01/07/2007
VOLUME 271
Companies featured in the current edition of the newsletter: ADSX, ARGA, FSN, HYTM, IRBO, ISON, GSHF, LANW, MBND, MLTC, POIG, PTCH, RTK, SCLL, USAT, VOII
Despite the holiday-shortened week, and limited corporate news, there was certainly plenty of volatility to begin the year. Although stocks gapped higher on Wednesday suggesting a promising start to the year, by the end of the week all but the Nasdaq had relinquished their gains. The Dow ended the week down 65 points, the S&P 500 lost 8 points, while the Russell 2000 dropped nearly 12 points. The Nasdaq bucked the trend, despite a slew of analyst downgrades of technology stocks and a disappointing earnings pre-announcement from Motorola, rising 19 points.
While a nearly $5 per barrel drop in crude oil prices helped the markets last week and should relieve inflationary pressures, concerns about comments from Fed officials in the December 12th FOMC minutes which were released last week stoked fears that a reduction in interest rates was further off than many had anticipated. The minutes noted that the “predominant concern” of members was that inflation would fail to moderate as desired. Friday’s December nonfarm payrolls, which rose a larger than expected 167,000 further raised concerns about the pace of interest rate reductions. Fed officials will likely focus on the fact that hourly earnings were up 0.5%. The Fed has noted rising wage costs as a potential inflationary factor. There was however some bullish economic news released last week with the jump back above the key 50 level in the December ISM manufacturing index.
What should investors look for in the upcoming week? Earnings reports are still on the slower side, but investors can expect to see some early week activity. Tuesday announcements include reports from Energy Transfer (NYSE: ETP), Supervalu (NYSE: SVU), Shaw Group (NYSE: SGR) and Great A&P Tea (NYSE: GAP) before the bell. Synnex (NYSE: SNX) and Alcoa (NYSE: AA) will announce earnings numbers after the bell on Tuesday. Genentech (NYSE: DNA) reports results Wednesday after the market closes.
The economic news for next week includes November Consumer Credit on Monday. The November Trade Balance will we be announced before the bell on Wednesday followed by mid-morning announcements for November Wholesale Inventories and Weekly Crude Inventories. The Initial Weekly Unemployment Claims will be announced before the bell on Thursday and the December Treasury Budget will be announced later that afternoon. Friday is the busiest day for economic news beginning with announcements for December Import and Export Prices and Retail Sales before the market opens. The final announcement for the week will be November Business Inventories mid-morning Friday. Investors will likely be interested in New York Fed President Geithner’s Tuesday speech on the global economy as well as Fed Governor Bies speech on Risk Management in Washington DC.
The conference schedule for next week will be quite active highlighted by the Consumer Electronics Show in Las Vegas and Apple’s MacWorld, where Steve Jobs will deliver a key address on Tuesday in San Francisco. Monday, the two-day Bear Stearns & Co. Inc. Central American and Caribbean Credit Conference in Miami begins, along with Citigroup four-day 17th Annual Entertainment, Media and Telecommunications Conference in Las Vegas, the four-day JPMorgan 25th Annual Healthcare Conference in San Francisco and the two-day Credit Suisse Group Building Products Conference in New York. Other Tuesday conferences include the two-day Cowen and Company 5th Annual Consumer Conference, the four-day Needham & Company 9th Annual Growth Conference in New York and the Raymond James 6th Annual Government Services & Technology Summit in Washington DC. The three-day Citigroup 2007 Auto Analysts of New York Conference in Dearborn begins on Wednesday. Fusion Telecommunications International, Inc. (AMEX: FSN) will showcase its Efonica VoIP products and services at this year’s Consumer Electronics Show (CES) in Las Vegas from January 8th through January 12th. Rentech (AMEX: RTK) presents on Tuesday at Pritchard Capital’s Energize 2007 conference in San Francisco. Petrol Oil and Gas, Inc. (OTCBB: POIG) will present the following day.
Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, announced that the European Patent Office has notified the company that it intends to grant a patent under Rule 51(4) EPC for Hythiam’s European Patent Application No. 02 711 879 3. This specific application contains claims for the use of a composition of matter for the treatment of cocaine dependence. Hythiam also previously received a notice of allowance for its treatment of cocaine dependence patent application in the U.S., as well as issuance of patents for treatment of alcoholism and cocaine dependence in Singapore and New Zealand. The company also received issuance of its cocaine dependence treatment patent application in Australia. Also last week, William Blair & Co. initiated coverage of the stock with an “Outperform” rating (its equivalent of a “Buy”). The analyst said in his report that “In our view, Hythiam has myriad channels from which it can meet the growing demand for effective substance abuse treatment, including: licensing PROMETA to third-party providers, operating company-owned PROMETA treatment centers, offering services to state drug courts and judicial systems, and contracting to provide PROMETA to third-party payors (Medicaid, managed care organizations, etc.). As a result, we expect the company to experience rapid top-line growth over the coming years while maintaining a balanced mix of revenue sources.” The analyst estimated that the company would generate revenue of $3.9 million in 2006, $14.7 million in 2007, and $40.3 million in 2008. The stock ended the week down $0.14 at $9.10.
Volume Alert: Shares of Multiband Corporation (NASDAQ: MBND), a leading provider of video, data, and voice systems and services to multiple dwelling units, soared 18% on Friday on nearly 15 times average volume after a trade was completed pre-market for more than 2 million shares, suggesting that the company’s largest shareholder had finally completed the sale of its position. Rumors had been swirling for nearly six months that this West-Coast based hedge fund had wanted out (the fund also held preferred shares which likely have been sold as well), creating a significant overhang in the stock which contributed to a 52% decline in the stock’s price last year. Friday’s surge also broke a strong downtrend in the stock, with the stock closing above its 50-day moving average for the first time since a brief close above the average in September. Shares ended the week up $0.14 at $0.71.
Last week, two US Senators reintroduced bi-partisan legislation that would help to create the infrastructure required for major production of Coal-to-Liquids (CTL) fuel. The legislation could bolster the prospects for Rentech Inc. (AMEX: RTK), a developer of CTL projects. Recently, the company announced plans to evaluate sites in the Midwest and Montana for CTL projects. The plants could range in size from producing 10,000 to 30,000 barrels of fuel per day and use approximately 3 million to 9 million tons of coal annually. The Coal-to-Liquid Fuel Promotion Act of 2007 is structured in three parts in an effort to create a domestic fuel market for CTL. What the bill does is enable the Department of Energy to provide loan guarantees for construction and direct loans for the planning and permitting of CTL plants. These loan guarantees are structured to encourage private investment which will help companies prepare a plant for construction. The legislation will also expand investment tax credits and expensing provisions to include coal-to-liquids plants, extend the Fuel Excise Tax credit, and expand the credit for equipment used to capture and seize carbon emissions. These tax incentives build on the loans and loan guarantees by offering tax breaks during the multiple-year construction phase and during initial production at the plant. Since these projects require substantial funding, RTK could benefit from incremental government funding. Perhaps sensing the growing momentum behind CTL, brokerage firm Natexis Bleichroeder initiated coverage of the stock last week with a “Buy” rating and $6 price target. The firm noted that “the company is farthest along toward the development of a commercial plant and that the stock offers considerable upside potential should CTL be successful – this may be driven initially by the U.S. military’s plans to wean itself from foreign fuel.” The stock ended the week down $0.11 at $3.66
Digital Angel Corporation, a majority-owned subsidiary of Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, said last week that the company was awarded a multi-year contract worth up to $10 million with the U.S. Army Corps of Engineers for Passive Integrated Transponder technology (PIT). PIT is used in combination with a Radio Frequency Identification antenna to monitor fish movement and stream and dam passage. For more than two decades, The Army Corps of Engineers will use this technology to monitor everything from fish populations and migration patterns to water levels and the flow of various dam passages and streams. Digital Angel’s RFID antenna is capable of electronically detecting tagged fish in a fraction of a second. As tagged fish pass through the monitored areas, transponders automatically activate and send the Army Corps a unique identification number. Also, ADSX’s VeriChip Corp. subsidiary, announced that as of end of 2006, VeriChip now had a total of 1,209 physicians and 392 medical facilities enrolled in the VeriMed Patient Identification Network. During the six-month period from July to December 2006, the number of participating physicians increased from 275 to 1,209, representing a 340% gain. During the same time period, VeriChip recorded a 256 percent increase in the number of medical facilities that have enrolled in the VeriMed Network. This figure is up from 110 facilities in July and includes a gain of 94 hospitals as a result of VeriChip’s work with the National Stroke Association. These totals exceed previously stated year-end goals of 200 hospitals and 1000 physicians. The stock ended the week up $0.05 at $1.86.
Isonics Corporation (NASDAQ: ISON), a developer of innovative solutions for the homeland security and semiconductor markets, announced last week the expiration, effective December 29, 2006, of the Class B and Class C warrants, which allowed holders to exercise warrants to purchase up to 3.4 million shares of Isonic’s common stock. The company said that it believes that the expiration of these warrants will reduce potential dilution for shareholders and simplify capital structure. In addition, this expiration may create the possibility to remove an overhang which has adversely impacted the price of Isonics stock. The company also announced last week that its 30%-owned subsidiary, the Institute fur Umwelttechnologien GmbH, is jointly developing a personnel inspection portal with IMS-based explosive detection technology with an Italian company. IUT has reported that a prototype portal has completed initial testing at a public location in Italy and is planned for installation at an Italian airport in January for further demonstration. Isonics will sell Isonics-manufactured ion mobility spectrometry trace detection units for incorporation into the portal. Isonics noted that this is another example of its strategy to include its explosive “sniffer” in third-party manufactured products to provide a layered security solution. The stock ended the week at $0.68, up $0.11.
Sometimes information contained in blogs can give investors an edge. Last week, several reliable blogs, including those from Google employees, reported that Google had deployed Click-to-Call technology provided by VoIP, Inc. (OTCBB: VOII), a leading provider of Voice over Internet Protocol (VoIP) communications solutions for service providers, resellers and consumers, in China. The technology allows customers to instantly contact advertisers via telephone. VOII previously said that its technology was being utilized in India and via Google Maps. Shares ended the week down $0.02 at $0.29.
Melt, Inc. (OTCBB: MLTC), owner, operator and franchisor of quick service restaurants operating under the name “Melt Gelato & Crepe Cafe,” announced that through its corporate and franchise owned restaurants, the company served more than one million customers during 2006. Melt now has sixteen stores operating in four states and since its first store opening approximately three years ago, more than 1,750,000 customers have been served. The company is positioned to build on the current trend with an ambitious 2007 schedule for rolling out new stores. Shares ended the week down a penny at $0.80.
USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, announced last week that it has redeemed Convertible Senior Notes having a face value of approximately $4.3 prior to their maturity. The redemption of the notes that were convertible into shares of USAT’s common stock carried interest rates of 10% and 12% and were scheduled to mature on June 30, 2007, December 30, 2007 and December 31, 2008. The company expects that the early redemption of the notes will save it approximately $500,000 in interest expense in 2007. The company prepaid the notes from cash on hand in addition to the proceeds of the recently completed $8.4 million private placement. After repayment of the notes, the company reported that as of December 31, 2006, it had approximately $8.4 million usable cash and roughly $20 million in shareholder equity. This represents the strongest balance sheet in its history. The stock ended the week down $0.30 at $6.95.
GS Agrifuels, a majority owned subsidiary of environmental business development company GreenShift Corporation (OTCBB: GSHF), announced that the company has acquired a 14.3% stake in the Missoula, Montana based Sustainable Systems, Inc. Sustainable Systems is an agricultural company focused on high-value culinary oil, biobased fuels, and bioproducts. Sustainable has initiated an expansion of its oilseed crush facility in Culbertson, Montana. The Montola facility is expected to double its current oilseed processing capacity to 600 tons per day after the expansion. In addition to GS Agrifuels’ in Sustainable, the company received a purchase order from Sustainable for a ten million gallon per year biodiesel system through its wholly-owned subsidiary, NextGen Fuel Inc. Production of the NextGen biodiesel system is expected to begin later this year for co-location at Sustainable’s Culbertson, Montana oilseed crush plant and is expected operate using various vegetable oilseed crops that grow in the region of the existing crush plant. GS Agrifuels’ President, Tom Scozzafava, will be placed on Sustainable’s board of directors as part of the transaction. Shares ended the week up $0.02 at $0.11.
Biotechnology company ImmuneRegen BioSciences, Inc., a wholly owned subsidiary of IR BioSciences Holdings, Inc. (OTCBB: IRBO), announced that the company has commenced the first study of its novel drug Viprovex™. This study will explore the adjuvant capabilities of Viroprex in the area of Pandemic Influenza Vaccine. The study is being conducted in combination with privately-held vaccine developer GenPhar, Inc., of Charleston, South Carolina. GenPhar began its biodefense program in 2000 as one of the first in the industry and now works closely with the Department of Defense. GenPhar has vaccines for lethal viruses such as Ebola, Marburg, dengue and influenza, as well as several approaching the final development and testing stages prior to approval. The company also announced that it has appointed Hal Siegel, Ph.D. as Senior Director of Product Development & Regulatory Affairs. Dr. Siegel will help direct the development of ImmuneRegen’s proprietary compound, Homspera™. Shares ended the week up $0.02 at $0.17.
Language Access Network (OTC: LANW), a leader in video language interpretation services, announced that the company is now providing live video interpretation services at Olympia Medical Center, Los Angeles, California. The Martti™ service is now available free to patients 24 hours a day, 365 days a year in 150 languages including American Sign Language. Shares ended the week unchanged at $3.30.
On the Wires: Specialty pharmaceutical company Auriga Laboratories, Inc. (OTCBB: ARGA), announced that the company had appointed Richard K. Sampson as National Sales Director. Mr. Sampson has extensive sales experience and will be responsible for managing the company’s growing pharmaceutical sales organization. Junior oil and gas producer Petrol Oil and Gas, Inc. (OTCBB: POIG), announced last week the appointment of Terry Buchanan as Vice President of Exploration, Geoscience and Reservoir. Mr. Buchanan has extensive knowledge on oil sands projects in addition to several decades of experience in all phases of oil and gas exploration and development. Junior energy company Patch International (OTCBB: PTCH) announced last week the appointment of Mr. Jason Dagenais as Vice President of Operations. Mr. Dagenais will be based in Calgary, Alberta and assumes leadership of Patch’s Alberta oil sands operations.
SPECIAL SITUATIONS:
Stem Cell Innovations (OTCBB: SCLL) $0.14
With reports out last week that House Democrats will focus on reintroducing legislation early this year that would lift certain restrictions on the federal funding of embryonic stem cell research put in place by the Bush administration earlier this decade, we thought it was the right time to initiate coverage of Stem Cell Innovations. SCLL’s proprietary, human pluripotent stem cells, known as PluriCells, have the potential to aid in drug discovery, toxicology, and cell therapy. However, unlike other developers of stem cell technology, the company’s patented pluripotent cell lines are eligible for federal funding in the U.S. The company is also in the process of making its technology widely available to universities and other not-for-profit institutions to rapidly advance stem cell research.
What are stem cells? Cells that have the unique ability to differentiate themselves into specialized cell types and renew themselves through cell division. The quality to differentiate into potentially all cell types set these cells apart from all others and offers a wide variety of benefits to the medical field. But from one end of the spectrum to the other, debates over the use and collection of stem cells still remains controversial. Perhaps the central factor in this debate is the fashion in which some stem cells are harvested and where the cells are harvested from. The cells, which were first identified in embryos, are different in adults. The ability to use adult stem cells presents an alternative to embryonic stem cell utilization and the potential destruction of human embryos.
Stem Cell Innovations, Inc. is the product of the merger of Amphioxus Cell Technologies and Interferon Sciences. Amphioxus was founded in 1995 with the idea of drug discovery and toxicology testing as its focus. Through the acquisition of the intellectual property in the development and use of human embryonic stem cells and assets of Plurion, Inc., a privately-held company, Amphioxus was quickly able to expand its expertise into the realm of stem cell biology, research and technology. Headquartered in Houston, Texas and with European-based offices, Stem Cell Innovations, Inc. is using its expertise and strong proprietary position in the cell biology field to continue research and development and to focus on several large and distinct markets with the company’s revolutionary products.
The company has produced multiple lines of human pluripotent stem cells. These PluriCell lines can be cultured without the use of feeder layers and can be effectively differentiated into multiple cell-types with the potential to aid in drug discovery and development. PluriCells™ are a type of pluripotent stem cell isolated from fetal tissue. These cells have the ability to become all cell types of the body and are developed from fetal germ cells, not viable embryos. Because of this, they are eligible to be used in any NIH funded laboratory, as stem cells derived from fetal germ cells were explicitly excluded from the Presidential ban by the Department of Health and Human Services guidance document of March 19, 2002. This document laid the foundation for what type of stem cells could and could not be used in federally funded research.
Currently, the company is using human embryonic germ cell lines to strengthen its proprietary drug development services platform. These cells, derived from the germinal ridge, have the potential to be differentiated into any cell type in the body. SCLL is developing cell lines that represent the various tissues, such as heart, lung and kidney, under the names ACTIVTox and PREDICTIVTox. As these cells become available, they will be immediately incorporated into the existing assays and screened against the same set of compounds. This will position ACTIVTox and PREDICTIVTox as an unmatched resource for the pharmaceutical, chemical and nutraceutical industries.
One of the unique characteristics of SCLL is its proprietary toxicity testing platform to assist pharmaceutical and biotechnology companies in streamlining their development pipeline by selecting the right molecules early in the process for further development. Its unique, highly predictable toxicology technology will help to prioritize compounds already at the discovery stage, saving companies valuable time, money and resources. Last month, the company announced a two-year discovery alliance with the ALS Association. Under the terms of the alliance, Stem Cell Innovations will develop human motor neuron models based on the company’s proprietary PluriCell™ technology. This can be used for high-throughput screening. Later, the cell models will be used by alliance partner Galapagos to discover novel drug targets for ALS. Under the terms of the agreement, the company has the option to further develop certain cell-therapy applications based on results identified in the program.
In addition to the ALS Association, such heavyweights as Massachusetts Eye and Ear Infirmary, an international leader in Ophthalmology and Otolaryngology research and a teaching partner of Harvard Medical School, has agreed to PluriCells™ for their capacity to form the human tissues implicated in hearing loss.
The University of Twente (the Netherlands) has collaborated with the company to explore the bone forming properties of PluriCells™. SCLL also signed an agreement to supply PluriCells™ to researchers at Stanford University, one of the leading areas for stem cell research.
The company’s Board of Directors is extraordinary for a small company. It includes Tony Coelho, who was elected to the U.S. House of Representatives in 1978. He served as Majority Whip from 1987 to 1989. While in the House, Mr. Coelho, who has epilepsy, authored the Americans with Disabilities Act, widely recognized as the most important piece of civil rights legislation in the last 30 years. He is currently the Chair of the Epilepsy Foundation of America and serves on numerous Presidential and other national committees related to disabilities; John Macomber, who while at Celanese Corporation, spun-off Celgene Corporation, which today is one of the world’s largest and most successful biotechnology companies, with a market capitalization in excess of $13 billion. Macomber is a director on the boards of Lehman Brothers Holdings Inc., Rand McNally & Company, Mettler-Toledo International, Mirror World Technologies, Sovereign Chemical Company, and Textron, Inc. and Lucio A. Noto, who was the Chairman and CEO of Mobil Corp. until its merger with Exxon in 1999, when he became Vice Chairman of Exxon Mobil Corporation. He is currently a director on the Boards of IBM and Altria Group, Inc., among others.
The stock has been volatile, reaching a 52-week high of $0.83 in late March. Today, it trades closer to its 52-week low of $0.08, although that could change as increased interest in stem cells as a result of the Democrats securing control of Congress has already lifted many stem cell stocks. Since the beginning of the year, shares of Stem Cells have rallied 25%, while Aastrom Biosciences has jumped 17%.While the debate over the use of stem cells will continue, for investors seeking an undiscovered way to participate in growing interest in this area, Stem Cell Innovations represents an undiscovered way to invest in the sector.
