With little fanfare, Eternal Technologies Group: ETLT.OB has posted another quarter of good earnings. In a 10-Q filed today, the company announced earnings of approximately $1.92M, or $0.04 per fully-diluted share, on revenues of $11.08M. Both the top and bottom lines improved year-over-year, as did gross profits. Some of the impact was blunted by an increase in share count from 40.57M to 47.07M. This figure could moderate in the second half of 2007, as the company has announced it will buy back up to 5% of shares before year end.

Even after today’s positive movement (assuming it holds until the bell), Eternal Technologies still trades far below its cash and short-term investments. At current prices around $.63, ETLT has a market cap of just under $30M. Yet its balance sheet shows $26,223,055 in cash and $15,738,117 in short-term investments. Cash flows also improved markedly, as ETLT trimmed over $5.4M in inventories and $1.75M in receivables.

Bottom line: Eternal Technologies continues to post solid quarterly results, yet current prices give a negative value on the company’s profitable core operations. Barring any unforeseen revelations, I expect share prices to take out last year’s highs within the next six months.

UPDATE (8/13):  Digging a little further into the 10-Q, I note that the company included in selling and administrative expenses a $500,000 litigation reserve.  This appears to relate to a claim against the company on two promissory notes totaling around that amount.  According to the 10-Q, the case went to trial in May but no verdict has been returned.  Most companies would separate the reserve out and label it a one-time charge.  But for the reserve, ETLT would have earned an extra penny per share.

DISCLOSURE: Long ETLT.OB.

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