01/28/2007
VOLUME 274
Companies featured in the current edition of the newsletter: ADSX, CYTR, ENZ, GSHF, HYTM, ITUI, LANW, PTCH, OXIS, RTK, SFP, SOG
Last week’s volatile trading activity left traders and investors wondering which direction the market was heading in. Sluggish reaction to generally solid earnings reports coupled with negative reaction to modest economic news has left many investors uneasy. This was reflected in the performances of the key indexes last week. The Dow slipped 78 last week reducing its year-to-date gain to 0.2%. The Nasdaq was also down for the week dropping nearly 16 points and decreasing its gains this month to 0.8%. The S&P 500 dropped 8 points and is up 0.3% for the year. The Russell 2000 fared better than the other indexes, adding nearly 3 points to improve its gain for the year to 0.1%.
Two areas that have helped the indexes move higher, oil and interest rates, moved against many investors last week. Oil prices rose $3.43 per barrel, increasing to $55.42, while the yield on the 10-year note increased 11 basis points to 4.88%. These gains were partially offset by a series of solid earnings reports which generally exceeded expectations. The economic data, sparse as it was, was viewed as significant. December existing home sales were reported to be down 0.8%, but the inventory of unsold homes remained unchanged and for the first time in four months, the year-to-year price change did not fall. New home sales rose 4.8% and the inventory of unsold new homes was also down. This data suggested to many that the housing market may have finally bottomed.
What should investors look for in the upcoming week? With just 33% of the S&P 500 reporting results so far, this week will again see significant earnings-related activity. Monday before the bell will see reports from Cummins Inc. (NYSE: CMI), Mattel (NYSE: MAT), Phelps Dodge (NYSE: PD), Schering-Plough (NYSE: SGP), Sysco (NYSE: SYY), Tyson Foods (NYSE: TSN), and telecommunications provider Verizon (NYSE: VZ). Tuesday’s results will include pre-market announcements from 3M (NYSE: MMM), American Electric (NYSE: AEP), Black & Decker (NYSE: BDK), Colgate-Palmolive (NYSE: CL), Countrywide (NYSE: CFC), Illinois Tool (NYSE: ITW), Kellogg (NYSE: K), Lexmark (NYSE: LXK), Manpower (NYSE: MAN), Merck (NYSE: MRK), PACCAR (Nasdaq: PCAR), Pepsi Bottling (NYSE: PBG), Proctor & Gamble (NYSE: PG), UPS (NYSE: UPS), and Wyeth (NYSE: WYE). Look for announcements from U.S. Steel (NYSE: X), Flextronics (Nasdaq: FLEX), Chubb Insurance (NYSE: CB), Celestica (NYSE: CLS), Allstate (NYSE: ALL), and ACE Limited (NYSE: ACE) after the bell Tuesday. Wednesday before the bell announcements include Alcan (NYSE: AL), Altria (NYSE: MO), Boeing (NYSE: BA), Constellation Energy (NYSE: CEG), Eastman Kodak (NYSE: EK), Estee Lauder (NYSE: EL), Hess (NYSE: HES), Hilton Hotels (NYSE: HLT), Ingersoll-Rand (NYSE: IR), Kraft Foods (NYSE: KFT), Time Warner (NYSE: TWX), and Xcel Energy (NYSE: XEL). After the close, Western Union (NYSE: WU), Sunoco (NYSE: SUN), Starbucks (Nasdaq: SBUX), Pulte Homes (NYSE: PHM), Owens-Illinois (NYSE: OI), Crown Holdings (NYSE: CCK), and Google (Nasdaq: GOOG) will report. Thursday will be the final day for the heavy volume of reports with pre-market announcements from American Standard (NYSE: ASD), Apache (NYSE: APA), Archer-Daniels (NYSE: ADM), AstraZeneca (NYSE: AZN), Boston Scientific (NYSE: BSX), Clorox (NYSE: CLX), Comcast (Nasdaq: CMCSA), CVS Corporation (NYSE: CVS), Exxon Mobile (NYSE: XOM), Goodrich (NYSE: GR), International Paper Company (NYSE: IP), Marathon Oil (NYSE: MRO), Pioneer Drillers (NYSE: PDC), Raytheon (NYSE: RTN), St. Paul Travelers (NYSE: STA), and Valero Energy (NYSE: VLO). Anheuser-Busch will announce earnings during trading hours Thursday. After the bell reports will include Amazon.com (Nasdaq: AMZN), Electronic Arts (Nadaq: ERTS), Genworth Financial (NYSE: GNW), and YRC Worldwide (Nasdaq: YRCW).
Next week will be fairly active on the economic front highlighted by the FOMC Announcement on interest rates on Wednesday afternoon. Expectations are that the Committee will again leave rates unchanged, but, as always, the policy statement will be closely scrutinized. In other development, investors can expect to see January Consumer Confidence announced mid-morning Tuesday. Look for a full morning on Wednesday with pre-market announcements of the Q4 GDP and Chain Deflator and the Q4 Employment Cost Index, followed shortly by the January Chicago PMI, December Construction Spending, and the Weekly Crude Inventories. December Personal Income and Spending as well as the Weekly Initial Unemployment Claims will be announced Thursday morning before the market opens and the January ISM Index will be announced later that morning. January Auto and Truck sales will be released after the close of the market Thursday. Friday’s announcements include January Nonfarm Payrolls, the January Unemployment Rate, January Hourly Earnings, and the January Average Workweek before the bell. Mid-morning announcements for December Factory Orders and the January Michigan Sentiment Index conclude announcements for the day and the week.
The conference schedule for next week will again be on the tamer side. The four-day Bank of America Securities ASF 2007 Conference begins Sunday in Las Vegas. The three-day Wachovia Securities 2007 Healthcare Conference in Boston begins Monday. The two-day Citigroup 2007 Financial Services Conference in New York is scheduled to start Tuesday. Raymond James Growth Airline Conference is Tuesday in New York. The Emerald 14th Annual Groundhog Day Investment Forum in Warwick, Pennsylvania is also scheduled for Thursday.
VeriChip Corp., a majority-owned subsidiary of Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, took another step closer to completing its public offering last week, as the company and its underwriters said it plans to offer 4.3 million shares priced between $6.50 to $8.50 in its upcoming initial public offering. After deducting underwriting discounts and commissions, and at the predicted midpoint range of $7.50 per share, the company would receive approximately $26.9 million. In an amended Form S-1 filed with the Securities and Exchange Commission, the company has applied to have it stock listed on the Nasdaq Global Market under the ticker symbol CHIP. VeriChip also said in the filing that it intends to use $8 to $10 million of the net proceeds from the IPO over the next 24 months to continue the development of its VeriMed system, with a focus on sales and marketing. VeriChip will be headed by former Applied Digital Chief Executive Scott R. Silverman, who remains Chairman of ADSX. The company plans to use $7 million in proceeds to pay off debt to Applied Digital, for product development and general corporate purposes. Shares ended the week down 8 cents at $1.97.
Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, announced the opening of two new PROMETA Centers last week in San Francisco and New Jersey. Both centers are currently offering HYTM’s PROMETA® protocols as a featured treatment for substance dependence. The recent openings increased the total number of PROMETA Centers to three. Under the terms of agreement, Hythiam will manage the San Francisco PROMETA Center® in exchange for management and licensing fees. The New Jersey facility is owned and managed by the Canterbury Institute and Hythiam will receive a 10% share of the profits made by the Canterbury Institute owned PROMETA Center, as well as fees for services and technology licensing. The Canterbury Institute also plans to open an additional PROMETA Center in Boca Raton, Florida in the second quarter of 2007. The PROMETA Center at Canterbury Institute is located in a 5,000 square foot facility with the capacity to accommodate 1,800 outpatient procedures each year and the new San Francisco PROMETA Center is located in a 4,000 square foot facility with the capacity to accommodate 2,000 outpatient procedures annually. Both new PROMETA Center locations have already begun patient treatment. The company is expanding the number of Centers as a result of the success of its initial venture in the Los Angeles area. HYTM said that Center generated $1.14 million in revenue in its first year of operation. The stock ended the week down 47 cents at $8.78, but still above its 50-day moving average at $8.67, which has served as support since September, 2006.
Enzo Biochem, Inc. (NYSE: ENZ), a developer of innovative health care products based on molecular biology and genetic engineering techniques, recently announced to shareholders attending its annual meeting, that the company was well positioned for future growth as a result of key pioneering patents awarded to the company. It told shareholders that 2006 was a “bellwether” year for the company and described the potential to form important partnerships on favorable terms. During 2006 the company strengthened its management team with the appointment of new presidents for Enzo Life Sciences and Enzo Therapeutic, the declaration of the company as senior party in two interferences by the U.S. Patent and Trademark Office, the acquisition of an additional facility to accommodate increased activity at both Enzo Life Sciences and Enzo Clinical Labs, and the enhancement of the company’s capital resulting from a recent equity offering that strengthened the company’s balance sheet to $114 million with no debt. Shares ended the week down 31 cents at $14.79.
Is small appliance maker Salton, Inc. (NYSE: SFP) likely to combine with Applica? Chances of such a deal increased after its rival appliance distributor announced that the company’s shareholders had approved its acquisition by Harbinger Capital Partners. Harbinger, which owns 15% of SFP’s common stock, suggested the economics of a merger between the two rivals was “compelling.” Given the premium that Harbinger paid to acquire Applica, the pressure to conclude a deal with Salton has likely increased. SFP also announced an agreement last week with weatherman, best-selling author and a host of NBC’s “Today”, Al Roker to promote the Smart Mill & Brew™ with MSN® Direct. Roker will promote and endorse the first coffee maker to display real-time weather information in North America. The coffee maker incorporates Microsoft Corporation’s Smart Personal Objects Technology In other news, Salton also announced the immediate resignation of David Maura as a member of its Board of Directors. Mr. Maura, a Vice President and Director of Investments at Harbinger Capital Partners and affiliates, resigned in light of Harbinger’s acquisition of Applica. Salton shares ended the week up 70 cents at $3.08.
New 52-week high: Shares of CytRx Corporation (NASDAQ: CYTR) surged to a new high last week and their highest level since August, 2003 after The Barnes Report, an independent biotechnology newsletter, written by a Research Fellow at the Dana-Farber Cancer Institute, part of Harvard University, said that it expected CytRx’s RXi majority-owned subsidiary “to compete directly with other RNAi leaders and to be quite successful.” It went on to say that, “a reorganization of the scientific advisory board at RXi speaks volumes about the caliber of the newly announced deal. Pending approval, four new members make RXi’s scientific team the most experienced in all aspects of RNAi and its proposed focus of therapeutic application.” The report concluded that “this is an ultra-focused company with everyone knowing everything there is to know about RNAi, that really highlights the description of a pure-play. I am impressed with the dynamics of the formulation of this company and the speed and the speed and apparent ease the IP issues were worked out with UMass.” The company’s Scientific Advisory Board includes Dr. Craig Mello, the co-winner of the Nobel Prize for the discovery of RNAi and Dr. Tariq Rana, the expert on RNAi stabilization and delivery. Shares ended the week, on heavy volume, up 32 cents to $2.49.
OXIS International (OTCBB: OXIS), a biopharmaceutical company focused on commercializing biomarker research and clinical assays, announced last week that the company had identified a new predictive diagnostic lipoprotein biomarker. The newly discovered biomarker targets certain lipoproteins implicated in the causation of cardiovascular disease and also has the ability to detect early cardiovascular disease. The company is confident that this pioneering approach can be of great value in helping to prevent the estimated 600,000 Sudden Cardiac Death deaths annually in the USA and Europe. By offering a unique insight into an otherwise hidden disease state, this potentially innovative screening could be of value to all individuals irrespective of other risk factors. Traditional biomarkers, such as serum LDL levels, have very limited predictive power, but OXIS believes that this potentially innovative screening could be of value to all individuals irrespective of other risk factors and save a number of lives. The company’s portfolio of predictive biomarkers already includes assays for four different human peroxidase enzymes and OXIS has moved to strengthen its intellectual property to cover this new development. Shares ended the week at $0.26, up 2 cents.
Language Access Network (OTC: LANW), a leader in video language interpretation services, recently announced a new services agreement with Boston Medical Center, which represents the first hospital in Massachusetts to offer the Martti™ translation service to their patients with limited English proficiency and Deaf and hard of hearing patients. Language Access Network will provide video interpretation services in 150 languages, including American Sign Language and the Martti™ service will be available free to patients in Boston Medical Center’s Emergency Department 24 hours a day, 365 days a year. The stock ended the week down 55 cents at $3.00.
GS CleanTech, a majority owned subsidiary of environmental business development company GreenShift Corporation (OTCBB: GSHF), announced the recent appointment of David Winsness to President and Chief Executive Officer, Greg Barlage to Chief Operational Officer, and John “Whit” Davis to Vice President of Operations. Winsness previously led the company’s commercialization effort. H has spent his professional career as a process engineer in the chemical, food, pharmaceutical and power generation markets. Barlage has 15 years of experience in deep process engineering that includes manufacturing optimization, maintenance, and operations management with leading food products companies. Davis most recently led the deployment of GS CleanTech’s existing Corn Oil Extraction System installations at Little Sioux Corn Processors and Glacial Lakes Energy. GS CleanTech also announced early last week the execution of a definitive agreement with Central Indiana Ethanol, LLC to remove appoximately 1.5 million gallons per year of crude corn oil from Central Indiana’s distillers dried grains. The crude material will be converted into a biodiesel feedstock using GS CleanTech’s proprietary corn oil extraction technology. GS AgriFuels, another majority-owned subsidiary of Greenshift Corporation, announced that its NextGen Fuel division has completed the construction of its first 10 million gallon per year biodiesel production system. The system is now available for qualified customer viewings at NextGen Fuel’s contract manufacturer, Warnecke Design Service, Inc., in Van Wert, Ohio and will be delivered to one of NextGen Fuel’s clients later this quarter. The stock ended the week up 2 cents at $0.11.
Junior oil and gas producer, Patch International Inc. (OTCBB: PTCH), announced last week that it has filed its initial independent resource reserve report of certain oil sands projects. DeGolyer and MacNaughton Canada Limited was consulted in order to prepare and provide the National Instrument 51-101 compliant report on Patch’s Dover and Firebag Oil Sands Projects. The report estimates the extent and value of the likely and possible recoverable reserves and the net present value of future net revenue attributable to these reserves based on constant and forecast prices and cost assumptions. The detailed area comprises 32 square miles of which Patch currently has earned a 30% working interest with the right to earn an additional 50% and 18 square miles of which the company may earn a 75% working interest. The report was prepared using assumptions and methodology guidelines outlined in the Canadian Oil and Gas Evaluation Handbook and in accordance with National Instrument 51-101. At the time of the report, there were no proven reserves assigned to the lands. The Dover Oil Sands Project consists of appoximatley 20,480 acres and the The Firebag Oil Sands Project represents approximately 11,520 acres. Both projects are approximately 40 miles from the Fort McMurry area of central Alberta, Canada. The company’s leases on these lands are valid for 15 years. Late last week, Patch also announced that the company has begun drilling on these recently acquired projects and that cooperative weather has allowed for the pre-construction of leases far in advance of drilling. The company has pre-selected, licensed and surveyed an additional 22 sites that with the potential to provide flexibility to quickly modify the drill order in anticipation of the progressing project. Patch is currently negotiating to bring a second rig into the drill to accelerate this year’s drilling program. Shares ended the week down 6 cents at $1.42.
Junior oil and gas producer Strategic Oil & Gas, Ltd. (TSX VENTURE: SOG), recently announced that subject to regulatory approval the company has issued via a private placement approximately 2.8 million units at $1.00 per unit, for total gross proceeds of approximately $2.8 million. Each unit consists of one common share and one warrant. Each warrant will entitle the holder to subscribe for an additional common share at $1.25 for 12 months from closing and for $1.60 for the next 12 months thereafter. The company has recently raised an approximate total of $4.7 million that includes these funds and the previously announced $1.9 million flow-through financing that closed in December, 2006. Certain funds from this private placement will be utilized in meeting anticipated drilling and completion costs in respect to the Strategic’s 2007 drill program. A rig is presently being mobilized with a view to spud this program’s first well around February 1, 2007. Shares ended the week at $0.97.
On the Wires: Rentech Inc. (AMEX: RTK), a developer of alternative energy sources, announced the hiring Dr. Robert L. Freerks as Director of Product Development. With more than 25 years of experience in the development of FT synthetic fuels, synthetic lubricants, oil-based lubricants, oil and fuel additive packages and biofuels Freerks will direct the formation and implementation of Rentech’s enhanced product development programs and certification process regarding its Fischer-Tropsch technology. Freerks will also be responsible for the coordination with both governmental and private sector technical committees for approval of the products for commercial use.
SPECIAL SITUATION:
i2Telecom International, Inc. (OTCBB: ITUI) $0.13
Few companies faced with the challenges that i2Telecom® recently encountered have been able to turn their fortunes around. Faced with a capital structure which included a floorless convertible debenture which choked off new capital investment, the company seemed likely to go the direction that many other tiny companies have found…a slow path to oblivion. But recently, private investors have recognized the potential of its technology and intellectual property and financed the company, not only giving it working capital, but enabling it to repay the convertible debenture, eliminating approximately 100 million shares that could have become tradable.
So what are its business prospects? Headquartered in Atlanta, i2Telecom International, Inc. was founded in February of 2002 and currently has 12 full-time employees. It is a provider of Voice-over internet protocol (VoIP) technologies, which are becoming increasingly popular these days, although few companies to date are profitable. The way it works is through the conversion of a voice into a digital signal that travels over internet lines, but if one calls an actual telephone number, the voice is altered into a telephone signal before it reaches its destination. An individual can literally place a call from a computer. The VoIP technologies use protocols to carry voice signals over IP networks and have the potential to save customers and callers substantial amounts in calling costs. One type of savings is due to the utilization of a single network with the ability to carry voice and data. This system can accommodate users to make VoIP to VoIP telephone calls for free from anywhere to anywhere in the world. The digital quality is excellent.
i2Telecom® envisioned employing recent advancements in microprocessor and Digital Signal Processing and creating an increased availability of high-speed internet access to aid small and medium businesses with reduction of costs associated with telephone usage. The 2002 acquisition of a small engineering company SuperCaller Community, Inc. provided the company with an advanced VoIP “microgateway.” The idea was to turn an ordinary phone into a tool that would allow users of this microgateway to make calls to virtually any phone in the entire world at the lowest cost possible and with exceptional quality. i2Telecom’s microgateway technology is available from dealers in most major countries. This telecommunications company is on the cutting edge of the field and today, with a Super Node in Atlanta and multiple switching facilities, the company provides high quality service to a rapidly expanding global market. i2Telecom’s patents-pending VoiceStick® and InternetTalker® access devices enable any telephone or business phone system (PBX) to access the company’s global network and advanced routing technologies to complete most of the call over the Internet, while paying only for the last leg of the connection.
i2Telecom® is committed to providing customers and clients with the highest level of quality, features and product performance. In 2005, the company was awarded the VoIP Internet Telephony Service Provider Award, Best In Show Miami 2005 and the year prior to that, it received the Internet Telephony Product of the Year Award. The company offers a variety of innovative products one of which is the VoiceStick®. VoiceStick® is simply a softphone on a USB drive. This patent-pending product gives a user the portability of VoIP by enabling the user to call any phone or VoiceStick® customer from anywhere in the world. The software is available for download to a laptop or desktop from the company’s website. i2Telecom® also offers theVoiceStick® and Plantronics® headset. The new plug-n-play product is a 1GB memory stick with the VoiceStick® SoftPhone preloaded and the set is complete with the addition of latest Plantronics® earpiece and microphone. An amazing feature of this product is a piece of software called the i2 Bridge®. This allows an individual to register a land line or cell phone number with VoiceStick.com and then use any phone to make low-cost calls through the VoiceStick® service. The key difference here is the fact that one need not be at a computer or somewhere with wi-fi Internet access to for this. As a matter of fact, any phone will do. i2Telecom® services are not limited to just these products and the company also plans to unveil a digital communication portal with full communication capabilities.
Recently, i2Telecom® announced that it had retained the services of Vinson & Elkins and Toler Schaffer in Austin, Texas, to assess its intellectual property rights and recommend an appropriate course of action to protect and enforce such rights. It appears that these high-profile law firms may have been retained to litigate against larger companies who could potentially be infringing on the company’s intellectual property, as ITUI was one of the early entrants five years ago in the VoIP space.
While the company’s revenue is still small, it is growing. Third quarter revenue of $252,546 was up significantly from the same period in fiscal 2005 when it was $49,851. The increase in revenue was driven by the company’s reorganization focusing from product to service offerings. In addition, cost of revenues decreased from $369,492 for third quarter of 2005 to $166,072 for third quarter of 2006, reflecting improving operations. Investors appear to have noticed, as shares have increased 500% since mid-December. Still, with a market capitalization of less than $25 million, if the company is able to attract significant corporate customers to use its technology, it could go much higher.
