04/08/2007
VOLUME 294
Companies featured in the current edition of the newsletter: ACCP, ADSX, ARGA, BSGC, CLRI, CYTR, EEEI, GSHF, HSOA, ITUI, LANW, LFBG, MBND, NTRN, RTK, SCLL, TAGS, USAT, VOII, VQPH
The market climbed higher every day during the holiday-shortened week, as stocks rallied around stronger than expected housing data and an improved geopolitical front. Thursday evening’s close marked the sixth straight day of gains for the major indices. The Dow rose 205 points for the week bringing annual gains to 0.7%. The Nasdaq is up 2.3% for the year after rising 49 points for the week. The S&P increased 22 points with annual gains totaling 1.8%. The Russell 2000 gained 12 points equating year-to-date gains to 3.2%.
A number of key items helped the market. It was not all doom and gloom for the housing market as investors were pleased with the better than expected report showing pending sales of existing homes in February rising at an annual rate of 0.7%. Although still weak, the housing sector is showing signs of resilience as it deals with current subprime mortgage worries. Further adding to positive sentiment was an increase of 4.9% in chain store sales during the last week in March. The release of 15 Britain navy captives from Iran helped drive oil prices lower to close at $64/bbl, further supporting the market. Friday morning, a stronger than expected Employment Report sent stock futures higher, as the Labor Department said that 180,000 new jobs were created in March, and that the unemployment rate fell to 4.4%, the lowest level in five years.
What should investors look for this week? Earnings season kicks off with Alcoa (NYSE: AA) releasing numbers Tuesday after the close. Wednesday evening Bed Bath & Beyond (NASDAQ: BBBY), Genentech (NYSE: DNA) and Research In Motion (NASDAQ: RIMM) post results. After the bell on Thursday, Advanced Micro Devices (NYSE: AMD) announces profits. The week closes with General Electric (NYSE: GE) reporting results on Friday before the opening. On Tuesday, Palm Inc. (NASDAQ: PALM) meets with analysts and investors. The conference schedule remains lights with SunTrust Robinson Humphrey hosting its two-day 36th Annual Institutional Conference in Atlanta starting Tuesday. In New York, Credit Suisse begins its three-day 2007 Real Estate Conference on Tuesday as well. Beginning Wednesday, CIBC World Markets sponsors its two-day Annual Biotechnology & Specialty Pharmaceuticals Conference in New York.
On the economic front, Weekly Crude Inventories will be announced on Wednesday at 10:30am with the attention of investors focusing on the release of the FOMC Minutes at 2:00pm later that day. The March Treasury Budget will also be released on Wednesday afternoon. Thursday before the opening, March Import/Export Prices will be released along with Weekly Initial Jobless Claims. At 8:30am on Friday, both the March PPI and the February Trade Balance will be reported, with Preliminary March Michigan Sentiment data being reported at 10:00am. With economic uncertainty holding stocks back, commentary from Fed officials will be watched closely as Philadelphia Fed President Plosser talks on Tuesday. The next day, Richmond Fed President Lacker talks to economists and Chicago Fed President Moskow speaks on the economic outlook.
Although the company has taken steps to become less reliant on catastrophic storms, Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services to commercial and residential areas, could be a significant beneficiary if the 2007 hurricane season meets forecasts. William Gray, head of the Tropical Meteorology Project at Colorado State, predicted last week that there would be 17 named storms this year, five of them major hurricanes. The probability of a major storm making landfall on the U.S. coast this year is 74%, compared with the average of 52% over the past century, he said. With a 2007 backlog of work already at $123 million excluding much of its first quarter revenue, the company has already inked agreements representing a significant portion of 2007 revenue. Investors may note that shares more than tripled in 2005 when a series of hurricanes hit Florida and the Gulf Coast. The heavily shorted stock (35% of float) trades for just 11 times trailing 12-month earnings. The company is expected to report first quarter results in early May, and with relatively easy comparisons (2006 Q1 EPS from continuing operations was 6 cents), the stock could be well positioned to rally. Shares fell 12 cents last week to close at $4.63.
Multiband Corporation (NASDAQ: MBND), a leading provider of video, data, and voice systems and services to multiple dwelling units, reported results of its 2006 fiscal year of operations ended December 31, 2006. Sales for the year grew 9.3% to approximately $18 million versus $16.5 million in 2005. Net loss for the period totaled $10.1 million which included over $9.5 million of interest and non-cash expenses, compared to net loss of $7.4 million in the prior year. Q4 revenue rose 6.9% to $4.6 million, with EBITDA improving to a positive $153,285 versus a negative $152,488 in the same period last year. However, the most significant news came on a conference call the company held for investors on Thursday afternoon, where it said that it planned to sell virtually its entire customer base but continue to retain the rights to service them through its call center and proprietary software. The move will eliminate the company’s need to raise substantial capital to support customer acquisition, reduce SG&A significantly and position the company as the “back office” for the industry. The move should generate superior margins, and allow the company to improve profitability dramatically. Shares closed at $0.49, unchanged for the week.
Volume Alert: Shares of CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical research and development company, traded over 4 times average volume and approached its 52-week high last week after the company announced results of additional animal stroke studies indicating that CytRx’s lead drug candidate, arimoclomol, significantly accelerated the recovery of sensory and motor function in an experimental rat model of stroke. Significantly, such results happened even when treatment was withheld as long as 48 hours after stroke was induced. Based on these results, CytRx will begin planning a potential Phase II clinical trial with arimoclomol in stroke patients. Separately, the company reported 2006 financial results last week with revenues totaling $2.1 million for the year, mainly due to a royalty transaction with the ALS Charitable Remainder Trust. Net loss was $17.2 million in 2006 compared to losses of $16.2 million a year earlier. CytRx ended the year with a cash balance of $30.4 million, excluding $11.1 million the company received subsequently reflecting the exercise of options and warrants. The company plans to begin a Phase IIb efficacy trial in the second half of 2007 for orally-administered arimoclomol as a treatment for ALS, also known as Lou Gehrig’s disease. Shares gained 17 cents for the week to close at $4.86.
Electro Energy, Inc. (NASDAQ: EEEI), a developer and manufacturer of high-powered, rechargeable bipolar nickel-metal hydride batteries, announced results for the year ended December 31, 2006. Sales for rose 21% to $4.6 million as a result of the resumption of sales to EaglePicher after its emergence from bankruptcy in August 2006 and increased battery shipments to the U.S. military for use in the Apache helicopter. Gross profit turned positive as a result of a shift in the mix of revenue to higher gross margin products. The acquisition of the manufacturing facility in Gainesville, Florida is close to becoming operational, as the company is currently running its own internal samples through this facility. EEEI plans to offer samples to targeted customers during this quarter, with commercial orders expected to be announced in the second half of the year for its battery products. The company expects to ramp up capacity in this facility no later than the fourth quarter. Shares remained unchanged for the week to close at $1.20.
Volume Alert: Shares of Tarrant Apparel Group (NASDAQ: TAGS), an innovative design and sourcing company for private label and private brand casual apparel, traded approximately 4 times average volume as it approaches its 52-week high. Strong sales (fourth quarter up 15.5%), strong margins (23.8% for 2006), and profitability ($0.06 per share for the fourth quarter), have helped to drive appreciation in the stock. Shares gained 16 cents for the week to close at $2.02.
Applied Digital’s (NASDAQ: ADSX) subsidiary VeriChip Corporation announced last week that it had installed its 30th infant protection system in Puerto Rico. Legislation enacted by the Puerto Rico legislature in 1999 requires hospitals to invest in infant protection measures. This latest installation means that VeriChip’s Hugs or HALO infant protection systems are now in use in 30 of the 42 birthing hospitals in Puerto Rico. As the awareness of infant abduction threats become recognized worldwide, the need for infant protection systems will obviously grow with it. A 70% market share in Puerto Rico could be indicative of future needs in the U.S., and countries abroad. Shares remained unchanged for the week to close at $1.57.
Volume Alert: Shares of USA Technologies, Inc. (NASDAQ: USAT), a developer of cashless vending and energy management products, traded roughly 5 times average volume, and continued recent gains buttressed by large institutional investors purchasing the company’s stock via a private placement. The company’s recent launch of its NFC capable e-Ports, as well as its recent listing on NASDAQ seems to have further piqued buyers’ interest. The stock gained 5 cents for the week to close at $8.33.
Auriga Laboratories, Inc. (OTCBB: ARGA), a specialty pharmaceutical company with products for the treatment of acute respiratory diseases and dermatological conditions, reported last week that it sales for the first quarter ended March 31, 2006 will exceed $8 million, easily surpassing management’s previous guidance of $6.2 million. Furthermore, Auriga expects to be cash flow positive as the company’s growing sales force continues to successfully create brand awareness as the number of prescriptions being filled reaches new records. In January 2007 alone, the combined number of prescriptions filled totaled 26,004, an increase of 324% from the same period last year. As rollout of new products happen this year, which include Aquoral for the treatment of dry mouth, and the Zinx product-line that offers cold remedy products, such impressive performance should continue. Auriga will release full results for the first quarter on the morning of April 16, 2007, and host a conference call for investors and analysts. The stock rose 14 cents for the week to close at $2.28.
BigString Corporation (OTCBB: BSGC), a provider of user-controllable email services, last week announced a marketing affiliation agreement with Phi Sigma Kappa, a national fraternity founded in 1873, with a total membership of more than 115,000 people. BigString.com will provide The World’s Coolest Email as a private label service, which will include advertising. The fraternity will establish accounts for students and promote BigString.com’s free email service to its alumni membership. This agreement could provide a conduit to BigString’s advertisers looking to reach the very lucrative college market. BigString Corporation’s patent-pending technology allows emails and pictures to be rendered non-printable or non-savable, in addition to permitting users to send recallable, erasable, self-destructing emails. The stock ended the week at $0.28, down 7 cents.
GreenShift Corporation (OTCBB: GSHF), a company devoted to facilitating the efficient use of natural resources, announced an agreement to merge with GS CleanTech Corporation and GS Carbon Corporation in a move that will simplify the company’s capital structure and reduce costs. GreenShift’s majority-held companies are currently generating in excess of $30 million in sales and hold over 30 patents and pending patents for clean technologies. In addition to increasing liquidity which could benefit the company’s future development plans, this strategic merger of majority-owned entities with GreenShift is expected to be beneficial in reducing the amount of resources required to administer multiple companies, as well as reducing confusion amongst vendors and customers. The company expects the merger, which is subject to the approval of GS CleanTech and GS Carbon shareholders, to be completed during 2007. The stock ended the week unchanged at $0.09.
i2Telecom International, Inc. (OTCBB: ITUI), a pioneer in ultra-portable high quality Voice-over-Internet Protocol (VoIP) products and services, filed its annual report for 2006 that reflected revenue growth of over 55.5% to roughly $755,000, driven by an increase in the number of subscribers using its ultra-portable, high-quality Voice-over Internet Protocol service. Net loss for the year decreased to $5.8 million from $8 million the prior year. 2007 revenue could be enhanced by the company’s recently signed deal with CSC Management, which is currently providing i2’s products and services to a vast array of clients, including a number of Fortune 500 companies. Shares remained unchanged for the week at $0.15.
Language Access Network (OTC: LANW), a leader in video interpretation services, last week announced a new service agreement with Naples Community Hospital in Naples, Florida, a 527 bed facility which is part of the NCH Healthcare System. The hospital will offer the Martti system, which provides pharmacies and medical facilities with professionally trained interpreters 24 hours a day/seven days a week, to the hospital’s patients for free, and will be charged a per-minute fee by Language Access Network. Naples Community Hospital has more than 500 physicians, 4,000 highly trained employees, and 1,900 volunteers who comprise their medical team, and its outstanding reputation was confirmed by the most recent report from the Joint Commission on Accreditation of Healthcare Organizations. The stock declined 9 cents for the week to close at $1.01.
Left Behind Games, Inc. (OTCBB: LFBG), a leader in the inspirational video game market, announced a new joint marketing effort with Tyndale House Publishers last week. A new game ad will be included with the release of the final book in the best-selling LEFT BEHIND series, “Kingdom Come: The Final Victory,” published by Tyndale House Publishers, representing yet another huge opportunity for the company in its campaign to further build brand awareness for its inspirational video game products. The new book represents the sixteenth in the adult novel series which have sold more than 65 million copies worldwide. Despite the news, shares lost 9 cents to close at $0.24.
Neutron Enterprises, Inc. (OTCBB: NTRN), a developer of digital media solutions, finalized a $6.9 million private placement to complete the acquisition of Stock-Trak, Inc., to develop a new fantasy stock-market competition. Such funding, which includes the issuance of $4.8 million of common stock and warrants sold as units, and another $2.1 million from the issuance of an 8% secured note, will be used for working capital needs and for marketing surrounding the upcoming launch of the contest. Additionally, the company reported year-end results last week for the period ended December 31, 2006. Sales for the year increased to approximately $2.1 million from $1 million from last year, representing growth of 110%, driven by the company’s strengthened position in the market for marketing event services. Management is optimistic that this trend should continue as the commencement of its stock market simulation contest is expected to further increase revenues this year. Neutron expects to launch the beta version of the fantasy stock market competition during the second quarter of 2007. Shares ended the week down 5 cents, to close at $1.80.
Last week’s ruling by the U.S. Patent Office overturning the University of Wisconsin’s patents covering embryonic stem cells could reap huge rewards for investors of cell biology company Stem Cell Innovations, Inc., (OTCBB: SCLL). The company owns exclusive rights to certain patents that were ruled to pre-date those given to the University of Wisconsin between 1998 and 2006. While the Wisconsin foundation, which holds the patents, said they have not stalled work on stem cells, (academic researchers get free licenses, companies pay from $75,000 to $400,000 for access), this ruling highlights the company’s strong IP position, and could possibly open new avenues for Stem Cell in the future. The company also filed its financial results for the year-ended December 31, 2006. As a result of its developmental stage status, revenues for the year were minimal at roughly $86,000 with operating losses totaling approximately $11.3 million. Investors should look for updates pertaining to the development of the company’s C3A human liver cell line for the production of human serum proteins used by hemophiliacs to allow their blood to clot. Further updates relating to the Stem Cell’s agreement with Biofocus Discovery Limited, enabling BioFocus to utilize SCLL’s proprietary Pluricell technology for the discovery of genes that may be useful in the development of a treatment for Amyotrophic Lateral Sclerosis should also be monitored. Shares closed at $0.05, unchanged for the week.
VoIP, Inc. (OTCBB: VOII), a leading provider of Voice over Internet Protocol (VoIP) communications solutions for service providers, resellers and consumers, reported financial results for the year-ended 2006. Total revenue for 2006 was $14.7 million, representing 64% growth over 2005. The company ended the year with three consecutive quarters of positive gross margins, a trend that should continue in the future as VoIP Inc. continues to build out its VoiceOne network. Additionally, Vonage cleared up confusion about its contract with VoIP Inc., emphasizing that the deal has nothing to do with developing a work-around to help Vonage avoid using patents held by Verizon Communications. The deal is a standard network termination deal where Vonage is using the VoiceOne network, which is owned by VoIP Inc., to transport voice over Internet Protocol calls. Lastly, the company reported last week that it sent out letters to parties that the company believes is infringing on its intellectual property. Shares fell 3 cents to close at $0.23 for the week.
Clearant, Inc. (OTCBB: CLRI), a leader in pathogen inactivation for biological products, announced the completion of a capital raise last week for $2.2 million. The company’s CEO Jon M. Garfield was among the participants, signaling a vote of confidence for the company as it continues to execute its business plan of marketing its Clearant-processed tissues directly to customers. Shares lost 1 penny to close at $0.13.
On the Wires: Oncology company Access Pharmaceuticals, Inc. (OTCBB: ACCP), and SCO Capital agreed to extend the maturity date of an aggregate of $6 million of 7.5% convertible notes to April 27, 2007 from March 31, 2007. Shares of Rentech, Inc. (AMEX: RTK), a developer of technologies that transform under-utilized energy resources into valuable and clean alternative fuels, received positive coverage last week as Pacific Growth Equities initiated coverage of the company with a “Buy” recommendation.
SPECIAL SITUATIONS:
VioQuest Pharmaceuticals Inc. (OTCBB: VQPH) $0.53
The combination of strong leadership and a sound business plan is a very powerful mix that distinguishes great companies from average companies. Astute investors recognize the importance of such attributes and will go to great lengths to find companies with such qualities. An investment opportunity that meets such criteria comes from VioQuest Pharmaceuticals, Inc., an oncology company who focuses on acquiring drugs with already proven safety profiles, with the goal of further developing them towards commercialization. This strategy lowers the risk profile of VioQuest’s development efforts while simultaneously reducing costs and accelerating results.
The company has two leading candidates, both of which are currently in Phase I/IIa clinical trials. VQD-002 is VioQuest’s first compound, which is an inhibitor of activated Akt /Protein kinase B (Akt/PKB). Certain types of tumors have high levels of activated Akt, a protein not normally active in human cells, but discovered in high levels in breast, ovarian, colorectal, pancreatic tumors and leukemia. Therefore, by restraining Akt/PKB, the progression of cancer will be interrupted. Since its discovery, the Akt/PKB pathway has been touted as an excellent candidate for cancer therapy. What sets the VQD-002 apart from other Akt inhibitors being developed is that it is a specific inhibitor of over expressed Akt. There are two Phase I/IIa clinical trials being conducted for VQD-002, which include a solid tumor trial at the Moffitt Cancer Center in Tampa and a hematological cancer trial at MD Anderson in Houston and Moffitt Cancer Center.
The second leading compound for the company is called Lenocta, an inhibitor of specific protein tyrosine phosphatases (SHP-1 and SHP-2) that are overexpressed in certain cancers. Ongoing Phase I/IIa clincials trials for advanced renal and melanoma cancers are being conducted. Preclinical studies show the restraining of SHP-1 and SHP-2 improves cytokine signaling, which is very important as cytokines are crucial to an organism’s defense when cells are under attack. Such inhibition also boosts immunity and inhibits mitogenesis, which plays a key role in the renewal of a cell’s life span. This drug has been used to for over half a century throughout the world to treat leishmaniasis, a parasitic disease spread by sand flies. At any one time, about 20 million people throughout the world are infected with leishmaniasis. Leishmaniasis exists as a disease in 88 countries and threatens 350 Million people. In some areas of southern Europe, leishmaniasis is becoming an important disease which infects people with weakened immune systems. VioQuest, along with the U.S. Army, has Orphan Drug designation for the drug’s moiety where the company expects to file an NDA this year for the treatment of cutaneous leishmaniasis.
VioQuest’s leading compound represents huge growth potential, with the VQD-002 market opportunity representing $800 million. The Lenocta market opportunity equals $100 million. Just recently, the company has further broadened its pipeline with the addition of two new products. This first is Xyfid, an adjunctive therapy for the treatment and prevention of Hand-Foot Syndrome, a common and serious side of cancer chemotherapy where currently no drugs are approved to treat. VQD-002-ORAL is the second product recently introduced, that is being designed to provide dosing flexibility and convenience to VQD-002.
As this exciting company continues to execute its well-defined business plan of using drug candidates with known safety profiles, investors have a great deal to look forward to in the upcoming year and beyond. The company has a very impressive scientific advisory board and management team whose experience with successful companies creates a huge value-added for shareholders. The appointments of Ed Bradley, MD as Chief Scientific Officer (previously Chief Medical Officer for Berlex Schering AG) and Lawrence Akinsanmi, MD, PhD as V.P. of Clinical Operations and Regulatory Affairs further solidifies the management team as they bring to VioQuest significant experience working in oncology development and with the FDA. It is important to point out that the company’s market capitalization of $28.9 million is significantly below the market capitalizations of some of its peers (including Ariad Pharmaceuticals, ArQule Inc., Array BioPharma Inc.) who have market capitalizations that range from $283 million to $513 million, and have products either in Phase I or Phase II trials. Such a depressed valuation creates a huge opportunity for investors looking to invest in VioQuest, an innovative oncology company with a bright future.
