounts, administer tax sales of property, provide Internet access to property information and conduct certain transactions such as the payment of property taxes over the Internet. Manatron’s software currently manages over 25 million parcels of property and bills and collects over $60 billion of property taxes annually. Manatron has invested over $15 million in a new suite of software called Government Revenue Management® (GRM®), a Microsoft.Net, web-based, fully integrated, enterprise-level property tax and assessment solution that can be utilized in any state or municipality. The GRM product suite provides the next generation of functionality and technology to local governments, the majority of which are using 20 plus year old systems. Manatron believes the market for new software, estimated at $1-2 billion, is ripening. The Company's revenues are primarily generated from software license fees, software maintenance fees, professional services and sales of hardware and supplies. In addition to its software business, Manatron offers customers professional services which consist of data conversions, installation, training, project management, hardware maintenance, forms processing and printing, consulting and appraisal services.

Update: 5th Consecutive Quarter Exceeding $10 Million; Two Key Acquisitions

Manatron's first quarter was the fifth consecutive quarter with revenues exceeding $10 million. First quarter net revenue was $10.4 million, a decrease of 3.5% from the $10.7 million in revenue reported for the first quarter of fiscal 2007. The decrease in revenue was primarily driven by a $1.3 million reduction in appraisal services revenue, which has been steadily declining. Excluding appraisal services revenue for both periods, first quarter revenue increased by 11.1% compared to the prior year first quarter. Net income was $397,500, or $0.08 per diluted share versus net income of $51,541 or $0.01 per diluted share for the three months ended July 31, 2006. Fully diluted shares increased to 5.1 million from 4.9 million in the prior year quarter.

Manatron also made two acquisitions which will accelerate Manatron's annualized revenues above $50 million. The Company announced that it has entered into an asset purchase agreement with Hart InterCivic, Inc. to acquire substantially all of the assets of Hart's Records Management Solutions Business and assume certain contractual liabilities for approximately $4.8 million in cash. The Records Management Business includes more than 50 municipalities in 13 states, including King County, Washington (Seattle); Mecklenburg County, North Carolina (Charlotte); and Wayne County, Michigan (Detroit). Manatron also acquired substantially all of the assets of Sigma Systems Technology, Inc. and assumed the obligations of its current software maintenance contracts effective August 1, 2007. The total purchase price was approximately $1.3 million in cash. Sigma has developed and marketed Computer Assisted Mass Appraisal (CAMA) software, as well as a number of data management tools for real and personal property valuation. It currently serves more than 25 government jurisdictions in the United States, Canada, the U.S. Virgin Islands, and South Africa.

Finally, Manatron had two communities announce "go live" dates. Virginia Beach, Virginia went live on Manatron's GRM solution, the 8th live installation nationwide, and Clay County, Missouri went live on Manatron's Ascend Tax Solution.

NTN Buzztime has been a leading provider of interactive television entertainment to the hospitality industry for more than 20 years. Branded as Buzztime Play-Along TV®, the Company delivers a “pop culture” entertainment experience catering to individuals who desire recreational competition, social interaction, and stress relief as a complement to their casual dining and other “away from the home” leisure time experiences. Buzztime Entertainment, the core business of NTN Buzztime, provides an innovative and enhanced customer experience to patrons at approximately 4,000 restaurants, sportsbars, and other hospitality locations throughout North America and the U.K. This interactive television gaming and entertainment network is also delivered directly into players’ lives through internet, cable TV, satellite TV, mobile phones, electronic games and books. Its Play Along TV® interactive game offerings include Texas Hold ‘em Poker, QB1 (Predict-the‐Play Football), Buzztime Trivia Channel, Billiards, and Crazy Golf. The current registered player community is estimated at 350,000 and viewership of the iTV network is estimated to be in the millions.

Update: Two Key Hires

During the quarter, NTN hired two key executives to help set the stage for future growth. Mariana Danilovic was named the Company's Executive VP of Business Development, bringing more than 15 years experience in digital media content development to her new role at Buzztime. Also, Jake Tauber was named the Company's Executive VP of Content and Programming. Tauber brings more than 25 years experience in television programming, production, marketing and management leadership to his new role at Buzztime.

NTN's second quarter saw Revenue for the Entertainment Division decrease 4% to $7.6 million compared to revenues of $7.9 million for the second quarter of 2006. The Entertainment Division's net loss was $0.4 million, an improvement compared to a net loss of $1.8 million for the second quarter of 2006. The narrowed loss was the result of the absence of a $652,000 impairment charge and a $435,000 one-time severance charge in the June 30, 2006 period, a reduction in stock based compensation expense and certain reductions in selling, general and administrative expenses in the second quarter of 2007.

NTN also unveiled a newly enhanced edition of its most popular game, Buzztime Texas Hold'em Poker.

Numerex Corp. is a wireless machine-to-machine (M2M) communications, technology and solutions business. M2M is defined as electronic (wireless) data communications between people, devices and systems that turns data into actionable information. Over the past three years, as M2M has emerged as a robust and growing industry and Numerex has established a market leading position with fixed and mobile solutions including Uplink™, MobileGuardian™ and VendView™. In addition, Numerex delivers “private label” products and solutions that are available for distribu