08/21/2006
VOLUME 252
Companies featured in the current edition of the newsletter: ADSX, ALRX, ARSC, CDGT, CDSS, EMIS, ENZ, FMTI, FSN, GNBT, HMWM, HSOA, HYTM, IMMG, ISON, ITRO, ITUI, IVOI, LNXGF, NTRN, NTST, PTCH, QTXB, RGEN, SCLL, SLS, SOG, STIY, TAGS, UDTT, USAT, ZIOP
What a difference a week makes. Benign reports on inflation helped increase investor confidence that the Fed will successfully be able to engineer a “soft landing”, helping all of the indexes to post their best gains in several months. The Dow gained 293 and is now up 6.2% for the year while the S&P 500 added nearly 36 points to push its year-to-date gains to 4.3%. At the same time, the tech-heavy Nasdaq finally outperformed the other indexes as it gained 106 points, or 5.2%, to reduce its year-to-date loss to 1.9%. Meanwhile, the small-cap Russell 2000 rose by almost 33 points, pushing its year-to-date gains to 5.7%.
Last week’s main catalysts were unmistakably the favorable PPI and CPI reports which hinted that inflation may be under control and the Fed may be able to forego additional rate hikes. On Tuesday, it was reported that the core-PPI for July actually fell 0.3% as opposed to the consensus estimate of a 0.2% increase. Then on Wednesday, core-CPI showed a 0.2% increase after four consecutive months of 0.3% increases. Helping the markets was also a pullback in oil prices due to the cease-fire between Israel and Hezbollah. Crude oil ended the week at $71.10 or 4.4% lower.
What should investors look for this week? On the earnings front, home-improvement giant Lowe’s (NYSE: LOW) reports results on Monday morning while home-builder Toll Brothers (NYSE: TOL) announces results on Tuesday before the bell. Tuesday after the bell, Medtronic (NYSE: MDT) will report results. Wednesday morning, Tech Data (NASDAQ: TECD) and Smithfield Foods (NYSE: SFD) release earnings. Thursday morning, Hormel Foods (NYSE: HRL) reports results.
The economic calendar will be light this week. On Wednesday, July Existing Home Sales and Weekly Crude Inventory are released. Perhaps the most significant event on the economic calendar is July Durable Goods orders, which are scheduled to be announced on Thursday, and are expected to remain flat. July New Home Sales and Weekly Jobless Claims will also be announced on Thursday. Both Atlanta’s Fed President Guynn and Chicago’s Fed President Moscow will speak on the economy on Tuesday in their respective cities, while Fed Chairman Bernanke will be speaking at the Fed symposium in Jackson Hole on Friday.
Enzo Biochem, Inc. (NYSE: ENZ), developer of innovative health care products based on molecular biology and genetic engineering techniques, announced that follow-up studies of its experimental gene-based HIV treatment, StealthVector HGTV43, show that the drug’s antisense RNA retains a long-term presence in the body. The treatment is designed to produce immune cells called CD4+ cells, in order to slow progression of the HIV virus that causes AIDS. The company said 12 months after completing an early-stage clinical trial, genetic material from its gene medicine was still present in all five subjects involved. At the 48-month mark, antisense RNA remained present in 3 out of 4 subjects, and one of the three remaining patients retained the genetic material at 60 months. The company called the continued presence of the genetic material significant, especially in bone marrow, where the immune system’s white blood cells are made. Enzo Biochem is currently sponsoring a Phase I/II study at the University of California to continue the clinical evaluation of this StealthVector HGTV43 gene construct for HIV-1 infection. The stock gained 87 cents last week to close at $12.01.
Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, continued its expansion into key metropolitan areas as the company signed two significant licensing deals last week. Hythiam first announced that it has entered into a licensing agreement with The Right Step, the largest private chemical dependency treatment services provider in the Southwest with headquarters in Houston and 23 locations throughout Texas, Louisiana, and New Mexico. Although Hythiam has initially licensed the use of the PROMETA Protocols to The Right Step’s Houston facility, it is expected that if the protocol proves as successful as it has at other cites, the license may be expanded to the other facilities as well. Hythiam also announced that its PROMETA protocols have been licensed for use at the first Chicago area licensee, The Millennium Center. The Millennium Center was founded by Gail Basch, MD, and Ann Foster, who is also the founder of the Millennium Counseling Center, one of Chicago’s leading counseling centers for addiction. With the company continuing to drive increased revenue from key licensees as a result of growing awareness of the protocols, the impact of new licensees should become increasingly significant. The stock ended the week at $5.23, down 3 cents.
What should have been an upbeat week for investors in Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services, turned into another disappointing outcome, as management again failed in its attempt to garner the confidence of the investment community. The outcome should have been different after the company posted solid second quarter results for the period ended June 30, 2006 with 90% sales growth resulting in record revenue of $24.2 million for the quarter. Although quarterly revenue came in slightly below the lone analyst estimate of $25 million, HSOA comfortably exceeded the EPS estimate as net income jumped 320% to a record $4.4 million, or $0.11 per diluted share ($0.09 per diluted share excluding non-recurring items). HSOA also reaffirmed its previous 2006 revenue guidance of $160-165 million and EPS of $0.56-$0.60 and while this guidance is heavily back-end loaded (EPS for the first six months was roughly $0.19), in 2005, the company earned twice as much in the second half of its fiscal year as it did in the first six months. So why did the heavily-shorted stock (37% of the float was short, which we believe may have increased since short interest was reported in July) sell-off after breaking through $7 which is a key resistance level? Simply, the company stumbled through its earnings call, providing vague guidance when it needed to be specific. While the company announced that it completed a strong month of July, it did not disclose the amount of revenue it generated. We suspect that revenue for the month of July exceeded HSOA’s revenue for the entire second quarter based upon our conversations with parties doing business in the New Orleans areas. The company also provided a series of explanations for the impact of the acquisition of Fireline Restoration on its 2006 results that defy understanding. It said that it was not adjusting its guidance for the acquisition until it completes the audit of Fireline (expected within 60 days), although it is hard to believe that a company that is as thorough in its due diligence as HSOA is not highly knowledgeable about Fireline’s financials, especially after paying consideration approximating 20% of the value of HSOA. Why the caution? We suspect it may have something to do with the role that the company’s attorneys are playing in its communication strategy (class action suits have been filed against them). Unfortunately, while we believe the company is well on its way to posting a tremendous third quarter, the stock is likely to remain range-bound until it provides greater visibility to investors. The stock ended the week at $5.59, down 61 cents.
Volume Alert: Shares of Isonics Corporation (NASDAQ: ISON), developer of innovative solutions for the homeland security and semiconductor markets, traded over 6 times the average volume as the company announced preliminary results for its semiconductor segment for the quarter ended July 31, 2006. Revenue for this segment was approximately $2.9 million, a 260% increase as compared to last year’s quarter. As a result of the increasing revenue and improved operating efficiencies, the company also expects to report positive EBITDA for its semiconductor segment of approximately $170,000 for the past quarter. Management attributed the rapid growth to ISON’s investment into the high-growth 300mm silicon wafer market over 18 months ago as it is beginning to generate positive operating results. Additionally, the company’s backlog is the strongest in its history and is expected to support continued segment revenue growth in the coming quarters. Shares gained 17 cents last week, closing at $0.92.
The name of Repligen Corporation (NASDAQ: RGEN), a biopharmaceutical company committed to being the leader in the development of novel therapeutics for profound neuropsychiatric disorders and autoimmune disease, popped up several times last week in the media following the July 31 ruling by a federal judge that its lawsuit seeking royalties from ImClone Systems for its cancer drug Erbitux could proceed. With legendary investor George Soros holding an equity stake in the company, shares could continue to rally as legal maneuvers continue. Overall, the stock gained 26 cents, or 8.7%, last week and closed at $3.26.
Life sciences company Forbes Medi-Tech Inc. (NASDAQ: FMTI) announced its financial results for its second quarter ended June 30, 2006. Reported revenues increased 32% to $1.7 million and the company maintains its revenue guidance for 2006 of $7-7.5 million. Additional highlights of the past quarter included the launch of the first cholesterol-lowering cheddar cheese with Reducol at UK Wal-Mart/ASDA, the launch of a range of Reducol-based products at Netherlands’s largest retailer, Albert Heijn, and the strengthening presence in Europe with Forbes-Fayrefield Ltd. venture to expand distribution of Reducol-based products in continental Europe. Furthermore, The FMTI’s Phase II trial for its cholesterol-lowering drug, FM-VP4, is on track for completion for the end of the third quarter with top-line results anticipated to be released in the fourth quarter. Shares ended the week at $1.84, up 1 cent.
Fusion Telecommunications International, Inc. (AMEX: FSN), provider of voice over Internet protocol (VoIP) and other Internet services in Asia, the Middle East, Africa, the Caribbean, and Latin America, reported second quarter 2006 results for the period ended June 30, 2006 with total revenue of $10.5 million representing the third consecutive increase in sequential quarterly revenue (up 10.7% over first quarter 2006). Fusion also announced that in two months since launching its new Efonica VoIP service, it has registered more than 400,000 subscribers, having added an additional 150,000 subscribers in the last two weeks alone. Over the coming quarters, the company will focus on driving revenue from its growing subscriber base, which it expects to become an increasingly significant portion of total revenue over time. Fusion intends to continue acquiring new subscribers in a cost-effective manner as well as marketing paid value-added services to these subscribers. New VoIP subscribers are likely to shape investors’ perceptions of the prospects for the company more than carrier service revenue, which makes up most of the company’s revenue base today. Shares ended the week at $1.97, down 41 cents.
Netsmart Technologies, Inc. (NASDAQ: NTST), a leading provider of enterprise-wide software for health and human services organizations, announced that it has been awarded a contract totaling nearly $1.9 million by the California Regional Mental Health System Coalition Joint Powers Authority (JPA). The five-year agreement calls for the use of Netsmart’s Avatar Practice Management and Clinician Workstation software by nine county mental health organizations in the JPA to facilitate key processes, including client scheduling and tracking, clinical assessment, treatment planning and claims authorizations. Shares were up 82 cents last week, closing at $14.85.
Generex Biotechnology Corporation (NASDAQ: GNBT), a leader in the area of buccal drug delivery, was granted a new U.S. Patent entitled Methods of Administering and Enhancing Absorption of Pharmaceutical Agents, which covers broad claims for the delivery of macromolecules via the buccal cavity of the mouth. This important new patent will augment the protection of GNBT’s proprietary RapidMist drug delivery technologies, and, by extension, company’s flagship product, Generex Oral-lyn, an oral insulin spray product for the treatment of diabetes. In addition to insulin, this also gives GNBT broad intellectual property protection for the delivery of other agents via the buccal region of the mouth. The stock closed at $1.41, up 14 cents for the week.
Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, announced that its subsidiary VeriChip Corporation made the first sales of its Hugs infant protection system and MyCall emergency response system in Australia. The Hugs system provides hospital with protection against infant abduction and mother/infant mismatches, while the MyCall system offers staff the means to call for assistance from anywhere within the system coverage area. In partnership with Austco Communication Systems, its dealer outside North America for these products, VeriChip will install 2 Hugs systems and 2 MyCall systems at 4 different hospitals. Austco Communication Systems said that they expect more sales of these products in the coming months. The stock ended the week at $1.61, up 5 cents.
Tarrant Apparel Group (NASDAQ: TAGS), an innovative design and sourcing company for private label and private brand casual apparel, said sales for the second quarter ended June 30, 2006 increased 17% to approximately $59 million and the company posted its second consecutive profitable quarter thanks to an 82% increase in income from operations. Management reiterated its previous 2006 financial guidance for sales in the range of approximately $220 million to $230 million, while saying that future gross margins should be comparable to, or higher, than the company has achieved over the past six quarters. Company’s Private Label business, which designs and manufactures store-branded clothing for large retailers including Kohl’s, Macy’s, and Wal-Mart, continues to grow with most of its existing customers and TAGS is beginning to ramp up sales with new customers based on performance of earlier shipments of newly developed programs. The stock closed the week at $1.50, down 23 cents.
SLS International (AMEX: SLS), the leading provider of premium quality sound systems for professional, cinema and home entertainment markets, entered into a revolving credit agreement, with an institutional investor, to provide up to $2 million to fund certain inventory and accounts receivable. This credit facility is expected to enable the company to increase sales of its sound systems to retailers and professional customers due to strong demand for its Cinema Series loudspeaker systems and its Q Line and other Home Theater products. In the meantime, this financing will allow SLS to continue to increase sales in a manner which is non-dilutive for its shareholders. The stock ended the week at $0.30, down 3 cents.
Junior oil and gas producer Strategic Oil & Gas, Ltd. (TSX Venture: SOG) has made significant progress on its 22.5% owned multi-well program with Jed Oil in the Pinedale/Jonah area of Wyoming. The first well drilled in the Pinedale area encountered multiple pay zones and Strategic has recently completed the installation of a pipeline to transport its gas to market. Drilling of a second well to delineate this discovery has commenced, and two additional locations permitted. Strategic is currently preparing an application to drill on 20 acre spacing on its Pinedale acreage. The downspacing would allow the drilling of up to 32 wells within the company’s current land holdings. The company has also recently drilled two wells, one near the town of Sylvan Lake and one located in the Minnehik Buck Lake area, both in central Alberta. Multiple zone completion programs have been undertaken, with fracture stimulation and tie-ins currently being completed on both these gas wells. Strategic is paying 35% of the drilling and completion cost to earn 26.25%.The stock fell 10 cents last week to close at $1.90.
QuantRx Biomedical Corporation (OTCBB: QTXB), a medical technology company with leading edge products targeting worldwide health needs, filed its quarterly report for the second quarter ended June 30, 2006 and while the company does not yet generate meaningful revenues, it may do so in the future thanks to its new hemorrhoid treatment. In the second quarter of 2006, QuantRx entered into a patent license agreement with Procter & Gamble, effective July 1, 2006, for the patent rights and know-how to certain hemorrhoid treatment pads and related coatings. Subsequently, the company entered into a five-year distribution agreement with Synova Healthcare to distribute its future hemorrhoid products in the United States on an exclusive basis. The stock lost 15 cents to close the week at $1.20.
IMPART Media Group, Inc. (OTCBB: IMMG), an innovator in the creation of out-of-home digital advertising content and information network management, announced that the company will begin offering a new product, called IQ Live, as the latest addition to its popular IQ Box. The IQ Live offers digital signage users a number of options, including picture in picture, split screen, full screen television or live video feeds, mixed with pre-programmed content. The IQ Live will give IMPART’s customers an entertainment option they previously have not had, which is the ability to split live television or video feeds with their promotional content. This product fits well for a variety of digital signage users, but more specifically fulfils the needs for the hospitality industry, including restaurants, bars, and hotels. This new addition enables that industry to run live television or house feeds, just like they have previously done, but now IMPART’s clients can intersperse their own promotional content, and still not miss out on the entertainment component. The stock closed the week at $1.06, down 9 cents.
Cell biology company Stem Cell Innovations (OTCBB: SCLL), filed its quarterly report on form 10-Q for the second quarter of 2006. While past revenue were relatively insignificant, the company has approximately $1.5 million of cash for further development and marketing of its liver cell-based drug discovery platform (ACTIVTox) and stem cells, which are currently being commercialized in Europe. The stock ended the week at $0.21, up 3 cents.
Itronics, Inc. (OTCBB: ITRO), a “Creative Environmental Technology” company and a world technology leader in photochemical recycling, filed its second quarter 2006 report with key accomplishments for the quarter including a 45% increase in sales, a 121% increase in gross operating profit, and a $274,000 profit due to gain on derivative. The company overcame inclement weather in its principal market in central California to achieve a 36% second quarter increase in GOLD’n GRO chelated liquid fertilizer sales. Silver sales in the quarter increased by 362%. Meanwhile, the company expects fertilizer and silver sales growth to continue throughout the year. Goals outlined by the company for the balance of 2006 are to continue to expand GOLD’n GRO liquid fertilizer and silver sales; increase the number of photowaste services customers to expand photochemical raw material supply; register GOLD’n GRO Guardian liquid deer repellant fertilizer as a biopesticide with the U.S. Environmental Protection Agency; and continue to acquire financing to support growth. The stock ended the week unchanged at $0.02.
i2Telecom International, Inc. (OTCBB: ITUI), a provider of globally ultra-portable high quality Voice-over Internet Protocol (VoIP) products and services, filed its second quarter report for the period ended June 30, 2006. Revenues decreased from $266,230 for the second quarter of 2005 to $136,975 for the second quarter of 2006 as a result of a change from a product driven business model to a service model with recurring revenues. Shares closed at $0.04, down 2 cents for the week.
iVoice, Inc. (OTCBB: IVOI), a developer and licensor of proprietary technologies, filed its financial results for its second quarter ended June 30, 2006. Total sales were $50,924, representing initial product sales of the Acid + All product that was introduced in March and is being promoted by IVOI’s subsidiary, Thomas Pharmaceuticals. However the company also announced that it has entered into a Stock Purchase Agreement to sell this Thomas Pharmaceuticals subsidiary for $1.2 million and additional considerations. This move should allow the company to concentrate on its planned entrance into the alternative energy sector. IVOI is currently in final negotiations to acquire a company that will own the rights to biodiesel technology, the fastest growing alternative fuel in America. The stock ended the week at $0.07, down 1 cent.
Junior mining exploration company Linux Gold Corp. (OTCBB: LNXGF) increased its land position on the Granite Mountain Property in Western Alaska as the company announced that it has staked 136 new State of Alaska mining claims on mineralized areas identified during the 2005 reconnaissance program. The claims were located to link the Kiwalik and Peace claim blocks, thereby forming one contiguous block of claims. This will enable assessment work to be applied to all claims within Linux Gold’s Granite Mt. properties, as well as provide for an access corridor between the Kiwalik River and Peace River drainages. This brings the total number of claims owned by Linux Gold in the Granite Mt. area to 284 claims or 68 square-miles. In addition, Linux Gold owns twelve State of Alaska mining claims on Dime Creek, fifteen miles south of Granite Mt. The stock ended the week at $0.36, down 1 cent.
Stinger Systems, Inc. (OTCBB: STIY), a leading provider of stun gun technologies, announced results for its second quarter ended June 30, 2006. While revenue decreased 24% to $111,000 due to the limited sales volume of existing products, STIY continues to add new features and showcase its stun guns. Shares gained 14 cents last week to close at $1.45.
China Digital Media Corporation (OTCBB: CDGT), a rapidly developing digital media company in China, announced record quarterly sales for its second quarter ended June 30, 2006 as revenues increased 241% to nearly $4.5 million. And even though the company had a substantially higher corporate tax rate, CDGT was still able to increase net income by 11%. The strong revenue growth in the 2006 second quarter was primarily due to the increase in number of digital TV subscribers in the DTV operations in Nanhai, and additional contributions from advertising agency business and channel management of joint ventures operations in Guizhou. Furthermore, management anticipates that synergies from the combination of channel management and advertising agency business will drive CDGT’s growth for many years to come. Despite the news, shares lost 2 cents last week, closing at 0.95.
Citadel Security Software Inc. (OTCBB: CDSS), a leader in enterprise vulnerability management and policy compliance solutions, announced financial results for its second quarter ended June 30, 2006 with revenue increasing 10% to nearly $3 million and net loss decreasing 52% $2.4 million. During the second quarter, the company received orders for Hercules, its flagship security solution, for software, content, support and services from the Department of Treasury, Fairfax County(Virginia), State Street Bank, Verizon, DemandTec, and First Horizon, among others. In addition, 20 Hercules FlashBox appliances were shipped to two agencies within the Department of Defense. Citadel expects sales of Hercules to increase throughout the second half of the year as this is when it has historically received the largest portion of its annual sales order value. Additionally, the sales pipeline remains strong and the company continues to see a steady flow of requests-for-proposals and technical proofs of concepts, and the company continues to make constructive changes in its sales organization aimed at shortening the sales cycle. The stock gained 3 cents last week, closing at $0.51.
USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, announced that it had embarked on a large e-Suds online laundry service installation this summer at six new colleges and universities and a seventh major university, already a successful e-Suds customer, was expanding its laundry operations and installing more units to give students greater access. So far this summer, more than 1,300 college laundry machines have been brought online and connected to the e-Suds system for a value of nearly $250,000 in the seven colleges and universities. USA Technologies’ e-Suds service is now operational in 20 universities and colleges nationwide and the company also reported more orders were in the pipeline to supply four more colleges and universities later in the summer, and discussions were underway with additional campuses. The stock ended the week at $7.55, up 7 cents.
AlphaRx Inc. (OTCBB: ALRX), an emerging biopharmaceutical company utilizing proprietary drug delivery technology to develop novel formulations of drugs, reported results for its third fiscal quarter ended June 30th, where revenue increased to $914,000 from $18,000 due to a licensing fee. Meanwhile, the company appears to be focusing its efforts on joint ventures in China. Shares ended the week unchanged at $0.09.
American Security Resources Corporation (OTCBB: ARSC), a holding company that acquires and develops technologies that will advance the development of alternative energies, is looking to extend alternative energy opportunities as the company announced that it is in advanced discussions to acquire a company that has innovative, patented wind turbine technology. This unnamed company has been issued two U.S. patents on their unique wind turbine which spins horizontally and has operated successfully in the hurricane force winds of last years Hurricane Rita. ARSC’s management believes that this new wind technology will be a great fit with the company’s existing HydraStax hydrogen fuel cells, which will become available in the fourth quarter of this year. It is planned that the wind turbine company would generate electricity in off peak hours, turn it into hydrogen and run the hydrogen through ARSC’s fuel cells at peak demand to earn the maximum price per kilowatt hour produced. The stock ended the week at $0.08, down 3 cents.
Shares of Universal Detection Technology (OTCBB: UDTT), a developer of early-warning monitoring technologies to protect people from bioterrorism and other infectious health threats, may benefit from the global security concerns currently happening around the world. The company was encouraged by the effective foiling of the recent terrorist plot in the U.K. and believes that effective security procedures are the most effective counter measure against such acts of violence. Furthermore, the company believes that the recent anthrax scare at the Brooklyn Police Department Headquarters, where officers seen white powder that was not anthrax fall from an envelope, could have been avoided by using its BSM-2000 early-warning anthrax device. Additionally, UDTT also commented on reports of a recent death of a Scottish man from what appears to be an anthrax bacterium, saying that early detection is the most important factor in reducing casualties of a potential anthrax attack. The stock closed the week unchanged at $0.01.
Diversified sports media company HumWare Media Corporation (OTC: HMWM) added additional licensed Sales Representatives for its Boondoggle Sports Network in Milwaukee, Louisville/Lexington, and San Antonio. HumWare is now rolling out the Boondoggle Sports Network by licensing local territories to experienced marketing and sales representatives in the top markets in the United States and Canada. The company already has numerous locations online today, that are beginning to create local ad revenue. Separately, HumWare also signed a national advertising agreement with Magic Media Networks, Inc. The affiliate agreement allows for both companies to provide national advertising on the participating networks including HumWare’s Boondoggle Sports Network and Magic Media’s consortium of affiliated digital signage networks composed of GETV network, Wild Blue Yonder on Frontier and six other affiliated networks on the National Hotel Television Network, a subsidiary of Magic Media. Shares ended the week at $0.08, down 3 cents.
On the Wires: Drug delivery company Emisphere Technologies, Inc. (NASDAQ: EMIS) appointed William Rumble, CPA to the position of Principal Accounting Officer in addition to his current role as Controller. Neutron Enterprises, Inc. (OTCBB: NTRN), a developer of digital media solutions,has appointed Mitchell Rosen as its Executive Vice President.Prior to joining the company, Mr. Rosen was the principal in his own metal trading and consulting business, and has been actively involved as an advisor, consultant and investor in numerous businesses in a broad range of industries from technology to manufacturing. Separately, the company’s Chairman & CEO, Rory Olson, has initiated a structured trading plan to sell shares of Neutron’s common stock in lieu of receiving a cash salary, as previously disclosed. Junior oil and gas producer, Patch International Inc. (OTCBB: PTCH), announced it has been listed on the Frankfurt Stock Exchange and is now trading there under the symbol PQGB. The company anticipates that this listing will facilitate and grow Patch’s brand name throughout the European community.