12/17/2006
VOLUME 268
Companies featured in the current edition of the newsletter: ADSX, ARGA, CLRI, ENZ, FSN, GNBT, GSHF, HYTM, LANW, MLTC, OXMI, POIG, RTK, SFP, USAT
With the year winding to a close, the Bulls remained firmly in charge last week, helped by benign news on inflation and favorable seasonal factors. The Dow closed the week up 138 points and increased its year to date gain to 16.1%. The Nasdaq rose 19 points increasing its year to date gain to 11.4%. The S&P 500 finished the week up 17 points and increased its year to date gain to 14.3%, while the Russell 2000 edged up less than a point, maintaining its year-to-date gains of 17.7%.
Continued merger activity, led by aggressive bids by private equity firms, solid earnings from brokerage firms and a bullish outlook from General Electric, a Federal Reserve that remained on hold and a tame inflation report all contributed to the strong gains for the markets. With the final two weeks of the year historically delivering favorable results, the path of least resistance appears to be higher, as the “January effect,” in which stocks, particularly small-cap ones, tend to outperform, could support further gains in the Russell 2000 and broader markets.
What should investors look for in the upcoming week? Earnings reports are still fairly tame, but the activity level picks up this week with more big name companies reporting results. Leading software provider Oracle (Nasdaq: ORCL) and nationally recognized homebuilder Hovnanian Enterprises (NYSE: HOV) will announce earnings after the bell on Monday. Some major names report earnings Tuesday starting with Morgan Stanley (NYSE: MS) and Circuit City (NYSE: CC) announcing their numbers before the market opens. Darden Restaurants (NYSE: DRI) will announce company earnings following the close of the market on Tuesday. Expect to see earnings reports for FedEx (NYSE: FDX), CarMax (NYSE: KMX), and Family Dollar (NYSE: FDO) before the market opens on Wednesday. Bed Bath & Beyond (Nasdaq: BBBY), Accenture (NYSE: ACN), and Nike (NYSE: NKE) will report earnings after the bell Wednesday. Thursday is the final day for announcements and it will be busy. Rite Aid (NYSE: RAD), ConAgra (NYSE: CAG), General Mills (NYSE: GIS), Commercial Metals (NYSE: CMC), and Carnival will all announce company earnings before the market opens. After the bell announcements for Thursday include Solectron (NYSE: SLR), Research and Motion (NASDAQ: RIMM) and Micron (NYSE: MU). Target (NYSE: TGT) provides a mid-month update on sales Monday. InteractiveCorp. (NASDAQ: IACI) holds an investor call on Tuesday.
Next week’s economic news and data will not have a specific focus, but investors can expect to see news involving housing, personal income and spending. The Third Quarter Current Account will be announced Monday morning and will definitely draw some attention. The November Core Producer Price Index, as well as November Housing Starts and Building Permits will be announced before the market opens Tuesday. The weekly Crude Inventories will be the lone announcement for Wednesday. Expect this announcement mid-morning. Thursday morning investors can look for the Third Quarter Final GDP and Chain Deflator announcement, as well as the weekly Initial Unemployment Numbers. The November Leading Indicators will be announced mid-morning and the Philadelphia Fed Index will be announced at noon. November Personal Spending and Personal Income will be announced before the bell on Friday and the preliminary Michigan Sentiment Index will be announced shortly after.
Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, said last week that the United States Patent and Trademark Office granted U.S. Patent Application No. 10/622,068 which contains claims using a composition of matter for the treatment of cocaine dependency. The patent will serve to enhance protection of the intellectual property underlying the company’s PROMETA Protocols and removes one of the key risks that the company faced in marketing PROMETA. One of the uncertainties cited by analysts was whether the company could protect its IP since it uses a combination of generic drugs off-label. The company also said that it entered into definitive agreements with funds affiliated with existing investors and accredited institutional investors to sell approximately 3.6 million shares of its common stock in a private placement at $7.30 per share. Hythiam expects resulting gross proceeds of approximately $26 million, which should be sufficient to allow it to reach profitability. Editors of CEOcast increased their ownership position in the company by purchasing 150,000 shares of stock last week, increasing their ownership stake to more than 1.4 million shares. The stock ended the week up 60 cents, closing at $9.02.
Enzo Biochem, Inc. (NYSE: ENZ), a developer of innovative health care products based on molecular biology and genetic engineering techniques, said last week that it entered into definitive purchase agreements with investors to purchase $46million of its common stock in a registered direct offering at a price of $14 per share. The will be used for general corporate purposes including funding for future acquisitions, clinical research and development programs, the clinical development of product candidates, capital expenditures and working capital needs. In particular, the funding could support an acquisition as the company has, in recent months, been bolstering its management team possibly to support such an event. ENZ also reported last week improved financial results for the first quarter of fiscal 2007 which ended October 31, 2006. The company reported net revenue of $10.4 million, up 3% from the 2005 first quarter. Gross profit, including royalty income, amounted to $6.4 million, compared with $6.1 million a year ago. The company’s net loss declined to $1.2 million, or $0.04 per fully diluted share, compared with a net loss of $3.3 million, or $0.10 per fully diluted share, in the fiscal first quarter of 2005. Results included a $2 million gain on a patent litigation settlement. Shares ended the week down 77 cents at $14.20.
Fusion Telecommunications International, Inc. (AMEX: FSN), a provider of advanced VoIP services, recently announced the launch of the revolutionary Mobilink service. This new service provides subscribers with the ability to access the company’s retail Efonica VoIP services from their mobile phones without Internet access or special software. Subscribers can enjoy the low cost and excellent quality of VoIP from their mobile phones and by simply dialing an access number that automatically authenticates their Efonica member status, subscribers have the ability to call virtually any number in the world at savings of up to 80% compared to their mobile carrier. This service will also be available from landline telephones. Another important Mobilink feature allows users to call any in-network Efonica subscriber worldwide for free by simply dialing ’10,’ the Worldwide Internet Area Code(TM), prior to the registered phone number of the called party. Subscribers to Mobilink also have access to Efonica’s full suite of Internet based VoIP solutions. The company also said that it had completed a $3.875 million private placement of a newly designated class of convertible preferred stock. Every member of the company’s senior management team, including all of the Board member, participated in the financing. The stock ended the week up 39 cents at $1.50.
Generex Biotechnology Corporation (NASDAQ: GNBT), a leader in the area of buccal drug delivery, reported the results of clinical studies on a novel cancer vaccine in development by its wholly owned immunotherapeutics subsidiary, Antigen Express. Trials have shown that the immunotherapeutic vaccine being developed at Antigen Express, AE37, is safe, well-tolerated, and produces a significant immune response in breast cancer patients. While AE37 is similar to Genentech Inc.’s marketed cancer drug Herceptin, the advantage over that drug is that activation of the immune system by AE37 provides the capability of detecting even lower levels of the cancer. Shares ended the week at $1.82, down $0.02.
VeriChip Corporation, a subsidiary of Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, said it received a letter recently from the National Stroke Association that recognized that implantable RFID microchip technology offers the ability to improve stroke treatment by providing medical professionals with immediate access to vital health information of stroke-afflicted patients. An excerpt from the letter, signed by James Baranski, CEO of the National Stroke Association, stated, “Personal Health Records, including implantable RFID microchips such as VeriMed, could play a critical role in assisting medical professionals in delivering appropriate stroke treatment promptly, leading to better patient outcomes.” The VeriMed Patient Identification System consists of a handheld radio frequency identification scanner, an implantable RFID microchip and a secure patient database, and is currently being used to help rapidly identify and provide access to important health information on participating patients who arrive at an emergency department unconscious, delirious or unable to communicate. This implantable RFID system is the only system of its type cleared by the United States Food and Drug Administration for use in people. Verichip also recently passed an important milestone in the sale and use of the company’s infant protection systems. One-out-of-three hospitals and birthing centers in the United States is now using systems manufactured by VeriChip. This includes systems sold under both the Hugs and HALO brand names. The company believes that it has the largest installed base of infant protection systems of any company in the industry. Revenues from sales of VeriChip’s infant protection systems increased by 28% during the first three- quarters of 2006 as compared to pro forma revenue from such systems during the comparable period in 2005. Finally, ADSX’s majority-owned subsidiary, Digital Angel Corporation, announced that Signature Industries, its London-based subsidiary, has entered into an agreement to acquire certain assets and customer contracts of McMurdo Ltd., the U.K.’s premier manufacturer of emergency location beacons, from Chemring Group PLC. Digital Angel will purchase McMurdo for approximately $6.2 million, with additional deferred payments ranging from $0 – $3 million, dependent upon performance of the business following the sale. VeriChip is expected to complete an IPO in the first quarter of next year. The stock ended the week down $0.08 at $2.14.
Rentech Inc. (AMEX: RTK), a developer of alternative energy sources, announced the company’s results for its 2006 fiscal fourth quarter and the twelve months ended September 30, 2006. For the fourth fiscal quarter ended September 30, 2006, Rentech had revenue of $26.8 million compared to $0.05 million for the equivalent period in 2005. The strong growth in revenue was driven by the acquisition of Rentech’s nitrogen fertilizer plant, which it acquired in April of 2006. The company reported a net loss applicable to common stockholders of $8.5 million or $0.06 per share, compared to a loss of $5.8 million or $0.06 per share in the same period in fiscal 2005. For the twelve months ended September 30, 2006, Rentech had revenue of $44.5 million compared to $0.6 million for the corresponding period in 2005. The company reported a net loss applicable to common stockholders of $38.7 million or $0.30 per share, compared to a net loss applicable to common stockholders of $23.7 million, or $0.26 per share for the same period in fiscal 2005. The company ended fiscal 2006 with cash and cash equivalents and marketable securities of $56.8 million and working capital of $65.5 million. Shares ended the week down 17 cents at $3.63.
Small appliance maker Salton, Inc. (NYSE: SFP), announced that the company has extended its previously announced exclusivity agreement with Harbinger Capital Partners Master Fund I, Ltd. The extended agreement states that Salton will not on or prior to January 2, 2007 solicit or, subject to certain exceptions, otherwise negotiate any acquisition proposal involving Salton with any person other than Harbinger. Salton and Harbinger are currently in discussions with respect to a possible combination of Salton and Applica, which is party to a definitive agreement to be acquired by certain affiliates of Harbinger. The delay in Salton reaching a deal with Harbinger could be as a result of NACCO Industries entering into a bid this week to buy Applica that was higher than Harbinger’s, although the investment firm subsequently matched the sweetened offer. Shares of Salton could become volatile depending upon how events play out with Applica. The stock ended the week at $2.48 down 26 cents.
Clearant, Inc. (OTCBB: CLRI), the developer of the patent-protected CLEARANT PROCESS® for pathogen inactivation, reported last week that the company signed an agreement with OR Specialties, a leading distributor of orthopedic surgical supplies, to represent and distribute Clearant Process® Sterile Implants for allograft sport medicine surgeries. Under the terms of the agreement, OR Specialties will deploy its 13-member sales team to market the implants to the sports medicine specialists targeting hospitals and surgery centers throughout New York, Northern New Jersey, Connecticut, Rhode Island and Western Massachusetts. Last week the company also said that it had inked a supply agreement to distribute sterile sports medicine implants across the United States and over the past two years, Clearant Process® Sterile Implants have achieved recognition and support in the sports medicine field due to a high level of efficient performance and superior protection against infection. The Clearant Process is the first technology capable of eliminating all types of pathogens in tissue implant sterilized in its final packaging, while maintaining the integrity of the essential underlying protein in the tissue. More than 9,000 patients have received a Clearant Process® Sterile Implant with success. Clearant also announced last week that the company signed an agreement with orthopedic surgical supplier, JPS Surgical, Inc., to represent and distribute Clearant Process® Sterile Implants for allograft sport medicine surgeries. Under the terms of the agreement, JPS Surgical, Inc. will deploy its team of 20 sales representatives to market the implants to the sports medicine specialists throughout the states of Oklahoma and Arkansas. Shares ended the week up 5 cents at $0.37.
Language Access Network (OTC: LANW), a leader in video interpretation services, announced that it was selected by OhioHealth Hospital, Marion General, to provide interpretation services. Under the new services agreement, Language Access Network will provide video interpretation service in 150 languages, including American Sign Language. The company’s state of the art Martti™ service will be available at no cost to patients in Marion General’s emergency department 24 hours a day, 365 days a year. The average interpretation for Martti(TM) lasts ten minutes. Marion General Hospital draws patients from a seven county area. In the previous fiscal year, the hospital served 49,068 patients in the emergency department and an additional 10,000 inpatient admissions. Shares ended the week down 10 cents at $3.40.
Melt, Inc. (OTCBB: MLTC), owner, operator and franchisor of quick service restaurants operating under the name “Melt Gelato & Crepe Cafe,” announced that it has opened its first franchisee owned and operated store in Coconut Point, near Naples, Florida. Coconut Point is a major new development by Simon Property Group and the mall is part of a 500 acre upscale master planned community that will include 1.4 million square feet of open air retail space, 90,000 square feet of office space and 200 – 400 residential units. The location is the company’s first in Florida. Melt’s expansion program is initially focused on California, Arizona, Nevada, Florida, Massachusetts, Missouri, New Jersey, Pennsylvania, New York, Connecticut, Illinois and Washington States. The stock ended the week up 5 cents at $0.80.
Oxford Media, Inc. (OTCBB: OXMI), a leading developer of scalable, turnkey hybrid digital VOD and PPV entertainment systems, said last week that the company expects to become the second largest provider of Video On Demand (VOD) solutions to the hospitality industry upon the completion of the recently announced merger of the two largest providers of VOD solutions in the U.S. Early last week, LodgeNet Entertainment announced the $380 million acquisition of OnCommand from Liberty Media Corp. The transaction values each hotel room that OnCommand services at $455 per room. Oxford Media’s recently acquired customers of SVI Hotel Corporation at a comparative valuation of just $90 per room, which included 60,000 rooms of High Speed Internet access. OxfordSVI properties have a different demographic profile, but the properties produce similar market driven cash flows and OxfordSVI also has a robust and highly regarded 24/7 customer service and nationwide field service network, currently serving its 2,400 client hotels. Shares ended the week at $0.45 up cents.
USA Technologies, Inc.(OTCBB: USAT), a developer of cashless vending and energy management products, announced that it received and accepted orders from institutional investors for a private placement of 1.4 million shares of common stock at a price of $6 per share resulting in gross proceeds of $8.4 million. As part of the private placement offering, USA Technologies will issue to the investors warrants exercisable into 700,000 additional shares of common stock, at a price of $6.40 per share through December 31, 2011. William Blair & Company, LLC acted as the exclusive placement agent. The company believes that its recent strong performance and the potential future revenue growth enabled it to raise the funds from a quality group of institutional investors. Shares ended the week down 5 cents at $6.45.
GS AgriFuels, majority owned by environmental business development company GreenShift Corporation (OTCBB: GSHF), announced last week that Fishers, Indiana-based e-biofuels LLC has entered into an agreement with NextGen Fuel for a five million gallon per year biodiesel system. The NextGen system is expected to be completed in February 2007 for testing and launched at e-biofuels’ Middletown, IN facility immediately after. Fabrication of e-biofuels’ first system will begin immediately. The system, which is being manufactured by Warnecke Design in Van Wert, Ohio, is expected to initially operate using soybean oil. The e-biofuels’ Middletown, Indiana facility is being built for capacity of 25 million gallons per year, and is expected to begin operations in March 2007. The plant will potentially employ up to 15 people by peak production. This recent order by e-biofuels LLC represents NextGen’s fourth customer order for shipment of equipment in the past 90 days. NextGen’s biodiesel process technology uses innovative process intensification techniques to accelerate and enhance traditional biodiesel reaction for decreased process times, energy reduction and need for raw materials, and increased product quality. Shares ended the week unchanged at $0.10.
On the Wires: Auriga Laboratories, Inc. (OTCBB: ARGA), a specialty pharmaceutical company, recently announced that it had expanded its sales force to 56 representatives from just 9 less than six months ago. The sales force distributes the company’s rapidly-growing innovative line of pharmaceutical products. Junior energy company Petrol Oil and Gas, Inc. (OTCBB: POIG), recently announced the addition of two experienced oil and gas executives to the company’s Board of Directors. Robert H. Kite earned a B.S. Degree in Psychology and Political Science with a minor in Business from Southern Methodist University and has over 20 years of experience in public company board governance. Mr. Kite has served as a director of several publicly traded companies. Duane D. Fadness is a Certified Professional Landman and earned his Master of Business Administration Degree from the University of Denver. Mr. Fadness has more than 25 years of experience in the oil and gas industry in the United States, Canada and Europe. His board-level experience includes virtually all aspects of the financing and management of oil and gas properties. Rentech Inc. (AMEX: RTK), a developer of alternative energy sources, announced that it has appointed Edward M. Stern to its Board of Directors effective December 12, 2006. Mr. Stern has an extensive background in the public and private markets, the power sector and the renewable energy industry, as well as the financial services industry where he specialized in energy project finance and asset management. The appointment brings the total number of members for Rentech’s board to eight.