12/03/2006
VOLUME 266
Companies featured in the current edition of the newsletter: ADSX, ARGA, EEEI, ENZO, FMTI, GNBT, GSHF, HSOA, HYTM, IMMG, ISON, LANW, LNXGF, MLTC, NTRN, SWTS, USAT
A weakening dollar and an overbought market during the holiday-shortened Thanksgiving Week may have provided the clues for what turned into a minor correction last week as all of the indexes experienced declines. The Dow finished the week down 86 points and decreased its year to date gain to 13.8%. The Nasdaq closed down 47 points, reducing its year to date return to 9.4%, while the S&P 500 dropped 4 points, lowering its year to date gain to 11.9%. The Russell 2000 closed the week down 11 points and decreased its year to date gain to 16%.
While several of the indexes bounced off key levels of support, concerns about the strength of the economy and rising oil prices cast a pall over stocks, helping to offset some of the bullishness from a rising stock market and favorable seasonal considerations. A weak report on Durable Goods orders for October, declining Consumer Confidence in November, weak existing home sales for October, soft retail sales for November and an Institute of Supply Management Report which showed that manufacturing contracted for the first time in more than three years. More negative news came with rising oil prices, as the price per barrel jumped to $63.43 from just under $60 the previous week.
What should investors look for in the upcoming week? Earnings reports continue to be slow, but investors can expect to see some key announcements around the middle of the week. Tuesday will be the most active day for announcements with earnings reports from Kroger (NYSE: KR), AutoZone (NYSE: AZO), Toll Brothers (NYSE: TOL), and World Wrestling (NYSE: WWE) coming in before the bell. Semiconductor equipment maker Novellus Systems (NASDAQ: NVLS) will provide a mid-quarter update after the market closes on Monday.
The economic news for next week shifts from recent spending to a greater focus on recent employment numbers, as well as recent orders. Investors can expect to see Q3 Preliminary Nonfarm Productivity and Unit Labor Costs on Tuesday morning before the market’s opening, followed shortly after by mid-morning announcements of October Factory Orders and November ISM Services. Weekly Crude Inventories will be announced mid-morning Wednesday. Look for the weekly Initial Unemployment Claims to be announced before the market opens Thursday, as well an announcement for October Consumer Credit. Investors can expect to see the majority of announcements for the week Friday morning with the release of November Nonfarm Payrolls, the November Unemployment Rate, November Hourly Earnings, and the Average Workweek for November. The final announcement for the week will be the December Michigan Sentiment Index announced mid-morning Friday. In other economic news, Chicago Fed President Michael Moskow, an inflation hawk, will appear on CNBC Monday.
The conference schedule for the upcoming week remains busy and will begin Monday with the start of the two-day Bank of America Securities 2006 Credit Conference held in Orlando, Florida. The two-day Bear Stearns 3rd Annual Real Estate Conference in New York, the four-day Credit Suisse Media and Telecom Week event in New York, and the four-day UBS 34th Annual Global Media and Communications Conference at the Grand Hyatt New York, begin Monday. The three-day Merrill Lynch 3rd Annual Latin America Small to Mid-Cap Conference in New York also begins Monday. Credit Suisse is scheduled to hold the two-day Aerospace and Defense Conference in New York beginning Tuesday. Other Tuesday conferences include the two-day Citigroup 17th Annual Chemical Conference, the three-day Lehman Brothers Global Technology Conference in San Francisco, the single-day RBC Capital Markets Silver Conference in New York, and the single-day 10th Annual Wachovia Real Estate, Gaming & Lodging Securities Conference at the New York Palace Hotel. The two-day BMO Nesbitt Burns Healthcare Conference in New York begins Wednesday. Hythiam, Inc. (NASDAQ: HYTM) will present at the conference on Wednesday at 1:30 p.m. Piper Jaffray’s 3rd Annual Online Advertising and Search Symposium will be held in New York on Wednesday. The two-day Wedbush Morgan California Dreamin’ 2006 Conference in Santa Monica, California, will also begin Wednesday. The end of the week will be extremely full with conferences as the schedule comes to a close on Thursday as Calyon Securities will host a US Airline Conference in New York. Other Thursday conferences include the Citigroup 11th Annual Global Paper and Forest Products Conference, the CIBC World Markets Communications Software 1-on-1 Conference in New York, the Cowen and Company 2nd Annual Internet Conference in New York, and the Ryan Beck and Company Financial Institutions Investor Conference at the Waldorf Astoria in New York.
Enzo Biochem, Inc. (NYSE: ENZ), developer of innovative health care products based on molecular biology and genetic engineering techniques, announced that a U.S. federal appeals court denied permission for an immediate interlocutory appeal, allowing Enzo to go ahead with its patent infringement lawsuit against Applera Corp. and privately held Tropix Inc. The court denied petitions requesting appeal from the Markman rulings issued by the Connecticut Court on October 12, 2006 construing claim terms in six Enzo patents asserted against Applera and Tropix. Markman rulings often play a critical role in determining the outcome of patent-related litigation, as they determine how broadly the courts will view patents. The alleged infringing products include Applera’s Applied Biosystems’ DNA sequencing products and systems as well as services, which represent significant markets for the companies. The patents relate generally to methods and materials for detecting nucleic acid sequence. Shares ended the week at $15.14, down $0.38.
Digital Angel Corporation, a majority-owned subsidiary of Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, announced last week that the SARBE Division of Digital Angel’s London-based subsidiary, Signature Industries, has signed a new contract with Royal Malaysian Air Force to provide SARBE G2R Personal Locator Beacon technology for use by fast jet and helicopter aircrew. The Royal Malaysian Air Force has placed an initial order of more than $115,000 and the company believes that additional orders of approximately $2.5 million for additional equipment will be made by the Air Force in 2007. The Air Force has used the SARBE beacons for over 30. The new beacons offer significantly improved alerting capabilities with much higher levels of accuracy leading to the better results for faster rescues and increased survival prospects. In additional company news, Applied Digital’s subsidiary, VeriChip Corporation, announced the results of a clinical study on its VeriMed System for patient radio frequency identification conducted by the Spallanzi National Institute of Rome Italy and sponsored by the Italian Ministry of Health. The two-year, 10 patient study was designed to evaluate the safety and effectiveness of the VeriMed implantable microchip and the functionality of the VeriMed System in the management of patients with chronic infectious diseases undergoing care at the Institute. The study reported no complications or side effects related to the insertion procedure, flawless access of the ID number using the hand-held reader, and universal acceptance within the patient study group. Based on the results of the study, the exclusive VeriChip distributor for Italy plans to petition the Italian Ministry of Health for full availability of the VeriMed System through the Italian National Health Service. The stock ended the week down $0.15 at $2.14.
Generex Biotechnology Corporation (NASDAQ: GNBT), a leader in the area of buccal drug delivery, recently announced new clinical data from a trial of Generex Oral-lyn, the company’s proprietary oral insulin spray product. The recent study compared the effects of two forms of prandial, or mealtime, insulin in patients with Type-1 diabetes mellitus maintained on basal isophane insulin, or Generex Oral-lyn (NPH) versus standard pre-prandial below the skin injections or regular bolus insulin. The study reported included 11 subjects in the control group who received twice daily injections of NPH and three pre-meal injections of regular insulin. 14 subjects in the treatment group received twice daily injections of NPH and three split-dose applications of Oral-lyn. The results demonstrated that both Oral-lyn and mealtime injections of regular insulin achieved near normalization of metabolic control parameters as reflected by continuous improvement in fructosamine and HbA1c concentrations. A comparison of HbA1c showed a superior effect for Oral-lyn. This study provides the format for the company’s pivotal late-stage, long-term trial of Oral-lyn in 300 patients which will begin early in 2007. Shares ended the week down $0.08 at $2.08.
Isonics Corporation (NASDAQ: ISON), a developer of innovative solutions for the homeland security and semiconductor markets, said that its partner DualDraw LLC has delivered an AirCHX security inspection table to a undisclosed U.S. court system. The security inspection table will be used in screening hand baggage and parcels at the courthouse access points. The installation, which represents the first use of this technology by a court system, comes one week after the company announced the receipt of a purchase order from DualDraw to upgrade six DualDraw AirCHX mail inspection workstations with chemical and explosive detection capability using Isonics’ ion mobility spectroscopy instruments at various federal government facilities. The AirCHX security inspection table is designed to protect security personnel from anthrax and other biological hazards with its patented down-draft ventilation and filtration system. The system also has capabilities to detect the presence of homemade explosives, chemical warfare agents and toxic chemicals by virtue of the Isonics-supplied ion mobility spectroscopy system integrated into the table. The stock finished the week down a penny at $0.79.
Little more than six months after a wave of heavy Insider selling helped trigger a precipitous slide in shares of Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services, two Insiders purchased stock. The company’s president purchased 20,000 shares and one of the company’s directors bought 5,000. While the acquisitions represent just a tiny fraction of the shares sold six months earlier, it is worth noting that the president’s transactions have been particularly timely, as his previous purchases (stock rose) and sales (stock declined) preceded significant moves in the price of the company’s stock. Shares ended the week at $5.95, up 80 cents.
Volume Alert: Shares of Forbes Medi-Tech (NASDAQ: FMTI), a company focused on the development and commercialization of innovative products for the prevention and treatment primarily of cardiovascular disease, surged more than 16% Friday on more than five times average volume. The company previously said that it would report topline results for its cholesterol-lowering drug, FM-VP4. within the first two weeks of December. FM-VP4 is part of the fastest growing category within the anti-dyslipidemics market called cholesterol absorption inhibitors (CAIs). CAIs are less potent than statins, but can provide enhanced safety as well as a synergistic efficacy in combination therapy. The goal of the study is to demonstrate a 15% or greater reduction in LDL, commonly known as “bad cholesterol”. The previous study, conducted in 2004 demonstrated an 11% reduction. Over the weekend, Pfizer Inc. said it had cut off all clinical trials and development for torcetrapib, a cholesterol drug that was supposed to be the star of its pipeline because of an unexpected number of deaths and cardiovascular problems in patients who used it. It was hoped that it would raise levels of HDL, or what’s commonly known as good cholesterol. Shares of FMTI ended the week at $2.37, up 27 cents.
Specialty pharmaceutical company Auriga Laboratories, Inc. (OTCBB: ARGA), announced that it has entered into a trade development agreement, under which New Pharmaceutical Strategies (NPS,) a division of VCG & Associates, will increase trade development strategies and initiatives focused on enhancing sales of Auriga’s product line. Under the two-year agreement, NPS will focus on increasing sales of Auriga’s products by strengthening product position in the retail and drug wholesale marketplace. NPS will be responsible for all trade development, national accounts and supply chain initiatives on behalf of Auriga and in effect will function as the in-house trade team. VCG & Associates (VCG) is an independent strategic marketing and contract services provider specializing in working with emerging pharmaceutical, biotech and technology companies providing strategies, tactics and resources related to commercial product launch activities. The stock ended the week up $0.04 at $0.90.
Neutron Enterprises, Inc. (OTCBB: NTRN), a developer of digital media solutions,announced that the company has entered into a definitive agreement to acquire privately-held Stock-Trak, Inc. Stock-Trak, Inc. is the North American leader in stock portfolio simulations for the educational and corporate markets. Neutron will acquire Stock-Trak for a purchase price of $3.5 million, payable through a combination of $2 million and $1.5 million worth of restricted common stock. The acquisition, which is expected to close in January, 2007 is anticipated be accretive in the first year. Stock-Trak’s main website provides educational stock market simulation services to over 800 college professors and over 50,000 students worldwide. Its network of branded sites is used by over 100,000 middle and high school students each year. The acquisition is expected to provide Neutron with the expertise to accelerate development of the website and infrastructure that will host its new fantasy stock-market competition and is also expected to provide Neutron with access to hundreds of educational institutions. The stock finished the week at $2.35, up $0.10
GS AgriFuels, a majority-owned subsidiary of environmental business development company GreenShift Corporation (OTCBB: GSHF), announced last week that automotive giant General Motors has provided a Chevrolet Silverado and a GC Sierra pickup truck to Clarkson University for renewable fuel research. Clarkson professor, Dr. Philip Leveson, working with ZeroPoint Clean Technology, has developed advanced biomass gasification and gas to liquids systems that allow a wide range of biomass feedstocks and municipal waste streams to be converted to carbon-neutral transportation fuel. ZeroPoint Clean Tech, Inc. is a renewable energy company that deploys cutting edge biomass gasification, gas to liquids and water treatment technologies for creating carbon-neutral energy (gas, electricity, ethanol, diesel substitutes, and hydrogen), clean water and other valuable products. The project goal is to fuel the GM vehicles with 100% bio-derived diesel-like fuel. These GM vehicles will initially operate using a variety of blends of the bio-mass derived fuel combined with conventional petroleum derived diesel fuel. The energy through-put and emissions will be monitored during to operation to demonstrate performance of the systems. The stock ended the week unchanged at $0.11.
USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, announced last week that the National Guard in Honolulu was installing its VendingMiser on vending machines across its bases in Hawaii to help lower energy consumption and costs and reduce carbon dioxide emission. The Army National Guard joins the Pearl Harbor Navy base and Hickham Air Force base who converted their vending machines several years ago. The sale also comes after USA Technologies recently sold VendingMiser devices to Fort Hood Army Garrison in Texas, the biggest military defense force base in America. The company is also in final negotiations with the U.S. Navy for further base installs in the U.S., as well as installations in federal, state and local government buildings, and recently completed installs in U.S. Coast Guard bases in California and Hawaii. The stock ended the week down $0.20 at $6.20.
Language Access Network (OTC: LANW), a leader in video interpretation services, announced late last week that the company has reached an agreement to acquire privately-held Healinc Telecom, LLC. Healinc Telecom was founded in 2004 and is based in New York City. The company is a provider of video interpretation service and Video Relay Service to the deaf and hearing impaired. The company currently holds clients such as New York Community Hospital, Bronx Lebanon Hospital, Jacobi Medical Center, Manhattan and Bronx Public Library Systems. Language Access Network will purchase Healinc Telecom for restricted common stock and debt in the company. Healinc Telecom’s Video Relay Service, which is endorsed by Deaf Counseling and Advocacy Agencies nationwide, provides video relay service interpretation 24 hours a day, seven days a week, in American Sign Language and Spanish. Healinc Telecom is estimating it will gross $2.7 million in 2006, with a projected revenue increase of at least 35% in 2007. Language Access Network expects that the acquisition is will be additive to 2007 earnings. Shares ended the week unchanged at $3.75.
Sweet Success Enterprises, Inc. (OTCBB: SWTS), which has relaunched a product line made popular by Nestle’s to tap into the rapidly growing demand for convenient and nutritious beverages, last week announced the company’s two newest products. As company management shifts the focus to building mass market distribution, the company has substantially completed its product development program with a line of seven innovative and reportedly delicious all-natural, healthy-lifestyle beverages. In addition, Sweet Success also announced reorders from a national retail account and its largest distributor account based in the southeast. Last month, the company completed the first commercial production run of Ultra Greens™, a fruit juice-based drink rich in nutrients and vitamins and later this month, it expects the initial commercial run of Glucasafe™, a beverage targeted to sugar-conscious consumers without sacrificing taste. The company also recently increased the nutritional value and enhanced the flavor of its chocolate and vanilla dairy-based shakes in entirely redesigned packaging under the new name VitaTein™ to better distinguish them from the competition and better emphasize the purpose of the product. Shares ended the week down $0.08 at $0.58.
IMPART Media Group, Inc. (OTCBB: IMMG), an innovator in the creation of out-of-home digital advertising content and information network management, recently announced the formal release of Impart IQ Streams™. The Impart IQ Streams™ is an easy-to-use web portal media source and library of premiere infotainment content for digital signage and interactive kiosks networks or applications. As of last week’s launch, Impart IQ Streams™ delivers sports, news, finance, entertainment, music, and weather in motion video, still graphic, flash animation, text, or IPTV formats to media players or to virtually any device via open standard, XML protocols. As the digital media library expands, more content and future IPTV channels will become available for a variety of applications including health and fitness, generalized waiting areas, food and dining, infotainment, shopping, travel and financial applications. Shares ended the week down $0.04 at $0.48.
On the Wires: Electro Energy, Inc. (NASDAQ: EEEI), a developer and manufacturer of advanced rechargeable batteries, announced that the company has appointed Timothy E. Coyne as the new Chief Financial Officer. Coyne replaces Michael E. Reed, the Company’s President and Chief Executive Officer, who had served as interim Chief Financial Officer. The company also announced last week that it has appointed Lawrence G. Schafran to its Board of Directors. With his extensive experience in the financial markets, corporate governance and as a member of the Board of Directors of several other publicly-traded companies, Mr. Schafran will serve on Electro Energy’s Audit Committee. Sweet Success Enterprises, Inc. (OTCBB: SWTS) appointed Austin, Texas-based Helin, Donovan, Trubee & Wilkinson LLP as its new independent registered accounting firm.
SPECIAL SITUATIONS:
Melt, Inc. (OTCBB: MLTC) $0.76
Last week, Jamba Juice, a chain of 580 juice bars in 23 states went public after a deal to purchase it for $256 million by a shell company closed. The deal highlights the growing role that healthy lifestyle franchises are playing in the eyes of the consumer and the investment public. One company that recently went public to considerably less fanfare is Melt, Inc. a company that owns, operates, and franchises quick service restaurants under the brand Melt Gelato & Crepe Café. With the introduction of new and relatively unknown frozen desserts, Melt has uniquely positioned itself to occupy a niche market that has yet to be exploited. Already, the company is profitable in just its third year of operations. Already, it operates out of 13 locations.
With the fast-paced lifestyle of Americans growing at an exponential rate, consumers are increasingly likely to make a quick stop for prepare foods rather than a grocery stop. The convenience of quickly prepared meals and desserts has become increasingly attractive to individuals pressed for time. And these days it is not just burger joints and sub shops that offer the convenience of a delicious snack with exceptional service and a clean place to eat. Recently, fast-food chains such as McDonald’s revamped its menu to offer diners healthier choices. Melt takes the concept far beyond the fast-food chains, through the sales of gelato, including Italian sorbetto, sweet and savory crepes, smoothies, and gourmet Italian coffees. With the recent introduction of over 15 varieties of crepes, the company is positioning itself to become the premier provider of gelato and crepes in the industry.
Melt embraces a concept that takes into consideration the universal popularity and incredible volume of sales and consumption of ice cream and the incredible appeal of frozen desserts and recognizes an untapped market for a delicious and even healthy alternative to ice cream. Health conscious consumers increasingly require natural, fat free, or low fat products and Melt gelato has a specific appeal to that market segment. Gelato is an Italian ice cream made with significantly less butterfat than regular premium ice cream and on average, has 1/3 the fat of its regular counterpart. Too many times, taste is sacrificed in order to create a healthier choice for consumers. But such is not the case with the desserts offered by Melt restaurants. Melt’s gelato is made with 100% natural ingredients and excludes any artificial colorings or flavorings. Even the air content in Melt’s gelato is significantly less than that of regular ice cream, creating creamy textures with richer flavors. Currently, Melt’s restaurants have over 32 flavors of gelato and offer customers a unique European style café experience in an authentic and relaxed atmosphere.
The company has strategically located its first stores in large malls across the country and reports that it currently has strong relationships with the largest and perhaps most influential shopping-center landlords in the country. Melt anticipates strong franchised and owned store growth through dominating this sector of the service industry. Already, financial results are proving that the concept is working. For the nine months ended September 30, 2006, Melt had revenue of $2.5 million, compared to just $900,000 in the prior year. Income from Operations rose more than 17-fold, to $152,609. Net income increased to approximately $146,000 compared to a loss of approximately $138,962 in the prior year.
The financial results are even more impressive when one considers that Melt began selling franchises less than 18 months ago. By year end, Melt expects to have stores open in Northern California, Arizona, Missouri, Ohio, Florida, and Connecticut. In 2007 Melt expects open locations in Washington, New York, Massachusetts, Illinois and Georgia. During the third quarter, it opened its first store outside of California, in Phoenix, Arizona, along with additional California locations in San Francisco and Topanga, California. Melt provides franchisees with its “Store in a Box” program, in which a location is built out and prepared in a “turnkey” fashion. This option frees a franchise owner of the worries and hassles of preparing their store for opening, and should facilitate faster growth for the company.
While consumers are increasingly flocking to the company’s stores, its stock is still unknown on Wall Street. With a valuation of approximately $16 million, the stock appears to ignore Melt’s tasty growth prospects. With the franchising of frozen desserts an emerging concept, Melt represents an appetizing way for investors to participate in a rapidly growing young company that is already profitable.
Linux Gold Corp. (OTCBB: LNXGF) $0.24
With the dollar’s recent decline, the spotlight has once again returned to gold, as demonstrated by the 6.8% gain in the CBOE Gold Index. With that in mind, we thought we would hunt for promising junior gold companies that have fallen below the radar. One such company is Linux Gold Corp., which recently completed a $1.4 million exploration program at the Granite Mountain Gold Project in Alaska. Just as location is everything in real estate, so too is it in the mining business. If this thesis is correct, then Linux is certainly hunting in the right place. Previously, more than 400,000 ounces of placer gold and platinum were produced in the area, valued at well more than $200 million at today’s prices.
Why is the 68 square mile Granite Mountain Project so exciting? Simply put, the property is surrounded by some of the world’s largest gold and polymetallic deposits. To the north is Teck Cominco’s Red Dog Lead-Zinc Mine, the world’s largest zinc deposit with more than $20 billion in contained metal. To the south lies Barrick/Nova Gold’s Donlin Creek Gold Deposit, with nearly 40 million ounces of gold, representing North America’s largest gold deposit. To the west, NovaGold is in mine construction and starts mining at Rock Creek in 2007 at more than 100,000 ounces of gold per year. Right in the middle of all of these mining giants is tiny Linux Gold, with a market capitalization of just $17 million on a fully-diluted basis.
Prospects for Linux are promising, based upon results to date of its exploration program. This year, the company collected placer samples from six widely spaced locations. Two samples of virgin gravel and bedrock yielded coarse particles of lustrous placer gold with ore grades of 0.035 and 0.087 ounces of gold per cubic yard. The purity of the placer gold previously recovered from this area is unusually high and reported to be 950 fine. Other samples suggested potential for platinum and uranium. The company’s 2007 exploration program in the area will include alluvial sampling as well as sampling along valley walls and rims to investigate possible sources for gold and platinum found in stream deposits.
While the Granite Mountain Project alone could support a higher valuation for the company’s shares, it also has two other promising projects actively underway. It Fish Creek Project, owned in conjunction with its joint venture partner Teryl Resources, is adjacent to Kinross Gold’s Fort Knox Mine in the prolific Fairbanks Mining District of Alaska. A winter drilling program, on the 3,100 acre property, will be funded by Teryl and is expected to commence within the next two months. During the summer, Linux reported the delineation of six new drill targets based on detailed airborne geophysical testing. The summer activity found major magnetic anomalies to depth, indicative of mineralizing fluids. The Fort Knox Mine has produced over 300,000 ounces of gold annually for eight years, suggesting that the company is looking in the right area.
Earlier this year, the company acquired a 100% interest in 6,400 acres in the Livengood-Tolovona Mining District, approximately 70 miles northwest of Fairbanks. The District has produced over 500,000 ounces of placer gold from the Livengood Bench and other nearby drainages. The company’s target is low-grade, high tonnage deposits with locally high-grade gold concentrations. Linux also holds interests in a private company that owns 85% interest in a joint venture with mining assets in China. LNXGF also holds a stake in a gold property and a second gold/silver property in the Bralorne/Lillooet mining district in British Columbia, approximately 100 miles from Vancouver.
The stock has been volatile, reaching a high of $0.58 in mid-May, shortly after the company raised approximately $2 million via a private placement. Today, the stock sits just slightly above its 52-week low, and at the same level it was one year ago, before it began its climb higher. With the price of gold starting to surge again, a promising exploration program underway at Granite Mountain and with winter drilling expected to begin soon at the Fish Creek property, there appear to be plenty of catalysts to send shares higher.
