07/23/2006
VOLUME 248
Companies featured in the current edition of the newsletter: ADSX, ASPN, CDGT, CPPT, EMIS, ENZ, FLWE, FSN, GSHF, HSOA, HMWM, NVLT, POIG, QTXB, RTK, SOG, USAT
It was another brutal week for technology and small-cap stocks, as investors continue to demonstrate their conservative bent. Coming off last week’s three-day drubbing, the markets showed little resilience as a series of high-profile companies reported disappointing earnings, which did little to offset rising tensions overseas and increasing oil prices. The Dow was able to end the week higher by 129 points, increasing its annual gains to 1.4%. The Nasdaq declined 17 points, adding to year-to-date losses that have reached 8.4%. The S&P rose 4 points for the week paring its loss for the year to 0.6%. The Russell fell 9 points for the week equating to annual losses to 0.2%.
Fed Chief Bernanke’s commentary implying that rate increases may finally end did not have a lasting effect as a mixed bag of earnings reports and uncertainty in the Middle East impacted market direction. Despite Microsoft’s (NASDAQ: MSFT) announcement of a $20 billion stock buyback and strong earnings reports from Apple Computer (NASDAQ: AAPL), Motorola (NYSE: MOT) and Google (NASDAQ: GOOG), reduced guidance from Intel Corporation (NASDAQ: INTC) and another profit warning from Dell Computer (NASDAQ: DELL) renewed concerns about slowing growth in the technology sector. Shares of retail giant Target (NYSE: TGT) reached a 52-week low after the company reduced July same-store sales guidance, adding fuel to fears that consumers are being severely impacted by rising energy prices. Not helping matters was the rise in the June CPI of 0.3%, bringing the year-over-year increase to 2.6%. This is problematic since it is higher than the Fed’s comfort level of 1.75-2.00% for this index. Despite oil’s weeklong slide, price per barrel ended the week at just below record highs at $74.50, as fears that fighting between Israel and Hezbollah could spread.
What should investors look for in the coming week? More earnings. On Monday before the bell, American Express (NYSE: AXP) reports numbers. Tuesday morning AT&T (NYSE: T), DuPont (NYSE: DD) and McDonald’s (NYSE: MCD) announce earnings followed by AFLAC (NYSE: AFL), Amazon.com (NASDAQ: AMZN), QLogic (NASDAQ: QLGC) and Sun Microsystems (NASDAQ: SUNW) after the close. Prior to the open on Wednesday Kimberly-Clark (NYSE: KMB) releases figures. Thursday morning Boston Scientific (NYSE: BSX) and Exxon Mobil (NYSE: XOM) announced numbers followed by KLA-Tencor (NASDAQ: KLAC) after the market closes. Chevron (NYSE: CVX) ends the week reporting results on Friday. Additionally, General Electric (NYSE: GE) holds its Growth and Margin Expansion meeting on Wednesday and Microsoft (NASDAQ: MSFT) holds an analyst meeting on Thursday.
The economic calendar is fairly busy with July Consumer Confidence being released on Tuesday after the opening bell along with June Existing Home Sales. Wednesday morning, Weekly Crude Inventories will be reported followed later that day by the release of the Fed’s Beige Book. Thursday morning, June Durable Orders and Weekly Jobless Claims are reported prior to the open followed by the June Help-Wanted Index and June New Home Sales shortly after the bell. Friday will bring the most significant economic report, as Q2 Preliminary GDP will be announced. Expectations are for a 3% increase, while the widely-watched Chain Deflator, which measures inflation, is expected to come in at 3.8% on an annualized basis. The Q2 Employment Cost Index will also be announced followed by the revised July Michigan Sentiment Index after the opening bell.
Enzo Biochem, Inc. (NYSE: ENZ), a developer of innovative health care products based on molecular biology and genetic engineering techniques, received a favorable ruling by a federal court supporting its position that hundreds of defendants’ products could infringe certain Enzo patents allowing Enzo to further pursue its patent infringement claims against several rivals. This ruling also enables the company to aggressively pursue its claims that defendants breached their contractual obligations to Enzo. A similarly favorable ruling in its litigation with Digene Corporation paved the waved for the parties to enter into a licensing pact, worth more than $30 million to Enzo. While the judge narrowed Enzo’s claims under the Markman hearing, most significantly he left Enzo’s claims under the 060 patent in its broadest form. This patent is the predecessor to the company’s recently announced phosphate patent and covers all genetic labeling. The company also said it received regulatory approval to initiate a Phase II randomized double-blind clinical trial of EGS21 for the treatment fatty liver disease in Israel. This clinical trial is based on successful preclinical studies carried out by Enzo scientists and collaborators followed by a Phase I safety trial of the study drug and a pilot open label clinical trial that showed positive trends towards a possible therapeutic effect of EGS21. This study is being partially funded by a $1 million grant and is expected to be initiated shortly. Nonalcoholic fatty liver disease is one of the most common causes of liver pathology in the United where the disease is estimated to affect 19% of the obese population and almost half of morbidly obese individuals. Note that in July short interest increased to approximately 17% of the float. Despite the news shares fell 47 cents to close at $12.23.
While shares of Home Solutions of America (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services have been weak over the last month due to market conditions, the rapidly increasing short interest has contributed to the reason shares have been under pressure. July short interest was reported last week and short interest rose by nearly 3.3 million shares through mid-July, increasing the level to approximately 38% of the float. The stock is also on the Reg SHO list, suggesting that there is a high level of “fail to delivers”. We heard from several sources that brokerage firms are willing to pay 2-3% per month to investors willing to lend their shares out. With volume declining as a result of the reduced number of shares available to borrow, days-to-cover have increased significantly. While none of this will matter if the company reports a disappointing second quarter, if the company is able to deliver strong second quarter results (published estimate is $25 million in revenue/EPS of $0.07), it could trigger an outsized response from investors. Shares ended the week at $6.53, down 74 cents.
Volume Alert: Shares of Rentech Inc. (AMEX: RTK), a developer of alternative energy sources, traded roughly 5.7 times average volume after it entered into a joint development agreement with Peabody Energy to evaluate sites in the Midwest and Montana for coal-to-liquids projects that would transform coal into diesel and jet fuel. Projects would be sited where Peabody has large reserves and would be designed using Rentech’s proprietary Fischer-Tropsch coal-to-liquids process. Peabody Energy is the world’s largest private-sector coal company and should help strengthen Rentech’s brand name as it closely works with this large, well-known entity. The agreement is a milestone for Rentech as it represents Peabody Energy’s initial activities to develop CTL projects in the United States. The plants could range in size from producing 10,000 to 30,000 barrels of fuel per day (bpd). A 10,000 bpd plant would use 2 to 3 million tons of coal annually, and a 30,000 bpd plant would use 6 to 9 million tons of coal annually, based on the quality of coal. With more than 9.8 billion tons of reserves, Peabody has dozens of sites in the United States that it is evaluating for Btu Conversion projects. Note that short interest in the name more than doubled in July to approximately 9%. Shares increased by 65 cents to close at $4.77.
Fusion Telecommunications International, Inc. (AMEX: FSN), a provider of advanced VoIP services, said that it has signed over 100,000 registered subscribers to its new Efonica VoIP services in less than one month, an astonishing number, even for a service that is being offered free for basic subscribers. Fusion introduced its new Efonica services on June 19th and has already attained registrations from over 50 countries around the world highlighting the strong consumer response to its VoIP service. Adoption has been particularly strong in Fusion’s targeted emerging markets throughout Asia, the Middle East, Africa, Latin America and the Caribbean. The company remains committed to increasing its subscriber base, expanding its free features and driving revenue by delivering compelling, fee-based value-added services to expand its customers’ communications experience. Many other VoIP services companies never reach 100,000 subscribers, yet Fusion accomplished this major milestone with limited marketing and its beta softphone version. With shares at a 52-week low, which we believe is related more to fallout in the industry due to Vonnage’s failed IPO, the stock could be due for a bounce as investors focus on upcoming catalysts, including the company’s second quarter earnings call where it is likely to say more about its marketing strategy. Shares declined 9 cents to close at $1.60 for the week.
Drug delivery company Emisphere Technologies, Inc. (NASDAQ: EMIS), further strengthened its relationship with Roche after securing a multi-product research collaboration agreement to explore the use of Emisphere’s eligen® technology in feasibility studies for new oral formulations of a number of Roche molecules. Roche will fund the research, which will be conducted at both Roche and Emisphere. This agreement highlights the company’s efforts to maximize shareholder value by expanding the application of its technology on multiple compounds. Shares rose 5 cents to close at $6.88 for the week.
Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, announced a two-year collaboration with Horizon Blue Cross Blue Shield of New Jersey, the state’s oldest and largest health insurer and Hackensack University Medical Center, for the implantation of its FDA-approved microchips in chronically ill patients. The microchips provide immediate access to family contact information and information about the patients’ medical histories that could mean the difference between life and death in an emergency. Horizon will make the implantable radio frequency identification device (RFID), developed by the VeriChip Corporation, available to select members with chronic conditions. The device is very small in size (about the size of a grain of rice) and will be placed beneath a patient’s skin. The pilot program will give Hackensack Medical Center physicians access to the member’s electronic medical records and other vital information in the event the chronically ill member cannot respond during an emergency. The content of the electronic medical records will be approved by each member and include information about their condition, family contact information as well as lab test data and pharmacy information maintained by Horizon. Shares fell 14 cents for the week to close at $1.58.
QuantRx Biomedical Corporation (OTCBB: QTXB), a medical technology company with leading edge products targeting worldwide health needs, received an up-front payment of $500,000 as a result of its exclusive distribution agreement for its PAD technology with Synova Healthcare, a distributor of diagnostic products. QuantRx is also eligible to receive royalties over the term of the multi-year agreement in return for granting Synova exclusive rights to distribute the PAD technology for sales of Hemorrhoid Products in North America. It is unusual for a company with this valuation to generate such a significant up-front licensing payment. The stock rose 15 cents to close at $1.30.
Junior oil and gas producer Strategic Oil & Gas, Ltd. (TSX Venture: SOG) completed the drilling of its first well (22.5% owned) of a multi-well program in the Pinedale/Jonah area of Wyoming where total depth of this well was over 13,600 feet. The well encountered multiple gas zones and a completion program, which is expected to take several weeks, is commencing immediately. Strategic’s partners on the well are Jed Oil Inc. and JMG Exploration Inc. Additionally, completion programs have begun on two wells in its central Alberta area where both wells encountered multiple pay zones and are subsequently being completed in multiple zones. Strategic has a 26.25% interest in both wells. The success of the company’s central Alberta projects has led to the creation of several additional drilling locations in the area, scheduled for the fourth quarter. The stock rose 30 cents to close at $2.00.
Volume Alert: Shares of Novelos Therapeutics, Inc. (OTCBB: NVLT), a biotechnology company focused on oxidized glutathione for use in fighting cancer and hepatitis, traded over 6 times average volume after it announced that Dana-Farber/Partners Cancer Care has enrolled the first patient in a Phase 2 trial of NOV-002 in combination with carboplatin in platinum-resistant ovarian cancer patients. The primary objective of this trial will be to determine the tumor response rate in a cohort of women with platinum-resistant ovarian cancer after treatment with NOV-002 and carboplatin, where interim results are expected in early 2007. Management continues to move its product pipeline forward where in addition to being in Phase 3 development with NOV-002 for lung cancer, it is now in Phase 2 for platinum-resistant ovarian cancer, for which there is a major unmet medical need. The stock rose 9 cents to end at $0.85 for the week.
Junior energy company Petrol Oil and Gas, Inc. (OTCBB: POIG), provided an update to shareholders for its gas producing properties in its Coal Creek project located in southeast Kansas. The company is working on many exciting projects where initial gas sales commenced from its Burlington area property from its Phase I wells and the drilling of 10 new Phase II production wells starting in early July. Progress for its Waverly area property is moving forward as a new gathering pipeline system was integrated between all 19 production wells and their gas compressor station with drilling being scheduled for early August. Petrol offers an exciting opportunity to investors as it continues to develop it Coal Creek plan that is based upon drilling and completing some 540 wells over a two- to three-year period. To create operating efficiencies for such a large prospect, Petrol divided the project into three fully self contained areas; Burlington, Waverly and Lebo. Petrol holds a 100% working interest and an average 80% Net Revenue Interest in Coal Creek’s entire 92,000 gross acres covering coal bed methane and other oil and gas reserves located in eastern Kansas and western Missouri. Shares fell 6 cents to end the week at $1.26.
USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, began shipping its EnergyMiser™ product line to Australia and Denmark and Spain as more countries turned to energy management technology to lower energy consumption and costs. At the same time USA Technologies reported it had increased sales of EnergyMisers to Canada, and this month had shipped an additional 300 units valued at $30,000 to Optimum Energy Products Ltd, a key distributor in Calgary. Investors should benefit as USA Technologies’ product line is in growing demand as a result of its tried and proven technology that responds to customers’ needs. With energy prices on the rise, technologies such as those offered by USA Technologies that provide significant energy savings are generating a buzz across many nations as the EnergyMiser product line reduces the consumption of electricity between 25-46 percent in vending machines, coolers, snack machines and a variety of commercial appliances. Shares declined 70 cents to end the week at $7.50.
Junior energy company Aspen Exploration Corporation (OTCBB: ASPN), drilled its new Stoddard-Johnston #1-1 well to a depth of 8,700 feet where 60 feet of potential gas pay in several intervals was encountered in the Sacramento Valley region. This was the eleventh successful gas well out of eleven attempts by Aspen on its 5,000 plus acres lease position in this field where Aspen has a 21% operated working interest in this field. The stock closed at $4.50 down 7 cents.
China Digital Media Corporation (OTCBB: CDGT), a rapidly developing digital media company in China, achieved a significant milestone by reaching a record level of households that have installed digital set-top-boxes (“STBs”). As of June 30th, approximately 200,000 subscribers had installed over 220,000 digital STBs, with over 15% subscribing for additional digital STBs, with May representing the highest number of installations in a single month. The launch of its new IP-based STB that is equipped with JAVA platform and Ethernet port represents a significant source of revenue for the company and has generated incredible interest in Nanhai and surrounding cities. Shares declined 14 cents to end the week at $0.85.
CompuPrint, Inc. (OTCBB:CPPT), an energy technology company that combines satellite-based technology with traditional exploration services, which does business through Terra Insight Corporation, its wholly owned subsidiary, has been awarded by the Republic of Namibia five exclusive licenses for the prospecting of precious stones. The licenses cover approximately 1,000 square kilometers of off-shore territory and expire in May 2009. This milestone is consistent with the company’s business model of obtaining ownership interests in exploration projects where it plans to deploy its STeP™ technology for the exploration of natural resources other than oil and gas activities. The stock fell 1 cent to end the week at $0.19.
Environmental business development company GreenShift Corporation (OTCBB: GSHF), announced that its majority-owned subsidiary GS CleanTech Corporation (formerly named Veridium Corporation) executed an agreement with an Arkansas-based poultry processing facility to extract more than one million pounds per year of poultry fat from the facility’s waste streams for conversion into a biodiesel feedstock. GS CleanTech expects to generate an estimated $1.2 million to $1.8 million in annualized revenues from this agreement. Additionally, GS CleanTech executed an agreement with NextGen Fuel, Inc. for the exclusive rights to distribute and use NextGen’s patent-pending continuous-flow, multi-feedstock biodiesel process technology in the ethanol production industry. There are many benefits to NextGen’s technology including its ability to produce high quality biodiesel out of multiple alternative feedstocks continuously at small scales, a very important quality to GS CleanTech since its program is based on delivering technologies that produce clean fuels cost-effectively out of alternative feedstocks. Shares fell 2 cents to close at $0.16.
Diversified sports media company HumWare Media Corporation (OTC: HMWM), continues to strengthen its brand awareness campaign as it moved its focus towards the Northeast. Sales Representatives for its Boondoggle Sports Network have now been placed in Boston, Northern and Southern New Jersey. Management is very positive about the ground work being established for its long term initiatives focused on enhancing shareholder value as this news comes recently after the company placed sales representatives in Atlanta and Charlotte. Shares fell 9 cents to close at $0.11 for the week.
On the Wires: Environmental business development company GreenShift Corporation (OTCBB: GSHF), reported that its wholly-owned subsidiary Veridium Corporation was renamed “GS CleanTech Corporation” with the stock symbol for this subsidiary changing to “GSCT” on the OTC Bulletin Board last week. Additionally, a second subsidiary INSEQ Corporation was renamed “GS Energy Corporation,” with the stock symbol of this subsidiary changing to “GSEG” on the OTC Bulletin Board last week as well. Junior energy company Fellows Energy Ltd. (OTCBB: FLWE), has added two former Questar executives to its development and production staff which include Gary L. Nordloh as Chief Operations Advisor and Ronald E. Hogan as Chief of Development. Both gentlemen bring expertise to the company as Mr. Nordloh served from 1989-2002 as President and CEO of all of Questar Corp.’s non-regulated activities and Mr. Hogan served as General Manager of Wexpro (a Questar Corp. subsidiary) and General Manager of Questar Exploration and Production’s Pinedale Division. They will immediately commence evaluation and development activities on the various projects in Fellows’ 230,000-acre portfolio, as well as on new projects currently under consideration.
