3Q06 Portfolio Updates: Hold Off on Rent-Way, Both ABBI and BBBY are Buys

The following are stock activity updates for our portfolio for 3Q 2006:

12-14-05. HemoSense, Inc. (HEM) $3.80 / 50.33%
SOLD SHORT. Despite a 86% rise in 3Q:06 revenue as compared to last year, this maker of handheld blood coagulation monitoring systems (for use by patients and healthcare professionals in the management of warfarin medication) reported a net loss for 3Q:06 of $3.1 million, up from a net loss of $2.9 million for the FY 2005 third quarter. CLOSEOUT POSITION.

01-03-06. Rent-Way (RWY)
Rent-Way is one of the nation’s largest rental-purchase operators of branded merchandise. “We would not rush out to buy these shares. SEC filings indicate that Rent-Way has pledged basically all of its assets as collateral on existing debt. So much for 'hidden' value. This is one stock that we would definitely not rent-to-own!” On August 8, 2006, the Common Stock rose more than 25% after Rent-A-Center Inc. (RCII) agreed to acquire it for $10.65 a share, for a total of $567 million. Obviously its competitor saw value in making this deal.

02-25-06. PhytoMedical Tech. (PYTO.OB) / $0.36 / 66.04%
SOLD SHORT. The Company is working to isolate potentially active pharmacological elements in plant-derived compounds. PhytoMedical has had limited revenues since inception. In the last 2 -½ years, management reported zero revenues. CLOSEOUT POSITION.

03-10-06. AutoNation, Inc. (AN) / $19.49 / 10.68%
As expected, same store new vehicle unit volume declined as compared to the prior year period. The decrease was consistent with industry trends. Discontinued.

04-10-06. Sonic Automotive (SAH) / $21.18 / 21.15%
SOLD SHORT. Blaming lease cancellations and higher expenses, Sonic Automotive Inc., one of the nation's largest car dealership groups, recently reported that 2Q:06 profit fell by more than half. Earnings dropped to $12.2 million, or 29 cents per share, from $27 million, or 62 cents per share during the same period a year ago. CLOSEOUT POSITION.

05-08-06. Lifetime Brands (LCUT) / $20.11 / 30.89%
SOLD SHORT. In late June, the share price of this maker of kitchen goods and cookware broke to the downside after guiding 2Q:06 share-net lower (blaming stock option expenses and acquisition costs). CLOSEOUT POSITION.

05-30-06. Bed Bath & Beyond (BBBY) / $34.25 / (2.75)%
BUY. Disposable income and company-specific margin erosion concerns have us rethinking our recent talking points on this home-accessories retailer: “In our opinion, now may be a good time to start accumulating shares in Bed Bath & Beyond. The stock price has already discounted any potential retail slowdown, while the forward P/E of 14 times 2007 consensus estimates of $2.49 is near the stock’s historic trough. Any sales or EPS guidance nudged upward by management will serve as the necessary catalyst to expand the P/E multiple and push the stock to a target value of $45.00 per share.” We prefer to move to the sidelines and sell into this rallying market. CLOSEOUT POSITION.

06-08-06. Raser Tech. (RZ) / $4.47 / 69.07%
SOLD SHORT. Geothermal power generator company, Amp Resources, LLC., terminated its acquisition agreement with Raser, closing the door on nearly $1 billion in energy sales over a 20-year period from four (existing) projects. CLOSEOUT POSITION.

07-17-06. Abraxis BioScience (ABBI) / $25.46 / 18.69%
BUY. The stock price of this maker of ABRAXANE, a novel tumor-targeting chemo drug, rose on higher-than expected 2Q:06 share-net of 17 cents (as compared to the consensus estimate of 14 cents a share, excluding any exceptional items). Albeit we still embrace the long-term potential of ABRAXANE, we believe that booking profits (for now) is the prudent action. Although it does not trouble investors, it does concern us that management has revised guidance for ABRAXANE and now anticipates sales in 2006 to be in the range of $170 to $190 million versus the previously announced guidance of $200 (+) million. CLOSEOUT POSITION.