08/06/2006
VOLUME 250
Companies featured in the current edition of the newsletter: ADSX, ASPN, CLRI, CYTR, EMIS, FSN, GSHF, HMWM, HSOA, HYTM, IMMG, ISON, IVOI, LEVP, NTST, POIG, RGEN, RTK, SWTS, UDTT
Be careful what you wish for. With the economy slowing and profit growth expected to slow for the latter part of the year, a tough road may lie ahead for investors even as it appears the Fed’s two-year rate hike campaign is nearing an end. Major indices remained relatively unchanged for the week as the market struggles to decide which to be more concerned about, a weakening economy or the direction of interest rates. The Dow ended the week up 21 points increasing yearly gains to 4.9%. The Nasdaq fell 9 points furthering annual losses to 5.5%. Both the S&P and Russell 2000 rose by 1 point, helping the former’s annualized gain increase to 2.5% and the latter’s yearly increase to 4.2%.
Last Friday’s July employment report caught many by surprise as slowing growth in new jobs (113,000 actual versus 144,000 estimated) and rising unemployment (4.8% actual versus 4.6% estimated) suggested a weakening economy. The ISM Services and Factory Orders reports released earlier in the week further suggested that economic growth was decelerating. As the rollout of economic news continues in the weeks ahead, there is much talk about the possibility of the Fed achieving its anticipated goal of a soft landing. But there are mixed camps about the outcome on this suggested soft landing, as some believe the Fed may have gone too far and others think inflation has been tamed at a steady pace. Making this scenario even more difficult for Bernanske & Company are the lingering inflationary items that still exist. which include high energy prices (with oil prices per barrel still above $74) and rising wages (July figures showed a rise of 0.4% similar to the rise in June).
What should investors look for this week? Earnings Season continues, albeit at a slower pace. After the close on Monday, Fluor (NYSE: FLR) will release results. Tuesday, after the close, tech-giant Cisco Systems (NASDAQ: CSCO) will report quarterly results. Wednesday morning Viacom (NYSE: VIA.B) and Walt Disney (NYSE: DIS) will announce earnings. Target (NYSE: TGT) will release numbers Thursday before the bell. Investors should also look for Toll Brothers (NYSE: TOL) Q3 earnings outlook on Wednesday along with General Motors (NYSE: GM) annual automotive securities analyst event also on Wednesday.
The highlight of the economic calendar will unquestionably be the Fed announcement on interest rates Tuesday afternoon. The market has been fixated on the outcome of this meeting as well as any insight to future Fed policy. Other economic events for the week include the release of June Consumer Credit on Monday afternoon. Preliminary Q2 Productivity will be reported on Tuesday morning before the bell. Shortly after the open on Wednesday June Wholesale Inventories will be announced with Weekly Crude Inventories following soon afterwards. Thursday morning Weekly Jobless Claims and the June Trade Balance will be reported with the July Treasury Budget being announced later that day. Friday morning will bring July Import/Export Prices along with July Retail sales with June Business Inventories being reported after the opening bell.
The conference schedule for the week includes RBC Capital Markets hosting its three-day North American Technology Conference in San Francisco starting on Tuesday. Bank of America will be sponsoring its three-day Specialty Pharmaceuticals Conference starting Wednesday in New York. Also on Wednesday, CIBC will host a two-day 6th Annual Software Conference in New York.
Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services, entered into a definitive agreement to acquire privately-held Fireline Restoration, Inc. a provider of recovery and restoration services throughout Florida, Louisiana and Mississippi for cash, restricted stock and an unsecured promissory note. The transaction is expected to close in mid-August and be accretive to 2006 results. Fireline had unaudited revenue for the first six months of 2006 of approximately $21 million and EBITDA of $5 million. This purchase complements Home Solutions’ current businesses and enables the company to pursue larger projects and drive efficiencies from the combined operations. Fireline offers its experience and expertise in responding to past disaster related events of all types where its ability to offer a qualified large labor force is increasingly becoming a differentiating factor in many projects. We have two significant takeaways from the announcement. The company agreed to immediately pay $11.5 million in cash for Fireline. At the end of Q1 it reported $7.2 million in cash, suggesting that it has been able to generate significant cash flow since Q1. This is likely a result of either strong sequential revenue growth or a reduction in receivables. Either would be good news for investors when the company reports results on August 14th. Second, is that the acquisition will help the company fulfill its second-half guidance. One of our concerns has been a shortage of skilled labor in New Orleans and surrounding areas. Fireline has the labor force which will allow the company to complete larger projects. This acquisition significantly increases our confidence level that the company will meet or exceed its EPS targets. Last week’s Tropical Storm Chris, which ultimately weakened, highlighted the opportunities that a hurricane would create for the company. Note that August and September last year were the months when Hurricanes Rita, Katrina and Wilma devastated the U.S. From August 1st until the end of September, shares of HSOA gained 146%. The stock rallied 76 cents last week to close at $6.32.
Earnings Preview: Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, will announce second quarter results for the period ended June 30, 2006 on Wednesday after the market closes. While investors will focus on revenue, which is expected to still be relatively small, they will also consider the company’s cash burn to determine if and when the company needs to raise capital. The company will offer a detailed revenue model for the first time, which we believe could serve as a catalyst for the stock. As the company continues to increase the number of active licensee sites using PROMETA™, sales growth should continue. Last week, the company achieved a significant milestone by signing its third European licensee, Privatklinik Meiringen, for PROMETA. This private hospital is located in Switzerland and has 180 beds where treatments will be offered both in-house and on an outpatient basis. The addition of this site completes Hythiam’s initial network of treatment destinations for servicing the European market. This partner is very important to Hythiam as Switzerland is well-regarded worldwide as a destination for high quality, innovative medical treatment and Privatklinik Meiringen has long been regarded in Europe as a leading provider of substance dependence treatment. Additionally, Hythiam announced that Lawrence Weinstein, MD, has joined the company as Senior Vice President of Medical Affairs in order to assist the company in its expansion with public agencies, managed care organizations and other third party payors. Dr. Weinstein has previously held several executive positions with leading behavioral health organizations, including PacifiCare Behavioral Health/United Behavioral Health and Magellan Behavioral Health. Shares gained 74 cents last week, closing at $5.74.
Earnings Preview: Alternative energy company Rentech, Inc. (AMEX: RTK) will report third quarter results for the period ended June 30, 2006 on Wednesday after the market closes. Financial results will reflect, for the first time, the $70 million acquisition of the Agrium ammonia fertilizer facility in East Dubuque, Illinois, which should significantly increase RTK’s revenue. Investors will look at the company’s cash consumption, and what RTK says about the timing of the conversion of the Rentech Energy Midwest facility in Illinois from natural gas to coal feedstock (acquired from Agrium). The company is also likely to detail its capital requirements in greater detail. Note that as a result of a series of financings completed recently, including receipt of approximately $98 million from the sale of debt and equity securities in April, RTK’s balance sheet should be strong. Shares ended the week at $4.70, down 12 cents.
Earnings Preview: Netsmart Technologies, Inc. (NASDAQ: NTST), a leading provider of enterprise-wide software for health and human services organizations, is scheduled to report second quarter results for the period ended June 30, 2006 on Wednesday after the market close. The company will look to continue its growth witnessed in the first quarter, when revenue increased by 87% to nearly $14 million. One of the main drivers for such growth to continue is the growing need for customer compliance with HIPAA (Health Insurance Portability and Accountability Act) that mandates that the U.S. Dept. of Heath and Human Services enact standards regarding the standardization, privacy and security of health care information. Such legislation requires more providers of services in the under-automated health and human services industry to install automated systems, creating an increased demand for turnkey software solutions like those offered by Netsmart. Investors should also look to the company’s backlog of orders to see what the future holds; as of the end of first quarter this number was an already impressive $43 million, but should increase after the second quarter. Last week, Netsmart also acquired the business of QS Technologies, Inc. for an initial payment of $1.9 million in cash and a $1.4 million promissory note. QS Technologies delivers enterprise-wide public health solutions and vital records software to 70 public health agencies, including nine states. The addition of QS Technologies products and services will enable Netsmart to win more contracts such as the one that the company and Saber was recently awarded by the North Carolina Department of Health and Human Services to provide an integrated statewide public health system. Shares were up 45 cents last week, closing at $13.25.
Volume Alert: Shares 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, traded over 9 times average volume after the company received a favorable summary judgment in its patent litigation against Imclone Systems from a federal court involving the cancer drug Erbitux. Repligen, along with MIT, have claimed that Erbitux’s production process infringes upon an MIT patent that was later licensed to Repligen. This litigation is very significant to all parties involved as ImClone previously reported that it produced approximately $1 billion worth of Erbitux® prior to the expiration of the patent-in-suit in 2004 and that Bristol-Myers Squibb, ImClone’s commercial partner, paid ImClone $900 million in up-front and milestone payments as well as a 39% royalty on the net sales of Erbitux® in the United States. The case will now go to trial where adequate compensation to both Repligen and MIT for ImClone’s unlicensed use of the patented technology will be sought in addition to a multiplier of any damage award based on ImClone’s willful infringement. Additionally, the company will host a conference call and webcast on Tuesday at 11am to report first quarter fiscal year 2007 financial results and to provide a quarterly update. Investors should look for a continuation in revenue growth for both its Protein A and SecreFlo® products which increased an impressive 34% in fiscal year 2006 as demand for such products continues to grow. Decreased royalty owed for SecreFlo® should continue to favorably impact gross margins which improved significantly in 2006 to 72% from 58%. Investors continue to be rewarded as the company keeps achieving its financial guidance with operational performance being consistent with Repligen’s objective to build a self-sustaining, integrated biopharmaceutical company. The company continues to reinvest profits from product sales to further develop the company’s product pipeline, manufacturing capacity and intellectual property. Further updates on product development programs for Secretin and Uridine should also be monitored. The stock closed the week at $2.78, up 38 cents.
Earnings Preview: Drug delivery company Emisphere Technologies, Inc. (NASDAQ: EMIS), is scheduled to report second quarter results on Tuesday morning. Investors will get better insight about company’s development pipeline, which includes various products partnered with Novartis, Roche, and Genta. Since the development programs for formulations partnered with Novartis and Roche are fully funded by the partners, EMIS is in a solid financial position to develop its in-house programs in areas such as heparin and insulin as a result of a May secondary offering. The company is likely to announce results from its Phase II study in oral insulin later this year, which could serve as a significant catalyst for the heavily shorted stock (26% of float). EMIS should also receive considerable attention in the next month as Pfizer gets ready for the U.S. launch of its first generation inhaled insulin product, Exubera, in September. The stock gained 34 cents last week to close at $7.59.
CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical company focused on developing products primarily in the area of small molecules and ribonucleic acid interference (RNAi), completed its Phase I clinical trial of its exclusive HIV DNA + protein vaccine with results showing the vaccine being effective at producing immune responses to the virus and was well-tolerated. A summary of the results will be filed with the FDA this month and manuscripts providing additional detailed results are being prepared for publication in peer-reviewed journals and presentations at scientific conferences. The Phase I study was funded under a $16 million, five-year HIV Vaccine Design and Development Team contract from the National Institute of Allergy and Infectious Diseases which is part of the National Institutes of Health. The company is unlikely to fund a potential Phase II trial on its own, but is more likely to either seek a partner for later-stage activities, or seek funding from the NIH. Additionally, CytRx reported financial results for the second quarter ended June 30th. CYTR made significant progress in the clinical development of its pipeline, including a Phase IIa trial with its oral drug candidate arimoclomol for the treatment of ALS or Lou Gehrig’s disease. CytRx is in strong financial position with over $13 million of cash and $10.5 million in working capital as of June 30th. Shares ended the week at $1.16, down 3 cents.
Fusion Telecommunications International, Inc. (AMEX: FSN), a provider of advanced VoIP services, added an additional 150,000 subscribers to its new Efonica service in the last two weeks, increasing the number of subscribers to 250,000 in less than 45 days since its launch. The rapid increase in subscribers is well ahead of the company’s most optimistic forecasts which demonstrates the large unmet need for innovative VoIP services such as those provided by Efonica. More significantly, it demonstrates that FSN can acquire new customers in a very cost-effective manner. The company, in the coming months, is expected to push pay-oriented value-added services to these customers, much as Skype has successfully done. Shares rose 45 cents to end the week at $1.90.
Isonics Corporation (NASDAQ: ISON), a developer of innovative solutions for the homeland security and semiconductor markets, began production of its new handheld and portable Ion Mobility Spectrometry (IMS) units that will be available for commercial sale later this month. A demonstration for these units was held in Georgia where a diverse group of people attended including law enforcement personnel, public safety agencies, elected officials, and a group of national technology leaders. The stock ended the week at $0.61, up 7 cents.
Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, reported financial results for the first half of 2006 with consolidated revenues increasing 21% to over $62 million for the six-month period. The highlight of the second quarter was record revenue from VeriChip Corporation of approximately $7.0 million, an increase of 133%. Additional highlights during the period included the initiation of a VeriChip two-year pilot program with Horizon Blue Cross Blue Shield of New Jersey and Hackensack University Medical Center, continuing adoption of the VeriMed System as 17 additional healthcare facilities have agreed to implement the system in 2006 the total number of healthcare facilities to 114. Additionally, ADSX’s majority-owned subsidiary Digital Angel expanded the market opportunity for its RFID tags due to its livestock tagging system being approved by the U.S. Department of Agriculture for use in the National Animal Identification System. Digital Angel is the first animal tag manufacturer to be designated as an Animal Identification tag manufacturer by the USDA, which signifies that its tagging system is capable of identifying livestock with the unique, lifetime animal identification number that is being established as a national standard. Lastly, the recently assembled Special Committee of Digital Angel’s Directors has retained Raymond James as investment advisor to consider strategic alternatives to improve its capital structure and maximize shareholder value through growth and other strategic opportunities. Notably, the company said on its conference call that it would be profitable during the second half of the year if its continuing investment in VeriChip was excluded, assuming that Digital Angel delivers the growth it has forecast for the second half of the year. The stock ended the week at $1.64, up 11 cents.
Junior energy company Aspen Exploration Corporation (OTCBB: ASPN), successfully drilled a new gas well in northern California. The Alston #23-2 well, located in the Rice Creek Gas Field, Tehama County, California, was drilled to a depth of 5,700 feet and was the ninth successful gas well out of ten attempts by Aspen in this field where Aspen has a 38.75% operated working interest in this well. Aspen also recently drilled and plugged and abandoned a deep well in Kern County, California after encountering excessive borehole problems. Note that the well was outside of the company’s traditional drilling activities, which have focused on low-risk natural gas drilling, delivering highly predictable results. Shares were down 37 cents to close the week at $4.63.
Clearant, Inc. (OTCBB: CLRI), the developer of the patent-protected CLEARANT PROCESS® for pathogen inactivation, has expanded its product portfolio of allograft implants available through its direct sales force to include Clearant Process® sterile soft tissue implants for allograft sport medicine surgeries. Clearant now offers its sterile implants for both soft tissue and cervical spinal bone allograft surgeries through its direct distribution channel. By expanding its direct distribution initiative to include both soft and cervical spinal bone implants, Clearant has increased its addressable market from $100 million or more per year (for cervical spinal implants) to $350 million or more per year (for both soft tissue and cervical spinal implants). Clearant plans to continue adding additional products later this year, including lumbar spinal bone implants, to address a market of $750 million or more per year. Shares gained 2 cents last week, closing at $0.53.
Environmental business development company GreenShift Corporation (OTCBB: GSHF), reported that its majority-owned subsidiary GS CleanTech Corporation executed a definitive agreement with an ethanol producer to extract roughly 1.2 million gallons per year of crude corn oil from the producer’s distillers dried grains for conversion into a biodiesel feedstock using GS CleanTech’s proprietary corn oil extraction technology. GS CleanTech expects to generate an estimated $1.4 million to $1.8 million in annualized revenues from this agreement. The stock closed at $0.16, unchanged for the week.
IMPART Media Group, Inc. (OTCBB: IMMG), an innovator in the creation of out-of-home digital advertising content and information network management, announced that Eyeplay, Inc. has selected IMPART’s IQ Box as its network platform to be offered to Eyeplay’s client base. Eyeplay, Inc. is a full service visual communications agency that currently works with various clients, including several Fortune 500 companies including Providence Health & Services, Fred Hutchinson Cancer Research Center, Publicis, T-Mobile, Safeco, Port of Seattle and Washington Mutual, among others. In addition, the company also announced that it have shipped IQ Boxes to more than 20 potentially new customers who discovered the new product while attending the Digital Retailing Expo in mid-May. Since IMPART unveiled its IQ Box in May, the response has been overwhelming in the number of potential clients as well as their influence in the industry. The stock more than doubled last week, gaining 84 cents to close at $1.65.
iVoice, Inc. (OTCBB: IVOI), a developer and licensor of proprietary technologies, completed the sale of certain intellectual property assets to pay down indebtedness. The items sold relate to various Voice Activated/Voice Responsive systems developed by iVoice, including item locators for retail stores utilizing various unique identifying, data gathering and organizing, as well as user feedback techniques. The company will continue to seek ways to maximize shareholder value through the development of technologies that are core to iVoice’s business strategy where those technologies that are not pursued will continue to be sold to strengthen current operations. The company has used the proceeds to repay approximately $136,000 in convertible debt to an institutional investor. Shares were unchanged at $0.07.
Earnings Preview: Junior energy company Petrol Oil and Gas, Inc. (OTCBB: POIG) will release its second quarter results on Tuesday after the market closes. Although first quarter revenue growth was only 2.1%, initial production from the company’s largest and most promising project, Coal Creek, only commenced on April 10th, subsequent to the end of the first quarter. As a result, revenue should be substantially higher for the second quarter and throughout the balance of the year as the Coal Creek development plan is based upon drilling and completing some 540 wells over a two to three-year period. Also last week, Petrol provided an update on activities at its Petrol-Neodesha coalbed methane project in southeastern Kansas. Petrol has completed six new multi-zone production wells on such properties since the beginning of the year, with a 100% success rate. Currently these six new wells are producing approximately 240 Mcfd where overall Petrol-Neodesha production has increased 10% from 2,598 Mcfd to a current rate of 2,860 Mcfd in just six months. Additionally, Petrol has drilled five successful multi-zone wells that are awaiting completion and plans to drill and complete approximately 14 additional Neodesha wells during the balance of 2006, for a total of approximately 25 new wells in the project for the full year. This property offers great opportunity for the company and includes 95 wells on 10,000 gross acres. To further enhance shareholder value management is implementing a program designed to improve overall understanding of the effectiveness of multi-zone stimulations and their ability to enhance production and reduce stimulation costs. The objective of this re-completion program is to access and tap into other gas-bearing zones that were bypassed, ultimately contributing to Petrol’s overall production and reserve base. The stock closed the week at $1.35, up 7 cents.
Sweet Success Enterprises, Inc. (OTC: SWTS), which has relaunched a product line made popular by Nestle to tap into the rapidly growing demand for convenient and nutritious beverages, announced strong increases in distribution of its growing line of Fuel for Health products with a 33% increase in the number of stores carrying these products since late-May. Additionally, SWTS announced plans to begin production of several new beverages to add to its product line including Power Blend juice-based energy and stamina drink, Chocolate Immunity Infusion, Ultra Greens Plus, and Glucasafe. The expected early-fall launch of the new beverages will provide the company with a unique product portfolio that large chains and other retail channels have been clamoring for and should help expand SWTS’ sales even further. Shares gained 9 cents last week, closing at $0.93.
Universal Detection Technology (OTCBB: UDTT), a developer of early-warning monitoring technologies to protect people from bioterrorism and other infectious health threats, signed a strategic alliance agreement with UTEK Corporation which will enable the company to identify synergistic technology acquisition opportunities. This alliance is perceived by management as a catalyst for its on-going efforts aimed at developing new measures, not only for countering bio-terrorism but also for expanding into the field of infectious disease detection. UTEK is well-known for its expertise in assisting companies to enhance their new product pipeline with the acquisition of proprietary intellectual capital from universities and laboratory research centers. Additionally, UDTT reported its listing on the Commercial Service’s list of Featured US Exporters (FUSE) in Saudi Arabia and in Qatar. FUSE is a directory of US products featured on US Commercial Service websites around the world and gives US companies a valuable opportunity to target specific markets in the local language of business creating additional exposure to such companies. The stock closed at $0.02, unchanged for the week. Shares were unchanged at $0.02.
Diversified sports media company HumWare Media Corporation (OTC: HMWM), announced that its wholly-owned subsidiary, Timeless Sports Inc., has signed exclusive memorabilia agreements with the Seattle Seahawks’ D.J. Hackett and the Denver Broncos’ Brandon Marshall. Such additions further strengthen the company’s client roster that also includes the Denver Broncos’ Rod Smith, Tatum Bell and Darrent Williams and the New England Patriots’ Daniel Graham. Timeless Sports offers athletes, and the agents that represent them, the ability to maximize their marketability. The services they provide include eBay sales, apparel lines, an autograph authenticity system, fan club management, a customized athlete Internet store, and exclusive autograph appearances for fans to obtain autographs from active professional athletes and retired legends. HumWare has also added sales representatives for its Boondoggle Sports Network (BSN) in the new territories covering several Midwestern and Southwestern states. This is another step in management’s goal is to have established representatives in all of the major college and professional sports markets throughout the country. Shares closed the week at $0.08, down 3 cents.
On the Wires: Lev Pharmaceuticals, Inc. (OTCBB: LEVP), a developer of therapeutics for inflammatory diseases, appointed Joseph Truitt to the position of Vice President, Sales and Marketing. Mr. Truitt was previously Vice President, Sales and Operations with OraPharma, Inc., a Johnson & Johnson company. At Lev, Mr. Truitt will be responsible for building the sales, marketing and reimbursement team in anticipation of the launch of the company’s lead product candidate, C1-inhibitor for the treatment of hereditary angioedema (HAE), currently in Phase III clinical trials.