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Software-Maker Kintera Continues to Struggle With Profitability, Despite Being Named No. 1 on Deloitte’s Fast Growth Technology List

Kintera Inc., a software maker that helps nonprofit organizations manage fund-raising activities, had a lot to crow about last month. It was ranked first by Deloitte & Touche on a list of the county’s fastest 50 technology companies, based on revenue gains from 2001 to 2005.

But a closer look at Kintera’s financials won’t cause much joy among its shareholders.

This year, the firm’s shares, traded as KNTA on Nasdaq, have lost more than half their value, dropping from about $3 to the Sept. 26 price of $1.53.

Except for a brief gain after its initial public offering debut of $7 in December 2003, KNTA has consistently lost ground and is close to sinking below a buck , and its removal from Nasdaq.

While Kintera’s sales have soared more than 14,000 percent from 2001 to 2005 to surpass $40 million last year, it’s done that primarily through acquiring about a dozen smaller software companies.

Kintera has never made a profit since its inception in 2000, and as of June 30, the company had an accumulated deficit of $111 million, according to its most recent quarterly report.

Further, it’s been burning through cash reserves as it attempts to break into the black. As of June 30, it held $19.6 million in cash and equivalents, down from $41.5 million at the end of last year. At that pace, it could run out of cash by the end of this year.

For the first half of 2006, Kintera posted a net loss of $16.3 million on revenue of $23.5 million, compared with a net loss of $21.7 million on revenue of $19.7 million for the first half of 2005.

But investors may want to look a little closer. Those are unaudited results, and Kintera has a history of amending its financial results once its accountants review its numbers.

Last year, it restated earlier financial results that increased its net loss by $1.7 million.

As Kintera’s stock continues to lose ground, founder and Chief Executive Officer Harry Gruber has been buying up shares. Gruber declined to comment on the purchases, which total more than 221,000 shares in the past nine months. The purchase prices range from a low of $1.18 to a high in early September of $1.68.

Gruber’s stock purchases boosted his personal stake in Kintera to more than 4.1 million shares, or 11.3 percent of the total shares outstanding, largest of any shareholder.

Some Internet message boards speculate he’s trying to keep KNTA above the $1 minimum so that it can retain its Nasdaq listing.

To reach profitability, Kintera is taking a well-worn strategy, cutting staff. Its most recent head count is 388 employees, down from 487 at the end of 2005 and 568 employees as of June 2005. A spokeswoman declined to say where the cuts were made.

In his most recent public statement about Kintera’s financial condition, Gruber said it should reach positive cash flow from operations by the fourth quarter. This shouldn’t be confused with being profitable on a net basis, but would be a start.

Kintera’s ownership is mainly in the hands of insiders. According to the company’s proxy released in July, executives and directors held 62 percent of the stock. After Gruber, the next largest shareholder is his brother, Allen Gruber, the company’s chief product officer, who owns 10 percent. Two Illinois-based mutual funds each own more than 9 percent.

Kintera isn’t alone when it comes to turning a profit among the Deloitte & Touche; Fast 50 list. Among the top 10 companies on it, only two are clearly making money. They are Illumina Inc. and Dalrada Financial Corp. Two other companies are private and don’t reveal profits.

Ranking on the list doesn’t include earnings or stock price, and focuses exclusively on revenue gains.


Petco CFO Resigns:

Rodney Carter, chief financial officer for Petco Animal Supplies Inc., said Sept. 25 that he would resign effective Oct. 12 to become group senior vice president and CFO of Zales Corp. San Diego-based Petco said it would begin searching for a qualified replacement.

The pet store retailer is on track to be acquired by two private equity firms, Leonard Green & Partners LP and Texas Pacific Group, in a deal announced July 14.

The acquisition is the subject of a special shareholders meeting set for Oct. 23 at the Homewood Suites by Hilton in Del Mar.

The private equity firms have offered to purchase each share of Petco stock for $29 and assume about $120 million in outstanding debt for an aggregate price of more than $1.8 billion.

This is the second time the same equity firms are buying Petco and taking it private.

Traded on Nasdaq under PETC, shares closed Sept. 26 at $28.67, giving it a market cap of about $1.6 billion.


DivX Shares Keep Rising:

DivX Inc., a local firm that makes video compression software, saw its stock jump out to a fast start at its initial public offering Sept. 22 when it gained 17 percent or $2.70 to close at $18.70. Then, after a brief dip, it continued to make gains and closed Sept. 27 at $21.63, one of the top performers of any IPO this year.

The company’s software compresses large video files into smaller, more manageable files.

Founded in 2000, the firm generates most of its revenue from licensing fees paid by manufacturers of consumer electronic goods such as DVD players, portable music devices and digital cameras. The company said its software was downloaded about 180 million times in the last four years.

The growth of the digital media industry is obviously propelling DIVX stock, and the firm has fairly good numbers to bolster its position in the market. DivX reported sales of $26.9 million in 2005 compared with sales of $4.3 million in 2003.

And, it even made a profit last year of $2.3 million, a rarity among young technology firms. In 2004, it reported a loss of $4.3 million.

The company’s top executives received relatively modest annual salaries, all at $225,000, but they more than made up for it with the IPO. Co-founder and Chairman R. Jordan Greenhall owned more than 253,000 shares now worth about $5.2 million, while Kevin Hell, the CXO, has more than 357,000 shares now worth more than $7 million. The initials CXO stand for chief DivX officer.


Pitch Fest Boosts Its Prize:

The folks who run Pitch Fest, a competition to see who has the best marketing pitch to investors, said they’ve doubled the prize money to $20,000 in cash.

The San Diego Venture Group is holding its seventh annual business plan competition with the deadline for submitting an application Oct. 6 at 5 p.m. The event is open to any firm based in Southern California that has raised less than $2 million in venture capital.

A screening committee of local business advisers and venture capitalists reviews each application and will get the pool to a group of 10 finalists. These will then be culled to a group of three companies, which will make their pitches at the event’s dinner Dec. 6. An estimated 350 attendees will listen to the three pitches and vote on which of the startups gets the money.

To get an application, go to www.sdvg.org.


Ticker Takes:

Patriot Scientific Corp. said it signed its ninth major license with Kenwood Corp. for its technology patents it co-owns with TPL Group. American Technology Corp. reduced quarterly revenue guidance to a range of $2 million to $2.5 million, down from $3 million to $4 million. Novatel Wireless Inc. won a supporting partner award from Qualcomm Inc. Dalrada Financial Inc. acquired All Staffing of Pennsylvania for $3.5 million.


Send any news of local public companies to Mike Allen via e-mail at

mallen@sdbj.com

. He can be reached at (858) 277-6359.

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