12/10/2006
VOLUME 267
Companies featured in the current edition of the newsletter: ADSX, ARGA, CDSS, CLRI, CYTR, ENZ, FMTI, GNBT, HSOA, HYTM, LANW, LNXGF, MLTC, OXMI, PTCH, RTK, TAGS, USAT, VOII
Not too hot, not too cold was just the right temperature for investors in stocks, as mixed economic data proved comforting to the financial markets. The Dow closed the week up 113 points and increased its year to date gain to 14.8%, the Nasdaq ended the week up 24 points increasing its year to date gain to 10%, the S&P jumped 13 points, increasing its year to date gain to 12.9%, while the Russell 2000 advanced 11 points and increased its year to date yield to 17.7%.
Several key economic reports paved the way for the Federal Reserve to once again keep rates unchanged at its upcoming meeting on Tuesday. An Employment Report which showed an increase in payrolls which exceeded expectations helped allay fears that a soft landing would not occur. Sharply lowered numbers in unit labor costs helped to ease fears of inflation. With most indexes at multi-year or all-time years and a favorable seasonal bias, the path of least resistance continues to be higher.
What should investors look for in the upcoming week? Earnings reports will once again take a back seat to economic reports, but several leading companies will report. Investors can expect to see Best Buy (NYSE: BBY) and Goldman Sachs (NYSE: GS) before the bell on Tuesday. Thursday, before the bell announcements from Costco (Nasdaq: COST), Lehman Brothers (NYSE: LEH), Carnival (NYSE: CCL), and Bear Stearns (NYSE: BSC) are expected. Adobe Systems (Nasdaq: ADBE) posts results after the close on Thursday. Texas Instruments (NYSE: TXN) provides a mid-quarter update on Monday after the close. Note that chip companies Altera (NASDAQ: ALTR), National Semiconductor (NYSE: NSM) and Xilinx (NASDAQ: XLNX) lowered their forecasts last week. Hewlett Packard (NYSE: HWP) meets with analysts on Tuesday. Advanced Micro Devices (NYSE: AMD) and Citigroup (NYSE: C) meet with analysts on Thursday.
Next week will be fairly active for economic news and events. The single announcement for Monday will be the October Wholesale Inventories. The October Trade Balance will be announced Tuesday before the market opens and the November Treasury Budget will be announced later that afternoon. The major economic event for the week will be the release of the FOMC policy statement Tuesday afternoon. Expectations are that the policy statement will remain virtually unchanged. November Retail Sales will be announced before the market opens on Wednesday followed shortly after by announcements for October Business Inventories and weekly Crude Inventories. Thursday’s announcements include November Import and Export Prices and the weekly Initial Unemployment Claims before the market opens. Friday is by far the most active for reports. Before the opening, announcements of the November Core CPI and the December NY Empire State Index will occur. The week will close with morning announcements for October Net Foreign Purchases, November Capacity Utilization, as well as November Industrial Production.
The conference schedule for next week will be much tamer than in recent weeks. Tuesday marks the commencement of the two-day Goldman Sachs Financial Services CEO Conference in New York, as well as the three-day JPMorgan 3rd Annual Software Forum in San Francisco, and the three-day RBC’s 2006 Capital Markets Healthcare conference in New York. Wednesday, UBS will host the Enterprise Technology Forum in New York. The two-day Credit Suisse Small/Mid Cap Software Conference in Boston is also scheduled to begin Wednesday. Thursday will wrap up the conference schedule for the week with the Citigroup Healthy Lifestyles event in New York and the UBS Automotive Economics Conference.
Volume Alert: Shares of Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, surged 9.6% on nearly three times average volume after the company announced that the state of Texas will evaluate the company’s PROMETA protocol for stimulant dependence for use and adoption as a treatment alternative by the state’s probation, corrections, and re-entry programs.. The 90 day pilot will take place in Collin County, which comprises the 67th District and the 380th Judicial District Court. The pilot enrollment will be 25 participants; primarily methamphetamine dependent offenders on probation or those wait-listed for participation in the State of Texas’ Substance Abuse Felony Punishment Program. If the pilot proves successful, State Representative Jerry Madden, Chairman of the House Corrections Committee and the Representative for the 67th District, will sponsor legislation to provide funding for the program. Notably, the company’s CEO said at an investor conference presentation last week, which was sparsely attended, that the company was likely to soon receive notification that the State of Washington would directly reimburse for PROMETA. While the event was webcast, it appears that his comments, made at the very end of the presentation, were cut off limiting those who heard them. Direct reimbursement from Washington could serve as a major catalyst for the stock. Note that short interest currently is 18.5%. The stock ended the week up 74 cents at $8.42.
Earnings Preview: Enzo Biochem (NYSE: ENZ) will report first quarter results for the period ended October, 2007 on Monday prior to the market open. The company’s results are likely to get a boost from the settlement with Sigma-Aldrich Corp it entered into during the period. Sigma was the defendant in a suit brought by Enzo alleging, among other things, breach of contract and infringement of patents related to the Company’s proprietary labeled nucleotide technology. Since the company reported financial year-end results just two months ago, there are likely to be few significant therapeutic developments in such a short time period, however, the company is likely to update progress on its activities at Enzo Life Sciences, where it has said it was seeking to expand products through in-licensing/acquisition and increase the productivity of its sales force. It is also likely to discuss the impact that new/expanded contracts with Aetna and United HealthCare Group will have on fiscal 2008 results at Enzo Clinical Labs. Shares ended the week at $14.97, down 17 cents.
Rentech Inc. (AMEX: RTK), a developer of alternative energy sources, announced that the company has entered into a agreement for the joint development of a Fischer-Tropsch clean fuels plant to be located in Mingo County. The Mingo Project, located in the lower portion of southwestern Virginia, would utilize Rentech’s Fischer-Tropsch technology to convert synthesis gas, a combination of hydrogen and carbon monoxide produced from the West Virginia coal, into ultra-clean transportation fuels to be used in the Mingo County region. The parties intend to cooperate to develop, finance, own and operate the project which could produce approximately three to nine million barrels a year of the ultra-clean fuels. The initial phase of the project will entail a 60-day due diligence period to be initiated within the first week of January 2007. Providing the due diligence phase indicates that the project is viable, Rentech and the MRCA will continue to evaluate the project in stages by determining the scope and feasibility of the project. After successful completion of these initial stages, Rentech and MCRA expect to establish a project entity and then move forward with engineering, financing, and the construction of the facility. Initially, the parties will share the costs of any third party development expenses and have equal interests in the project. The stock ended the week down 6 cents at $3.80.
Volume Alert: Shares of Tarrant Apparel Group (NASDAQ: TAGS), an innovative design and sourcing company for private label and private brand casual apparel, traded ten times average volume last Thursday after it announced a deal to purchase assets of apparel designer Buffalo Group for the purchase price of up to $120 million. This consists of approximately $40 million in cash, $15 million in promissory notes, shares exchangeable into a total of 13 million shares of Tarrant Apparel Group’s common stock, earn-out payments of up to $12 million based upon the Buffalo Group achieving certain earnings targets over the next four years and the assumption of debt. Tarrant expects the acquisition to close in the first quarter of 2007 and be accretive. The deal will allow the company to optimize its existing infrastructrure, and provide better balance between men’s and women’s apparel and private label and branded apparel. The company said on its investor call that Buffalo had revenue for the first nine months of 2006 of $75 million and EBITDA of $10.2 million under Canadian GAAP. Additional details are expected to be reported when the company files its proxy. Shareholder approval of the transaction, among other closing conditions, is required. Shares ended up 19 cents at $1.58.
Generex Biotechnology Corporation (NASDAQ: GNBT), a leader in the area of buccal drug delivery, announced that the company has been awarded the 2006 North American Frost & Sullivan Award for Technology Innovation for its proprietary oral insulin spray product, Generex Oral-lyn. Frost & Sullivan’s Technology Innovation Award is given to a company or individual that has done new research and showed results of innovative ideas that have or are expected to bring significant contributions to the industry in terms of adoption, change, and competitive posture. This award recognizes the quality and depth of a company’s research and development program as well as the vision and risk-taking that enabled it to undertake such an endeavor. Frost and Sullivan recognized that the product has the potential to become the most widely used form of insulin delivery on a global scale. GNBT also said it had signed a letter of intent with specialty pharmaceutical company Inyx, Inc. to serve the exclusive manufacturer of Generex’s oral spray product Glucose RapidSpay™. The three-year agreement, expected to commence in the first quarter of 2007, includes technical transfer, commercial manufacturing, packaging and supply. Inyx will be the sole producer for GNBT in worldwide markets, with the exceptions of Canada and the Republic of Ecuador. Shares ended the week down 24 cents at $1.84.
Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, said last week that its Chairman and Chief Executive Officer Scott Silverman, would relinquish the CEO position and become CEO of the company’s subsidiary VeriChip Corporation. The move, which came as little surprise to investors, will allow Silverman to focus his efforts exclusively on building VeriChip’s business, which currently is ADSX’s most significant asset. The move also comes as VeriChip prepares for an IPO, an event that could be a catalyst for ADSX’s shares, depending on price. In conjunction with the move, Michael Krawitz, who had previously been EVP of ADSX, was named Chief Executive Officer. Verichip Corporation also said it has been re-certified to the ISO 9001:2000 quality standard. This standard specifies requirements for a quality management system in order for an organization to show its ability to meet regulatory and customer requirements. VeriChip is required to develop and maintain a Quality Management System, and measure its results to ensure continuous improvement in its products and services. Verichip also recently said that iChip Corporation has acquired the distribution rights for all VeriChip radio frequency identification products in South Africa, including VeriMed for patient identification, Roam Alert for wander prevention, HUGS for infant protection, and ToolHound. The three-year agreement is valued at $750,000 and represents the first international deployment for the patient identification and medical information system. Digital Angel Corporation, ADSX’s majority-owned subsidiary, said that the SARBE division of its London based Signature Industries subsidiary had signed a new contract to develop and supply a new crew-escape system for submarines for the Royal Netherlands Navy. The venture, Integrated Submarine Escape Capability will collaborate to effectively meet personnel escape requirements from submerged vessels or during surface abandonment situations. The initial contract is for $150,000 and SARBE expects additional order for equipment purchases. Shares ended the week down a penny at $2.13.
Proving that there are no “sure things” when it comes to the area of life sciences, both Pfizer and Forbes-Medi-Tech (NASDAQ: FMTI) announced disappointing results in the development of cardiovascular products. For FMTI, shares surged two weeks ago as investors bid the stock higher in anticipation of favorable results in the company’s Phase II trial of Fm-VP4, a cholesterol-lowering drug. They were disappointed, as top line results showed a 9% reduction in LDL (“bad cholesterol”) from baseline after 12 weeks of testing. This compared to an 11% result from the first Phase II trial conducted approximately 30 months ago in Europe and well below the company’s 15% target level. FMTI did say that they thought the drug could be marketable in emerging countries, which might not be able to afford the cost of Zetia, which currently achieved a 15% reduction in LDL in clinical tests and is currently a multi-billion drug. Apparently, the company’s executives believe this is a viable outcome, if insider buying by the CEO and other executives is any indication. Despite the purchases, the stock closed at $0.82 last week, down $1.28 and at its lowest level in more than three years.
Shares of Home Solutions of America (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services, surged 7,4% last week, reaching their highest level Thursday since mid-August after additional purchases of stock by insiders was reported. Both the company’s Chief Executive Officer and executive who sold the company Fireline bought shares in the open market, culminating a two-week period in which every senior member of management acquired shares. Note that insider selling in mid-May marked the top for the stock. The company will host an Analyst and Investor Day on Monday, where investors will have the opportunity to see some of the construction projects the company is working on in New Orleans. The stock ended the week at $6.39, up 44 cents.
Is a cure for the common cold possible? Specialty pharmaceutical company Auriga Laboratories, Inc. (OTCBB: ARGA) believes it has acquired one, after it licensed the exclusive rights to a patent-protected product with proven results in the treatment of the common cold. The company entered into a deal to make, use and sell proprietary products, technology and patents for the treatment of the common cold with zinc. The initial product, ColdCure zinc lozenges, uses an original formulation to dramatically reduce the duration and severity of common cold symptoms in two independent, randomized, double-blind, placebo-controlled clinical trials published in peer reviewed medical journals. The formulation is protected by nine patents. There are a variety of cold remedies on the market that use zinc to combat cold symptoms, but the ColdCure product’s patented formula gives it the highest level of zinc ion availability (ZIA). Zinc lozenges having a ZIA value of 100 are strong enough to terminate incipient colds in less than a day or reduce the average duration of existing colds by a week. Most currently available cold lozenges have a zero or low ZIA value, suggesting that they do not release zinc ions. It is the lozenge’s ZIA value coupled with the suitable amount of zinc contained within the lozenge, which results in duration changes in the cold. Shares ended the week unchanged at $0.90.
VoIP, Inc. (OTCBB: VOII), a leading provider of Voice over Internet Protocol (VoIP) communications solutions for service providers, resellers and consumers, said last week in an interview that the company’s network and technology had been incorporated by Google in its online advertising product “Click-to-Call.” The product was officially launched in India last week. VoIP receives an undisclosed fee each time a connection is made between a customer and the advertising company. “Click-to-Call” places customers in direct contact with any advertiser found on Google search pages over the telephone using VoIP’s technology. The use of VoIP’s network and incorporated technology by Google in India follows the launch by Google, less than one month ago, of Google Maps, which also uses VoIP’s technology in a manner similar to its use in India. The stock ended the week unchanged at $0.41.
Citadel Security Software Inc. (OTCBB: CDSS), a leader in enterprise vulnerability management and policy compliance solutions, announced last week that the company received shareholder approval to proceed with the sale of substantially all of its assets to McAfee, Inc. Citadel previously announced that it had signed a definitive agreement to sell considerably all of its assets for approximately $56 million in cash plus an estimated $4 million in working capital reimbursement. The proposed transaction is expected to close in the fourth quarter of 2006, subject to approval of all of the closing conditions in the definitive agreement. Shares ended the week unchanged at $0.51.
Clearant, Inc. (OTCBB: CLRI), the developer of the patent-protected CLEARANT PROCESS® for pathogen inactivation, recently announced that the company signed a supply agreement to distribute sterile sports medicine implants across the United States. Clearant signed a multi-year agreement with Tissue Banks International, a non-profit provider of tissues for orthopedic, spinal, sports medicine, and urologic surgery, for the supply of Clearant Process® sports medicine implants. This agreement will allow Clearant, Inc. to enter a market estimated to generate $350 million annually in sales. The Clearant process is a sterilization technology that virtually eliminates the risk of infection in bone and soft-tissue allograft implants while preserving their functional viability. Clearant’s direct sales have steadily increased every month since it made Clearant Process Sterile Implants available directly to surgeons and surgery centers around the country. 73 Clearant Process Sterile Implants were sold directly during the first two months of the fourth quarter as compared to 52 sold in all of the third quarter. Shares ended the week down a nickel at $0.27.
Language Access Network (OTC: LANW), a provider of video interpretation services, announced that the company has reached an agreement to acquire privately held iBeam Solutions. The Canal Winchester, Ohio based iBeam Solutions, was founded in 2000 and is a comprehensive provider of technology solutions to businesses. Some of iBeam’s 450 clients include Cardinal Health, Pinnacle Data Systems, Inc., The Daimler Group, The Ohio State University, the Central Ohio Pediatric Endocrinology and Diabetes Clinic and Winchester Medical and Health Center. iBeam is the ninth fastest growing IT firm in Ohio with gross revenues exceeding $1.6 million in 2006. IBeam is also the number one Ohio IT company, accruing $34 million in gross sales according to Columbus Business First. iBeam’s revenue is projected to increase to over $3 million in 2007, after having its most profitable year in 2006. Language Access Network will purchase iBeam Solutions for restricted common stock and the assumption of debt in the company. The stock ended the week at $3.50, down 25 cents.
Volume Alert: Shares of junior mining exploration company Linux Gold Corp. (OTCBB: LNXGF) rose 9.5% Friday on five times average volume, after the company received an updated report on it 2006 exploration program of the Granite Mountain property. The project geologist, Jeff Keener, indicated in the report that new gold anomalies were discovered and suggested that there was potential for significant gold mineralization. The four diamond drill holes results have been received from the 2006 reconnaissance drilling program. The report found up to 0.087 ounces of gold per cubic yard and 9.23 g/t platinum at Dime Creek alluvial gold and platinum deposit. All drill holes intersected well mineralized volcanic rocks, which have been intruded by swarms of dacitic dikes. These rocks have high to very high vein densities and are intensely altered exhibiting propyllitic, sericitic, and potassic assemblages nearing the mineralizing plutonic rocks. Shares ended the week at $0.23.
Oxford Media, Inc. (OTCBB: OXMI), a leading developer of scalable, turnkey hybrid digital VOD and PPV entertainment systems, recently announced that it has entered into an agreement with Best Western Peppertree Inns, located in Spokane, Washington, to provide VOD services to three of Peppertree’s properties located in Auburn, Spokane and Liberty Lake, Washington. The Best Western Peppertree Inns is a family-owned and operated company that offers a unique blend of warm hospitality and comfortable surroundings for some of the most inviting hotels in the state of Washington. Oxford continues to penetrate high quality hotel properties in order to offer their customers many of the services provided by larger hotels. Shares ended the week up a penny at $0.39.
USATechnologies (OTCBB: USAT), a leader in the networking of wireless non-cash transactions, associated financial/network services and energy management, issued an upbeat Letter to Shareholders last week in which the CEO issued an upbeat assessment of the company’s prospects for 2007. In the Letter, the company cited the recent agreement with MasterCard and associated opportunities for e-Port, along with growing sales of EnergyMiser® products in vending machines as some of the reasons why 2007 should be a breakthrough year. Shares ended the week at $6.50 up 30 cents.
Junior oil and gas producer, Patch International Inc. (OTCBB: PTCH), announced last week that the company entered into a letter agreement for the acquisition of Damascus Energy Inc. The letter agreement was dated December 1, 2006. Damascus is a private corporation incorporated under the laws of Alberta. The principal shareholders of Damascus are Michael S. Vandale and Bounty Development Ltd. an Alberta based private company out of Calgary. Prior to the completion of the transaction, the Damascus shareholders will have direct, indirect, or beneficial control of 58.5% of the issued and outstanding Damascus shares. Upon completion of the transaction, Patch proposes to initiate the process of listing on the American Stock Exchange. Patch intends to acquire, directly or indirectly, 100% of the shares of Damascus, which in turn would make Damascus a wholly-owned subsidiary of Patch. The stock ended the week up 16 cents at $1.43.
On the Wires: CytRx Corporation (NASDAQ: CYTR) is scheduled to present at The New York Society of Security Analysts 10th Annual Biotech & Specialty Pharmaceutical Industry Conference on Tuesday at 9:30 a.m. in New York. Melt, Inc. (OTCBB: MLTC) announced that it had appointed Michael Zorehkey as Executive Vice President of Business Development. Mr. Zorehkey has more than 20 years of real estate and franchising experience and his responsibilities will include all aspects of franchise development, sales and marketing to franchisee and real estate procurement throughout the United States.