07/16/2006
VOLUME 247
Companies featured in the current edition of the newsletter: ADSX, ASPN, ATWO, AXMP, CDGT, CDSS, CLRI, EMIS, FLWE, GNBT, GSHF, HMWM, HOM, HYTM, ITRO, ITUI, IVOI, LNXGF, NTRN, PTCH, PTSEF, QTXB, SOG.V, SWTS, UDTT, USAT, ZIOP
Other than gold which reached $669 an ounce, there was no safe haven for investors last week as the market got hammered on all fronts. Severe political tensions, disappointing earnings, weak economic data and soaring oil prices were all contributing factors that left investors running for cover. All of the major indices traded lower for the week as the Dow lost 351 points reducing annual gains to 0.2%. The Nasdaq followed in similar fashion by shedding 92 points increasing yearly losses to 7.6%. The S&P declined 29 points equating year-to-date losses to 1%. The Russell gave up 28 points and lowered its annual profit to 1.2%.
How bad was last week? During the last three days of the week, stocks posted their biggest decline in more than one year. The S&P took out a key support level. On the NYSE and NASDAQ, 251 stocks made new 52-week lows on Friday, while only 19 established new highs. The VIX, which is a measure of how defensive investors get, reached 18, its highest level in four weeks.
Political unrest rattled the world as sobering news of terrorist attacks in India combined with Israeli strikes in Lebanon and reports of explosions on Nigerian pipelines created a very unsettling environment. Oil prices soared to a new high of $78.50 per barrel. Disappointing earnings-related announcements from Lucent (NYSE: LU), EMC (NYSE: EMC), Advanced Micro Devices (NYSE: AMD) and General Electric (NYSE: GE) started this earnings period on a sour note as warnings overshadowed good earnings. Economic data released on Friday surprised a weakening economy as retail sales in June fell an unexpected 0.1% versus an anticipated rise of 0.4%. Also not helping is the inverted yield curve that results when short-term Treasury notes have higher yields than long-term Treasuries, which in the past has signified economic downturns or major financial strains.
While prospects may appear bleak, there are several factors that could suggest that stocks will bounce soon, at least on a corrective basis. The Relative Strength Index on the SPY, DIA, and QQQQ are looking short-term oversold. The Fibonacci Time Sequence suggests that stocks could rally soon. The Investor’s Intelligence Sentiment Reading for the Bears is at its highest level since 2003 (currently at 33.3%), often a contrarian indicator.
Earnings Season enters its peak this week, as Citigroup (NYSE: C) and Charles Schwab (NASDAQ: SCHW) will report numbers on Monday before the open. According to Reuters Estimates, S&P 500 companies’ earnings are forecast to rise nearly 10 percent for the quarter, and could well achieve a 16th consecutive quarter of double-digit profit growth — if most companies deliver the standard margin of earnings outperformance of between 2 percent and 3 percent over consensus estimates. Tuesday morning Coca-Cola (NYSE: KO), Johnson & Johnson (NYSE: JNJ) and Merrill Lynch (NYSE: MER) will release earnings followed by tech giants IBM (NYSE: IBM) and Yahoo! (NASDAQ: YHOO) after the close. Before the bell on Wednesday Abbott Labs (NYSE: ABT), Bank of NY (NYSE: BK), JP Morgan (NYSE: JPM), and Pfizer (NYSE: PFE) will announce results followed by Apple Computer (NASDAQ: AAPL), Intel (NASDAQ: INTC), Motorola (NYSE: MOT), QLogic (NASDAQ: QLGC), Qualcomm (QCOM) after the bell. Thursday, prior to the opening, Ford Motor (NYSE: F) will release earnings followed by Google (NASDAQ: GOOG) and Microsoft (NASDAQ: MSFT) after the bell. Friday morning 3M (NYSE: MMM), Caterpillar (NYSE: CAT) and Eli Lilly (LLY) will announce numbers. In addition to earnings, options expire this week which could add to the volatility.
A number of key economic reports will be released this week as well. Monday morning, the July NY Empire State Index report will be announced along with June Industrial Production and Capacity Utilization. Before the bell on Tuesday, June PPI numbers will be announced along with May Net Foreign Purchases. Wednesday morning, June CPI numbers will be reported as well as June Housing Starts and Building Permits. Shortly after, Weekly Crude Inventories will be released. Fed Chief Bernanke will give a semi-annual policy report to Congress on Wednesday as well. Before the bell on Thursday, Weekly Jobless Claims will be reported followed by June Leading Indicators, July Philadelphia Fed Index, and the closely watched release of the minutes from the FOMC’s last meeting will happen later that day. The week ends with Dallas Fed President Fisher speaking at the Naval Academy on Friday.
Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services, said last week that its shares would begin trading on the Nasdaq starting Monday under the symbol HSOA. Nasdaq’s decision to list the company’s stock should finally put to rest the aggressive campaign by short sellers to smear the company’s reputation, as the likely considered the claims, which we believe are without merit, in a series of press releases issued related to purported lawsuits, and the claims of an Internet blog that focuses on short opportunities. Unfortunately, for short sellers who were short more than 8 million shares (approximately 29% of the float) the focus is likely to shift to the company’s fundamentals, which we believe are excellent. The company should benefit from the federal government’s payout of $4.2 billion into a program to help Louisiana residents rebuild or sell houses severely damaged by Hurricanes Katrina and Rita. This amount will be added to federal allocations the state had already received to fully fund its more-than-$9 billion “Road Home” program for hurricane recovery. This program is intended to provide Louisiana residents up to $150,000 to rebuild or sell houses severely damaged by the storms, with approximately 123,000 home owners and owners of about 80,000 apartments eligible. Such funding should serve as a catalyst for revenue growth for the company. Already, more than 87,000 Louisiana residents have applied for grants. Our checks with operators in the area suggest that business is robust, and has picked up dramatically in the past six weeks. Last week, one of the company’s largest customers (it subcontracts to HSOA) was awarded significant restoration and renovation contracts on two college campuses. With Q2 analyst estimates of $25 million in revenue and $0.07 EPS, and modest year-over-year comps ($16.1 million in revenue, $0.04 in EPS), the company’s second quarter results could serve as a catalyst for shares to move significantly higher. Note that the stock cleared significant resistance last week in the $6.99 range and showed its strongest RSI and momentum readings since early June. Shares increased 75 cents to close at $7.27.
Two Special Situation stocks that have pulled back sharply, healthcare services company Hythiam, Inc. (NASDAQ: HYTM) and drug delivery concern Emisphere Technologies (NASDAQ: EMIS), appear to have done so more as a result of market weakness than specific corporate news. Since mid-May, shares of Hythiam have fallen nearly 36%, while since its June 7th high of $11.24, shares of EMIS have declined 39%. Both companies have significant short positions (HYTM 26% and EMIS (15% of float as of mid-June) and are below the lower level of their Bollinger Bands, suggesting that they could be candidates for a significant bounce. HYTM fell $1.05 on the week to close at $5.37, while EMIS lost $1.06, to end the week at $6.83.
Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, reported that its wholly-owned subsidiary Digital Angel Corporation is considering strategic alternatives to improve its capital structure and maximize shareholder value through growth and other strategic opportunities. As a result, a Special Committee of its Board of Directors has been formed to pursue opportunities deemed most advantageous for the company and shareholders. Note that Michael S. Zarriello resigned from the Board of Directors of Applied Digital in order to become the Chairman of the Special Committee. Shares fell 22 cents for the week to close at $1.72.
Generex Biotechnology Corporation (NASDAQ: GNBT), a leader in the area of buccal drug delivery, reported that its wholly owned subsidiary Antigen Express, Inc presented positive results from additional pre-clinical studies conducted with their immunotherapeutic peptide vaccine currently in Phase I clinical trials in patients with breast cancer. The recent studies clearly showed that CD4+ T helper cells stimulated with the Antigen Express vaccine potentiated the activity of tumor-specific cytotoxic T cells to the point that cures were observed in 40% of mice and significantly slower tumor growth was observed in the remaining mice. Together with the findings of good CD4+ T helper stimulation in patients receiving the vaccine in the clinic, these studies point to the therapeutic potential of the vaccine. Further expanding the company’s efforts at building brand awareness, the company’s Vice-President for Medical Affairs presented in the Netherlands earlier this month interim results of its long-term study on the safety and efficacy of its Generex Oral-lyn administered at lunchtime in juvenile Type-1 diabetes. Such results indicated that the company’s product can effectively replace prandial subcutaneous injections of regular insulin and offers patients improved efficacy since this product is better at mimicking the healthy body’s natural insulin production. The fact that this process requires no painful injections should substantially increase patient compliance resulting in greater metabolic stability thereby better controlling diabetes and reducing the complications associated with it. Additionally, the company engaged Dr. Jaime Davidson, MD, FACP, FACE as a consultant Medical Director who previously served with the National Diabetes Advisory Board, the National Institutes of Health, the Centers for Disease Control, the Institute of Medicine, and the boards of directors of the American Diabetes Association, the American Association of Clinical Endocrinologists, and the American College of Endocrinology. Shares fell 18 cents to close the week at $1.53.
USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, got a boost in brand recognition as CBS Television highlighted the company on July 7th in a special report on cashless vending. The interview conducted by Jim Donovan focused on the benefits of cashless vending with Philadelphia becoming the first city in the nation to roll out such machines en mass, using USA Technologies’ cashless payment technology, MasterCard’s PayPass, and Coca-Cola’s vending machines. Such solutions enable consumers to use credit or debit cards for purchases in a single swipe or a tap and go where the card is put within an inch of the device for activation. Additionally, the Senior Energy Management Advisor to USA Technologies spoke in front of a public forum sponsored by the U.S. Department of Energy highlighting simple changes to improving vending machine efficiency that would have a cumulative impact on the nation’s economy. The company is also taking its message to the U.S. Senate Energy Committee as it communicated in a letter suggesting that lawmakers provide incentives to encourage owners to upgrade their existing machines with energy-saving technology that can reduce energy consumption by up to 50 percent. Despite the news the stock fell 20 cents to close at $8.20.
ZIOPHARM Oncology, Inc. (OTCBB: ZIOP), s developer of diverse, in-licensed cancer drugs to address unmet medical needs, received a buy recommendation from Whittaker Securities, a New York-based brokerage firm, as it initiated coverage on the company with a price target of $14. The report stated that the combined market opportunities for the company’s two lead products are estimated to be $800 million in the U.S. and was upbeat about the company’s objective to develop more efficacious versions of already proven compounds with less adverse side effects. Additionally, the company announced that its preclinical investigator Lawrence Boise, Ph.D, served as the discussion leader at the 2006 Gordon Research Conference at the University of Oxford last week where he highlighted his experience with ZIO-101 as part of a review on the clinical utility of arsenic compounds. Shares fell 5 cents to close the week at $5.25.
QuantRx Biomedical Corporation (OTCBB: QTXB), a medical technology company with leading edge products targeting worldwide health needs, entered into a five-year distribution agreement with Synova Healthcare for the distribution of hemorrhoid products using QuantRx’s technology in the United States on an exclusive basis. Under the agreement, QuantRx received $500,000 up-front and is eligible to receive millions more in royalties, dependent on the achievement of specified milestones. The agreement also grants Synova Healthcare a right of first offer and a right of first refusal with respect to all future line extensions and products or components related to the products that are covered by the agreement. The stock lost 35 cents to close the week at $1.15.
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, achieved a significant milestone as it received an order from a top national retail chain for its all-natural Power Blend™ juice-based energy drinks to be placed in more than 2,500 stores. This win is significant and highlights the first national account for the company since the recent relaunch of the historically popular Sweet Success brand. Many of the stores now carrying Sweet Success’s Fuel for Health line of beverages are part of regional and national chains resulting in a large targeted audience for the company. As management continues to build brand awareness, this trend should continue. The name of the retail chain cannot be disclosed due to a confidentiality agreement. Shares increased by 15 cents to close at $0.85.
a21, Inc. (OTCBB: ATWO), a leading online digital content marketplace for creative professionals, reported that its ArtSelect, Inc. subsidiary has entered into a joint marketing agreement with Redcats USA, the international catalog division of the renowned French holding company Pinault-Printemps-Redoute. This deal established a co-branded relationship that integrates ArtSelect’s custom-framed art concept and product line into select Redcats USA catalogs and websites. The benefits of this arrangement create a user-friendly environment as ArtSelect allows Redcats USA to offer their customers a complete online custom frame shop and art gallery where shoppers enjoy the process of choosing their own prints, frames, and mats online. Customer selections can be viewed against a background of their own wall color optimizing the user experience as they quickly arrive at the combination they want. The stock closed at $0.49 down 7 cents for the week.
Citadel Security Software Inc. (OTCBB: CDSS), a leader in enterprise vulnerability management and policy compliance solutions, announced preliminary second quarter revenue results of approximately $3 million for the period ended June 30, 2006 compared to $2.7 million from the same time last year. Preliminary revenue for the six months ended June 30, 2006 was approximately $8.4 million, compared to $4.4 million last year. Such growth was impacted by orders for its Hercules flagship security solution from both the government and commercial sectors. Additionally, during the second quarter, new sales orders added approximately $1.3 million of ratable future revenue, increasing total deferred revenue to approximately $5.3 million at June 30, 2006 versus $2.5 million for the same period last year. As the company continues to implement its strategy that focuses on driving multiple smaller purchases from enterprise customers to help build incremental revenue, it moves away from relying on any one large order to achieve revenue goals creating a more consistent revenue stream. Second quarter results are expected to be announced later this month. Shares fell 7 cents for the week to close at $0.44.
Shares of junior energy company Strategic Oil and Gas (TSXV: SOG) rose to their highest level since early June last week, as investors may have bid shares higher in anticipation of news coming from its drilling activities with Jed Oil in the Pinedale area in the Greater Green River Basin in southwestern Wyoming. The company acquired a 22.5% in a key property in the area in late April. Shares ended the week at $1.70, up 2 cents.
China Digital Media Corporation (OTCBB: CDGT), a rapidly developing digital media company in China, raised $1 million consisting of a convertible debenture and warrants through an accredited investor. The investor agreed to enter into a 90 day post-Public Offering lock-up on the securities issuable upon conversion of the debenture and exercise of the warrants. Shares declined 2 cents to close the week at $0.99.
Junior energy company Fellows Energy Ltd. (OTCBB: FLWE), has doubled production as a result of its recently-completed preliminary workover operations on its Carbon County project. Such improvements included repairing parted rods, exposing previously perforated formations, repositioning pumps, replumbing and reconfiguring of the water and gas system which substantially benefited operations as the field now produces a total of approximately 40 million cubic feet of natural gas per month, up from 20 million per month at the time of acquisition by Fellows in March. In all, the project hosts eight previously-drilled wells, four of which are producing. To further increase shareholder value Fellows plans to perform additional workovers on the shut-in wells prior to drilling on the undrilled acreage, which will consist of up to 20 additional wells on 160-acre spacing. The stock rose 6 cents to end the week at $0.36.
Environmental business development company GreenShift Corporation (OTCBB: GSHF), changed its structure from an investment company to become an operating company effective June 30, 2006 as it withdrew its election to be regulated as a business development company. With this change, GreenShift will consolidate the revenue and earnings of its majority-held companies commencing with its fiscal quarter ended September 30, 2006. These companies currently generate about $30 million in annualized revenues with about 10% EBITDA margins. Additionally, the company completed its consolidation of its clean technology and clean energy investments on July 1, 2006 where management is very positive about such changes that are expected to result in reduced overhead and administrative complexity. Shares remained unchanged for the week at $0.18.
Junior mining exploration company Linux Gold Corp. (OTCBB: LNXGF) announced that a minimum of 3,000 linear feet has been contracted for drilling on the Granite Mountain property, 160 miles from Nome, Alaska, with Diamond Drilling Consultants, LLC. The drilling, with depths averaging 500 feet, is to commence later this month and will test four main mineralized targets which indicates gold-silver-copper/lead-zinc-silver/gold-copper-bismuth/molybdenum-copper-gold-uranium prospects. An exploration program budget of $1.4 million is planned for this year’s program on the Granite Mountain property. The stock closed at $0.37 down 3 cents.
Junior energy company Aspen Exploration (OTCBB: ASPN) said last week in an interview that the company continues to enjoy a high degree of success in its drilling programs. The company has enjoyed outstanding success in its drilling programs, successfully drilling six successful gas wells out of seven attempts thus far in 2006, and nine gas wells out of ten attempts in 2005. While the company’s focus is natural gas, the CEO noted that a high-impact oil well it is drilling has significant potential. Shares ended the week at $4.57, down 25 cents.
Volume Alert: Shares of Neutron Enterprises, Inc. (OTCBB: NTRN), a developer of digital media solutions,traded over 4 times average volume as investors showed enthusiasm regarding the appointment of Rory Olson as the new Chief Executive Officer late last month. Mr. Olson is a highly accomplished entrepreneur and public company executive with a proven track record of having founded, restructured and operated various companies from start-up stage to mature public company. Shares increased by 5 cents to close at $2.25 for the week.
Junior oil and gas producer Patch International Inc. (OTCBB: PTCH) provided an update on its seismic and drill programs currently underway. For its Rich/Rumsey, Alberta drill program, a test well is being drilled at a depth of 1,525 meters with a targeted total depth of 2,047 meters. The prospective zones of the Banff and Leduc formations zones will be tested where Patch has a 35% working interest to earn 21% after payout. For its Halkirk, Alberta drill program, drilling and casing of its shallow Halkirk gas prospect was completed where flow results are being awaited. Patch has a 100% working interest in this project to earn 50% after payout. For its Red Deer (Joffre), Alberta seismic operation, program covering 8 kilometers is nearing completion with Patch and Highview Resources Ltd each participating as to 50%. Upon completion Patch and Highview can elect to drill a test well on each of two optioned sections where both companies would then each hold an undivided 50% working interest. As such programs progress, Patch intends to provide updates on the programs. The stock ended the week at $1.31 down 19 cents.
Points International (OTCBB: PTSEF), the owner and operator of the world’s leading reward management portal, reported that Continental Airlines has become the sixth major airline to participate in the Points International AirIncentives program. This relationship creates huge potential for Points International since Continental serves more destinations than any carrier in the world. Effective as of last Friday, OnePass are available as a redemption option for customers of businesses using AirIncentives as a reward or incentive. This addition enhances the attraction of AirIncentives to marketers, who can take advantage of the program’s 140 million-strong target audience of frequent flyer miles collectors. Secondly, the company added CruisePoints to its list of reward programs participating on Points.com. High rates of growth and customer retention make the cruise industry a logical direction for Points International to target where users are able to take advantage of the tremendous savings on cruises, resorts and experiential vacations as a result of this partnership. Shares rose 5 cents to close the week at $0.73.
i2Telecom International, Inc. (OTCBB: ITUI), pioneer in ultra-portable high quality Voice-over Internet Protocol (VoIP) products and services, entered into an agreement with Global Voice Technologies, (GVT) under which i2Telecom has been appointed as the exclusive provider of VoIP services through GVT’s global marketing network. This deal is expected to be lucrative for i2Telecom as GVT expects to have more than 8,000 agents in place prior to the end of the third quarter of 2006 where GVT anticipates roughly 750,000 subscribers will be generating annualized sales revenues of more than $75 million within the next twelve months. Products will be distributed under the VoicePal™ name commencing by the end of September 2006. Shares remained unchanged for the week at $0.05.
iVoice, Inc. (OTCBB: IVOI), a developer and licensor of proprietary technologies, reported that Thomas Pharmaceuticals Ltd, a wholly owned subsidiary, received from Rite Aid Corporation a stocking order for its smartly packaged and marketed new upscale antacid tablet product line Acid + All™. The product will be sold in more than 3,300 Rite Aid stores in 27 states using a special display carton developed by Thomas at Rite Aid’s request. Such recognition by this large drugstore chain underscores the benefits of Acid + All™ as it offers a highly effective pharmaceutical product within an attractive packaging. This agreement is expected to significantly broaden Thomas’ distribution in many of the major markets targeted, positively affecting top-line growth. The stock fell 1 penny to close at $0.07.
Diversified sports media company HumWare Media Corporation (OTC: HMWM), continues to expand its brand name as it added licensed sales representatives for its Boondoggle Sports Network in Atlanta and Charlotte, two of the biggest sports cities in the United States. HumWare is now rolling out the Boondoggle Sports Network by licensing local territories to experienced marketing and sales representatives in the top 108 markets in the United States and Canada where shareholders should benefit significantly as sales are expected to rise with such efforts. For the week the stock rose 2 cents to close at $0.20.
Itronics, Inc. (OTCBB: ITRO), a “Creative Environmental Technology” company and a world technology leader in photochemical recycling, reported that second quarter 2006 GOLD’n GRO fertilizer division sales by its subsidiary, Itronics Metallurgical, Inc., increased an impressive 46% to $767,000 compared to $524,000 in the comparable quarter last year. Both GOLD’n GRO liquid fertilizer sales and silver sales for the company were up impressively with the former representing growth of 36% in the second quarter and the latter equaling 362% growth for second quarter from last year. Investors have much to look forward to as Itronics expects to report full financial results for the second quarter on August 14th as management continues to successfully execute its eight-part long term growth plan announced in June 2005. Shares fell 1 penny to end the week at $0.02.
Universal Detection Technology (OTC Bulletin Board: UDTT), a developer of early-warning monitoring technologies to protect people from bioterrorism and other infectious health threats, said late Friday that it had drafted a complete response plan for a potential positive alarm by BSM-2000, a bacterial spore and anthrax spore monitoring device. The plan details the procedures that UDTT’s customers will need to take into consideration in the event of a positive anthrax alarm. It also allocates responsibilities to various on-site and off-site security staff members and members of the management team of the premises where BSM-2000 is installed. The company also introduced the second generation of BSM-2000 with new features and capabilities. The new generation is equipped with a self-calibration mechanism that will automatically calibrate the instrument between each test and possesses a stronger pump that will increase the sensitivity of the device. UDTT also announced that one of its consultants, Joseph Breen & Associates has initiated talks with the Pentagon on its behalf. With rumors such as the one last week that Anthrax had been sent to the New York Times, the company’s technology could receive recognition from the investment community. Shares ended the week at $0.028.
On the Wires: Isonics (NASDAQ: ISON), a provider of innovative solutions for the homeland security and semiconductor markets, announced that it received a letter from the Nasdaq Stock Market notifying the company that for the last 30 consecutive business days, the bid price of its common stock has closed below the minimum $1.00 per share price requirement for continued inclusion under Nasdaq Marketplace Rule 4310(c)(4). The company has 180 days in which to meet the requirements for continued listing. Clearant, Inc. (OTCBB: CLRI), the developer of the patent-protected CLEARANT PROCESS® for pathogen inactivation, announced that it received a groundswell of interest from orthopedic surgeons considering using sterile allograft implants in their practices during the recent American Orthopaedic Society for Sports Medicine annual meeting where more than 50 surgeons attended and requested follow up information and assistance. Diversified sports media company HumWare Media Corporation (OTC: HMWM), appointed Robert Sweed as the Vice President of Sales & Marketing and Brad Vespe Vice President of National Accounts. AXM Pharma, Inc. (OTC: AXMP), a manufacturer of proprietary and generic pharmaceutical and nutraceutical products for the Chinese and other Asian markets, appointed Steven M. Dinh Sc.D. to its Board of Directors. Dinh currently serves as Vice President of Research and Technology Development for Emisphere Technologies, Inc.He replaced Wenzhou Zhang, who resigned as a result of current Administrative Regulations of the People’s Republic of China Cadre that prevent him for serving on the Board. Mr. Zhang will continue to work with the Company as a consultant.
