01/21/2007
VOLUME 273
Companies featured in the current edition of the newsletter: ARGA, CYTR, EEEI, EMIS, HYTM, ISON, IRBO, LANW, MBND, OXIS, PTCH, RTK, SFP, SWTS, USAT
Just one week after technology stocks surged to their highest level in six years, shares came tumbling back to earth as high-profile companies such as Apple, Intel, IBM and Lam Research failed to meet investors’ lofty expectations. While the Dow actually closed the week higher, and the S&P and Russell posted modest losses, the biggest loser, by far, was the Nasdaq, which shed 51 points to pare its gains for January to 1.8%. The Dow closed the week up 9 points, increasing its gains this month to 0.8%. The S&P 500 finished the week down almost a point, but is up 0.9% for the year, while the Russell 2000 dipped 9 points and closed the week down 0.3% this year.
If expectations are what drive stocks, many of the largest technology stocks disappointed. Apple reported disappointing sales of Mac computers and provided disappointing second-quarter guidance, Intel forecast sluggish margins, IBM failed to beat elevated expectations by more than it did and Lam Research said that orders for the upcoming quarter were likely to be pushed out. The news precipitated a 4.6% decline in the Semiconductor Holders (SMH), which did little to help the mood of technology investors.
The economic data contained reassuring news for the bulls. The core PPI and CPI were both up 0.2% for December, suggesting that inflation remains at manageable levels. However, the release of the Fed’s Beige reported some concerns about a tightening in the labor market that could have some adverse effects on inflation. The recent decline in energy and commodity prices should help to keep inflation in check. Oil closed the week down a dollar at $51.99 a barrel, after briefly trading below $50 per barrel. The ten year note was unchanged at 4.77%.
What should investors look for in the upcoming week? Next week will be loaded with earnings reports, representing the busiest week of Earnings Season. Monday starts the week off slowly with pre-market announcements from diversified industrial manufacturer Eaton Corporation (NYSE: ETN) and Pfizer (NYSE: PFE). American Express (NYSE: AXP) will announce earnings during trading hours. CSX Corporation (NYSE: CSX) and Texas Instruments (NYSE: TXN) will release results after the market closes. Earnings announcements begin to flow in continuously starting Tuesday morning with before the bell announcements from AK Steel (NYSE: AKS), Avery Dennison (NYSE: AVY), Bank of America (NYSE: BAC), Burlington Northern Santa Fe (NYSE: BNI), DR Horton (NYSE: DHI), DuPont (NYSE: DD), EMC Corporation (NYSE: EMC), Johnson & Johnson (NYSE: JNJ), PNC Bank (NYSE: PNC), United Tech (NYSE: UTX), Wachovia (NYSE: WB), and Xerox (NYSE: XRX). Earnings announcements after the close on Tuesday include Advanced Micro (NYSE: AMD), Avaya (NYSE: AV), Centex (NYSE: CTX), Seagate Tech (NYSE: STX), STMicroelectronics (NYSE: STM), Sun Microsystems (Nasdaq: SUNW), and Yahoo (Nasdaq: YHOO). WellPoint (NYSE: WLP), Unisys (NYSE: UIS), Rockwell Automation (NYSE: ROK), Praxair (NYSE: PX), Norfolk Southern (NYSE: NSC), MacDonald’s Restaurants (NYSE: MCD), Hershey Foods (NYSE: HSY), Enterprise Products (NYSE: EPD), ConocoPhillips (NYSE: COP), AmerisourceBergen (NYSE: ABC), and Abbott Labs (NYSE: ABT) all announce company earnings before the market opens on Wednesday. eBay (Nasdaq: EBAY), Qualcomm (Nasdaq: QCOM), Ryland Group (NYSE: RYL), Symantec (Nasdaq: SYMC), and Textron (NYSE: TXT) will announce earnings after the bell. Thursday is another active day for announcements with some highly recognizable names reporting earnings. Before the bell announcements include AT&T (NYSE: T), Avnet (NYSE: AVT), Bristol-Myers (NYSE: BMY), Cardinal Health (NYSE: CAH), Dow Chemicals (NYSE: DOW), Ford Motor Company (NYSE: F), Kimberly-Clark (NYSE: KMB), Lockheed-Martin (NYSE: LMT), Nokia (NYSE: NOK), Northrop Grumman (NYSE: NOC), Occidental Petro (NYSE: OXY) and Union Pacific (NYSE: UNP). McKesson (NYSE: MCK), Microsoft (Nasdaq: MSFT) and Amgen (Nasdaq: AMGN) will announce earnings after the bell on Thursday. The activity slows down Friday, but investors can expect to see pre-market announcements from Caterpillar (NYSE: CAT), Fortune Brands (NYSE: FO), Honeywell (NYSE: HON), and Halliburton (NYSE: HAL).
Next week’s economic news and data will likely be trumped by the massive influx of earnings reports, but investors will want to pay attention to some key announcements within the economic sector. December Leading Indicators will be announced mid-morning Monday and the weekly Crude Inventories will be announced shortly before noon on Wednesday. Thursday will be the most active day on the economic front with Weekly Initial Unemployment claims announced before the bell and the December Help Wanted Index announced mid-morning. December Existing Sales will also be announced mid-morning Thursday. Economic news for the week closes with December Durable Goods Orders announced pre-market and December New Home Sales announced mid-morning Friday. Some key events that will undoubtedly attract investor attention will be San Francisco Fed President Yellen’s speech on the economy in Reno on Monday and President Bush’s State of the Union Address Tuesday evening.
The conference schedule for next week will be on the lighter side beginning with the two-day A.G. Edwards Retailing Conference in Coral Gables, Florida Monday. The three-day Worldwide Business Research Enterprise Information Management 2007 Conference in San Francisco, California also begins Monday. Thursday will wrap up the conference schedule for next week with the the Bank of America Securities 2007 Out of the Box REIT Summit and the Brean Murray One on One Winter Small-Cap Consumer Conference. Both events will be in New York.
Friday was certainly a volatile day for investors in Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, after the company announced that it has entered into an agreement to acquire risk-based managed behavioral health organization Comprehensive Care Corporation (CompCare), the eighth largest risk-based managed behavioral health organization servicing Medicaid, Medicare, and commercial third-party payers with approximately 1.1 million member lives. Nearly 1 million of the individuals are on a cost-risk basis. As a part of the acquisition, Hythiam is expected to gain increased access to a network of 8,000 CompCare providers and to significantly accelerate the adoption of PROMETA. Hythiam, which paid approximately $16.1 million for the company, now expects minimum revenue of $50 to $60 million for the four quarters after the acquisition is completed (likely late Q1) and margins on the managed care portion of its business that will approach 40% within 2 years. Notably, CompCare has footprints in both New York and New Jersey, giving Hythiam the ability to execute on any commercial arrangements that could result from the pilot studies that Horizon Blue Cross Blue Shield (New Jersey) and HealthNow (New York) are currently conducting. HYTM said it anticipates capturing up to an additional $80 million in annualized managed behavioral health revenues from initial disease management reimbursement on only the ‘high-utilizer’ subset of the substance dependent populations from just Hythiam’s existing managed care relationships. Hythiam currently estimates ‘high-utilizers’ represent an average of 0.02% of plan lives. The combined company will also have the initial infrastructure in place to provide substance abuse disease management to accommodate nationwide third party reimbursement that will be driven by positive outcomes from PROMETA pilots currently underway with other managed care entities. The stock, which traded as high as $11.10 in after-hours trading on Thursday, representing an all-time high, fell to an intra-day low of $8.51 on Friday (represented mid-December intra-day low) before rallying. The stock’s weakness was likely caused by profit-taking (stock was up approximately 37% since December 1), “noise” surrounding the CompCare transaction (a CompCare director resigned as a result of his opposition to the deal, apparently believing the company was sold too cheaply) and potential concerns about HYTM going “at risk”, which should actually allow Hythiam to drive powerful operating results. Note that each of the analysts who commented on the transaction reiterated their Buy or Strong Buy ratings. The stock closed the week down $0.96 at $9.25.
CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical company focused on developing products primarily in the area of small molecules and ribonucleic acid interference (RNAi), announced that its majority-owned subsidiary, RXi Pharmaceuticals Corporation, had entered into a master agreement with the University of Massachusetts Medical School. The agreement provides RXi the option rights to license all unrestricted therapeutic RNAi technology developed by the university over the next three years. The university will receive cash payments and equity in return for the option rights. Recently, the company formed the subsidiary to allow it to focus exclusively on developing its RNAi technology. CytRx owns 85 percent of the subsidiary with a newly created scientific advisory team holding the remaining 15 percent. The advisory team includes Craig C. Mello, who won the Nobel Prize in Medicine for his role in co-discovering RNAi. The stock ended the week down 28 cents at $2.17.
Electro Energy, Inc. (NASDAQ: EEEI), a developer and manufacturer of advanced rechargeable batteries, said last week that the company will amend previously filed Forms 10-QSB for the second quarter ended June 30, 2006 and the third quarter ended September 30, 2006 to reflect the company’s accounting for the April 2006 purchase of battery manufacturing assets in Florida. As a result, it expects an increase in property and equipment of approximately $9 million with a corresponding increase in stockholders’ equity as a result of revaluing the 5.75 million shares of the company’s common stock issued in connection with the asset purchase. The restatement decision was made following comments from the Securities Exchange Commission. The forms were filed last Friday and showed that there was no effect on the condensed consolidated statements of operations for the periods ended September 30, 2006 and basic and diluted earnings per share for the periods ended September 30, 2006. There was also no effect on the condensed consolidated statement of cash flows for the period ended September 30, 2006. Shares ended the week up 4 cents at $1.49.
Drug delivery company Emisphere Technologies, Inc. (NASDAQ: EMIS), said last week that it had replaced Michael M. Goldberg, M.D. as Chief Executive Officer and Chairman of the Board with 13-year Emisphere veteran, Lewis H. Bender, who is currently the company’s Senior President of Business Development. Bender will act as interim CEO for Emisphere while the company continues its search for a permanent CEO. The company will seek a replacement for Dr. Goldberg as a board member during its next annual meeting of the board. The company had previously announced in a regulatory filing that it was conducting a CEO search. Shares ended the week up 53 cents to $5.60
Isonics Corporation (NASDAQ: ISON), a developer of innovative solutions for the homeland security and semiconductor markets, announced last week that it had appealed the staff determination letter that it received from the Nasdaq Listings Qualification department earlier this month. Isonics has been granted a hearing scheduled for March 1, 2007 for a determination on the delisting of the company’s stock from the Nasdaq Capital Market. Isonics plans to present a plan to regain compliance with the continued listings requirements to the Nasdaq Listings Hearing Panel. The company’s common stock will continue to trade on the Nasdaq Capital Market pending the results of the hearing. Note that the company’s shareholders have already approved a reverse stock split, which would likely be sufficient for the company to maintain its Nasdaq listing. The stock ended the week at $0.63, down 9 cents.
Multiband Corporation (NASDAQ: MBND), a leading provider of video, data, and voice systems and services to multiple dwelling units, announced the launch of Wi-Fi, high-speed wireless data services at three leading RV properties based in Florida. The Fort Myers RV Resort, Pioneer Creek RV Resort and The Springs RV Resort, include 1,340 sites for potential customers. With the addition of these three new locations, Multiband has increased the number of upscale RV and mobile home parks it services in Florida to approximately 25 systems. The upgrade of Multiband’s systems to included data applications has created significant growth opportunities and the Wi-Fi technology is another reason for customers to choose Multiband services. Shares ended the week down 2 cents at $0.67.
Small appliance maker Salton, Inc. (NYSE: SFP), announced last week that the company has extended its contract with George Foreman as a spokesperson for its products, including the popular line of grills bearing the former boxer’s name. Under terms of the agreement, Foreman will receive $2 million to promote certain products as spokesperson, make personal appearances on television, participate in private and public conferences and meetings, and act and participate in television infomercials. The contract was originally scheduled to expire November 30th of 2006 and has been extended through the end of 2007. The stock ended the week down 3 cents at $2.38.
Auriga Laboratories, Inc. (OTCBB: ARGA), a specialty pharmaceutical company with products for the treatment of acute respiratory diseases, dermatological conditions, and Xerostomia, said last week that it had doubled the company’s sales force to more than 100 associates. This number includes the company’s associates currently in training, detailing products, and individuals who will receive training over the next five weeks. Independent monthly data shows Auriga’s total dispensed prescriptions for its Extendryl family of products increased 146% in December 2006, as compared to the year-earlier period. Last month, the company reported the expansion of its sales force to 56 associates from nine in less than six months and is now targeting 150 associates by the end of the first quarter of 2007. The company also plans to launch its Aquoral, prescription-only product designed to treat the widespread condition of Xerostomia and its Zinx(TM) family of respiratory prescription and over-the-counter products during the first quarter of 2007. Shares ended the week at $0.66.
Research and development biotechnology company ImmuneRegen BioSciences, Inc., a wholly owned subsidiary of IR BioSciences Holdings, Inc. (OTCBB: IRBO), announced that the initial shipment of the company’s proprietary compound Viprovex™ to Singapore’s Defense Medical & Environmental Research Institute, DSO National Laboratories has been completed. This initial shipment will be used in a pilot study on Acute Melioidosis or Whitmore’s disease. Whitmore’s disease is an infectious disease caused by the bacterium Burkholderia pseudomallei, which is a common to countries such as Cambodia, Laos, Thailand, Vietnam, many other Southeast Asian countries and parts of northern Australia. The bacterium is most commonly found in contaminated water and soil and is spread to humans and animals through direct contact with the contaminants. The disease most commonly affects the lungs, but can spread from the skin into the bloodstream and affect the brain, heart, liver, eyes, kidneys, and even joints. The mortality rate for Melioidosis varies and when the bacteria is in aerosol form the mortality rate can be as high as 90%. The study to investigate the therapeutic effects of Viprovex on acute Melioidosis is funded by DSO and is expected to be completed during the third quarter of 2007. The company also announced last week that it has retained the world’s largest independent research and development organization, Battelle, as an accredited testing facility. The Columbus, Ohio based company will perform laboratory services on behalf of ImmuneRegen’s on its proprietary compound, Homspera. Battelle currently manages/co-manages five national laboratories for the U.S. Department of Energy and ImmuneRegen plans to utilize Battelle’s services immediately to help them perform various studies in support of the company’s two Homspera-based products Viprovex(TM) and Radilex. ImmuneRegen also plans to utilize Battelle to explore additional immunomodulatory properties in a variety of model systems. These studies could support and expand upon ongoing product development activities. Shares ended the week unchanged at $0.14.
Junior oil and gas producer, Patch International Inc. (OTCBB: PTCH), announced last week that the company has completed the acquisition of all issued and outstanding securities of the private corporation 1289307 Alberta Ltd. or Holdco. The deal allows the company to acquire up to a 75% working interest in 18 square miles of land located in the Firebag Oil Sands Project located in the Fort McMurray area of central Alberta, Canada. The Project consists of 18 contiguous sections of 100% owned lands in Townships 91-92 which is approximately 20 miles east of Fort McMurray, representing 11,520 acres. The leases on these lands are valid for 15 years. The productive zone is the McMurray Formation, comprised primarily of fluvial and estuarine channel sandstones which form the main reservoir deposits. The Firebag region is active with “SAGD” (steam assisted gravity drainage) projects in various states of development. The stock ended the week up $0.34 at $1.48.
Sweet Success Enterprises, Inc. (OTCBB: SWTS), which has re-launched a product line made popular by Nestlé’s to tap into the rapidly growing demand for convenient and nutritious beverages, said last week that the company had entered into a distribution agreement and received a purchase order from Tree of Life. Tree of Life is a wholly owned subsidiary of Netherlands based Royal Wessanen NV and is also the largest distributor of natural, organic, specialty, ethnic, and gourmet food products in the U.S. The company provides service to roughly 30,000 points of distribution in the U.S. and Canada. Sweet success announced a similar distribution agreement with Kehe Food distributors earlier this year and this agreement represents the second significant distribution agreement that Sweet Success has entered into. In addition to distribution agreements with the above two companies, Sweet success also has distribution in the Midwest through Associated Wholesale Grocers and in South Florida through Southern Wine and Spirits. The company is excited about the potential sales growth through retail chains that this agreement represents and also announced the kick off of its marketing and promotion campaign to support the launch of the full Sweet Success Complete Fuel™ healthy-beverage line in South Florida. The regional campaign will include consumer giveaways and visits to stores located within the area, as well as revamped marketing efforts through Southern Wine and Spirits. The stock ended the week up 6 cents at $0.71.
USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, reported that five vending machine models from Vendo and Dixie Narco, two major U.S. manufacturers, are the first rebuilt refrigerated beverage vending machines to qualify for ENERGY STAR. The five models were refurbished with USA Technologies’ VM2iQ and currently meet the ENERGY MISER requirements. There are an estimated four million refrigerated vending machines in the US alone of which nearly 200,000 are refurbished and rebuilt each year. Rebuilding a machine extends the machine’s life and avoids the cost of safe disposal of inefficient machines. This also helps bottlers meet their environmental goals. The estimated cost of refurbishing an existing machine with VM2iQ technology to meet ENERGY STAR requirements varies between $100 – $400.USA Technologies’ EnergyMiser product line lowers energy consumption in vending machines and coolers by up to 45 percent and reduces CO2 emissions. An ENERGY STAR qualified rebuilt vending machine consumes 40% less energy than a standard vending machine, which uses 3,000 kilowatt-hours annually, with the potential to save customers approximately $130 per year. USA Technologies was the first company to launch an EnergyMiser® conversion program offering a turnkey package of technology and services to help bottlers take advantage of the new ENERGY STAR specification for rebuilt vending machines. The stock ended the week up $0.04 at $6.84.
Language Access Network (OTC: LANW), a leader in video language interpretation services, announced that the an additional Kroger Pharmacy has gone live with the company’s Martti(TM) video interpretation system. This Dearborn, Michigan pharmacy location marks the fourth Kroger pharmacy to provide interpretation services to non-English speaking customers, allowing them to connect to live interpreters in over 150 languages, including American Sign Language, Arabic, Japanese, Russian, Somali and Spanish. Shares ended the week at $3.55, up 55 cents.
On the Wires: Rentech Inc. (AMEX: RTK), a developer of alternative energy sources, announced the appointment of Richard T. Penning as Executive Vice President of Commercial Affairs last week. Penning will fill the position effective immediately and will oversee Rentech’s project and business development, marketing and licensing of its patented and proprietary Fischer-Tropsch ultra-clean fuels technology. Penning has over 30 years of experience in business development for energy process technologies and will also oversee the company’s product development strategies. OXIS International (OTCBB: OXIS), a biopharmaceutical company focused on commercializing biomarker research and clinical assays, said that it has appointed Matt Spolar to its Board of Directors. Spolar currently serves as Vice President of Product Technology for market-leading portable nutrition foods company Atkins Nutritionals, Inc. For seven-plus years, Spolar has lead new product development, product optimization, scientific affairs, quality systems management, and technical production support for Atkins. He also helped to arrange an acquisition of Atkins by Parthenon Capital and Goldman Sachs in October, 2003.
