06/24/2007
VOLUME 305
Companies featured in the current edition of the newsletter: ARGA, BSGC, CGXP, CYTR, EEEI, GNBT, GSHF, HSOA, HYTM, ISON, NTRN, PCLI, RTK, USAT
Despite the lack of influential economic news, the market gave up significant ground last week. Rising yields, higher energy prices and subprime woes remained at the forefront with the Dow losing 279 points for the week, reducing annual gains to 7.2%. The Nasdaq shed 37 points, with yearly gains totaling 7.1%. The S&P fell 30 points, equating year-to-date gains to 5.9%. The Russell declined 13 points, lowering annual results to 5.9 %.
The successful launch of the much-anticipated Blackstone IPO that traded well over 100 million shares and closed up over 13% on Friday could not turn around the negative market sentiment for stocks. Problems in Nigeria as a result of oil unions calling for a nationwide strike that began last Wednesday in protest of a government price hike were carried into the weekend, as oil ended the week at $69/bbl. Mixed economic data continues to be reported as weekly jobless claims unexpectedly rose last week to the highest level in two months. Countering such news was the report from the Philadelphia Federal Reserve showing regional manufacturing activity in June having its strongest growth in two years. Yields on the 10-year note ended the week at 5.13%, remaining a big concern to the market as higher rates negatively impact corporate deals and the housing market.
In what was an otherwise dismal day for stocks on Friday, many small-cap issues rallied strongly in the last 30 minutes of trading. We believe this was a result of the rebalancing of the Russell 2000 after the market closed on Friday, as a number of the smallest companies that remained in the index as well as those that dropped out saw a surge in their share price on a sharp increase in volume. For example, shares of Hythiam (NASDAQ: HYTM) rallied 1.6%, Rentech (AMEX: RTK) rose 6.3% and Home Solutions (NASDAQ: HSOA) added 5.6% in the last half hour in heavy trading. Even stocks that were removed from the index, such as Emisphere Technologies (NASDAQ: EMIS) jumped possibly due to short-covering.
What should investors look for this week? With the second quarter coming to an end, earnings pre-announcements could increase. On the earnings front, Nike (NYSE: NKE) and Oracle (NASDAQ: ORCL) will announced numbers Tuesday after the closing bell. Wednesday evening, Bed Bath & Beyond (NASDAQ: BBBY) will release earnings along with Micron (NYSE: MU). Thursday morning, KB Home (NYSE: KBH) will report numbers with 3Com (NASDAQ: COMS) and Research In Motion (NASDAQ: RIMM) announcing figures later that evening. The conference schedule is pretty light with Wachovia Securities launching its four-day CEO Summit in Nantucket, MA starting Monday. Beginning Tuesday, the three-day Jefferies Healthcare Conference starts in New York. The RBC Capital Markets Energy Infrastructure and Trust Conference takes place on Thursday in Toronto.
The economic calendar will certainly provide important data that investors will closely watch. Prior to the release of the FOMC policy statement that will be released on Thursday at 2:15 p.m., May Existing Home Sales will be reported on Monday at 10:00 a.m. Tuesday shortly after the opening bell, June Consumer Confidence and May New Home Sales will be released. Before the bell on Wednesday, May Durable Orders will be announced followed by Weekly Crude Inventories at 10:30 a.m. Thursday morning before the opening bell, Q1 GDP will be released along with Q1 Chain Deflator and Weekly Jobless Claims. At 10:00 a.m. the May Help-Wanted Index will be released with the Fed statement coming in later that afternoon. Prior to the opening bell on Friday, May Personal Income and Spending data will be reported along with May Core PCE Inflation. June Chicago PMI will be announced at 9:45 a.m., shortly followed by the May Construction Spending and Revised June Michigan Sentiment at 10:00 a.m. Also on Tuesday Chicago Fed President Moskow will be speaking.
Drug delivery company Generex Biotechnology (NASDAQ: GNBT) said Friday afternoon that it would be making three poster presentations at the American Diabetes Association’s 67th Scientific Sessions in Chicago, IL June 22-26, 2007. The event has historically been a catalyst for the company’s stock, as it is a venue where it has previously announced significant clinical developments surrounding Generex Oral-lyn, the company’s proprietary oral insulin spray product, to the scientific and investing public. Two of the presentations feature its proprietary confectionary Glucose RapidSpray product and its role in hypoglycemic control and as a dietary supplement for weight control. The third presentation related to Generex Oral-lyn, where a study is expected to show that the use of a simple system that delivers regular acting insulin to the lining of the mouth is non-inferior to insulin injection. This has important implications for diabetics, as a spray would be far less invasive than regular needle sticks. Shares ended the week down 3 cents, closing at $1.80.
Shares of Home Solutions of America, Inc. (NASDAQ: HSOA) continued to remain volatile last week, although the stock bounced nicely off a test of its 50-day moving average early in the week. On Monday, the company provided an update on two key closely-scrutinized projects at its Annual Stockholder’s Meeting. HSOA said that the New York contract is “much bigger” than the $100 million it would recognize from the deal and that work by Blue Diamond, its joint venture partner, had already begun on the Brooklyn property sooner than anticipated. The location is one of three properties in the boroughs of New York to be built by the joint venture. The company said that it expected a building permit on the Whitestone project, the second location, to be “issued shortly.” It also said that work on a contract valued at approximately $100 million to provide construction management, general contracting and development services for a 600,000 plus square foot retail center and corporate office site located in Hillsborough County, Florida had already begun, with the company recently commencing engineering work, as well as administrative, legal, concurrency and planning activities. On Friday, the analyst at Sanders Morris Harris reiterated his “Buy” rating and $9.50 price target, in a report that received little fanfare. Notably, in his report he stated that, “we came away (from a meeting earlier in the week with company management) impressed by the project managers’ knowledge and the timelines they are working on as these projects begin to ramp (New York and Tampa). We would not be surprised if these projects contributed modestly to second-quarter results even thought management expects them to be second-half events.” His Q2 estimate is for revenue of $48.3 million and EPS of $0.16. We believe with the quarter coming to a close that investors will begin to focus on the companY’s second quarter results, which could serve as a catalyst for the stock. As we noted last week, the stock is just 6% above the level it was at when the company announced the first of two $100 million contracts. Nasdaq short interest is expected to be announced Tuesday after the close, which could provide further insight into recent trading activity. Shares closed Friday at the high of the week on heavy volume, another positive technical indicator. The stock ended the week at $6.34, up 37 cents for the week.
Shares of Hythiam, Inc. (NASDAQ: HYTM), a provider of comprehensive behavioral health management services, received a boost last week after Blue Cross and Blue Shield announced that it had selected Hythiam as its strategic alliance partner to provide information about substance abuse programs to more than 20 million union members and their families. Blue Cross and Blue Shield offers health benefits for more union workers, retirees and their families than any other national insurance carrier, giving Hythiam the opportunity to market its PROMETA protocols for the treatment of alcoholism and dependence to methamphetamine or cocaine to a very large nationwide audience. While the alliance does not have any direct revenue implication, it suggests that the company is expanding its reach within the BCBS organization, which could have important implications for the two Blue Cross Blue Shield plans that are currently conducting tests of PROMETA. Recently, HYTHM announced that a third BCBS entity, a BCBS licensee in Hawaii, would begin a commercial evaluation of PROMETA prior to the end of the second quarter. Additionally, Hythiam reported last week that the Texas legislature had approved its new fiscal budget, earmarking $2 million in funding to be used for PROMETA substance abuse treatments in its Department of Criminal Justice programs. The state of Texas had been looking for programs that could help reduce its incarceration rate, and reduce substance dependency, thereby decreasing criminal activity driven by drug needs. Texas becomes the third state in the country, joining Washington and Indiana, to approve funding for the substance abuse treatments, bringing the total of eligible funds to $3.5 million. Other studies are ongoing in Hawaii, Georgia, Louisiana, and Arizona. Shares ended the week at $8.32, up 52 cents.
Shares of CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical company engaged in the development and commercialization of human therapeutics, could receive a boost this week after the company was added to the Russell 2000 late Friday. In addition, the company had said previously that it would announce the results of its open-label study of arimoclomol for the treatment of ALL prior to the end of the second quarter, suggesting that those results could come this week. The study is an extension of a Phase IIa trial that had been previously completed in the 2006 third quarter, which med the primary safety and tolerability endpoints and showed that the drug crossed the blood brain barrier, significant in treating neurodegenerative diseases. Shares ended the week at $3.55, down 38 cents.
Shareholders of Rentech, Inc. (AMEX: RTK), a developer of technologies that transform under-utilized energy resources into valuable and clean alternative fuels, should keep a keen eye on a special session of the Kentucky General Assembly called for by Gov. Ernie Fletcher to be held on July 5, 2007. The session will focus on expanding economic incentives for companies interested in locating alternative fuel facilities in the state. Peabody Energy, TECO Coal Corp. and EnviRes LLC, as well as Rentech, are considering such projects. Rentech has already partnered with Peabody Energy for development of a coal-to-liquids project in Illinois. Shares ended the week at $2.53, down 12 cents.
Isonics Corporation (NASDAQ: ISON), a provider of innovative solutions for the homeland security and semiconductor markets, reported last week it has completed the previously announced sale of its Life Sciences division, continuing the company’s streamlining initiative announced earlier this year. Net proceeds from the sale are approximately $700,000. The company expects to show an operating profit for the fiscal year ending April 30, 2008, focusing primarily on its Semiconductor and Homeland Security and Defense divisions. Shares ended the week at $1.47, up 3 cents.
Late Friday, USA Technologies (NASDAQ: USAT), a leader in the networking of wireless non-cash transactions, associated financial/network services and energy management, was added to the Russell Microcap Index, which includes the smallest 1,000 securities in the Russell 2000 and the next 1,000 companies based upon market capitalization. The addition to the Index, while just in its second year and lacking the influence of the Russell 2000, reflects the dramatic progress the company has made in improving its balance sheet and attracting interest from the institutional community. Shares ended the week at $10.96, down 54 cents.
Auriga Laboratories, Inc. (OTCBB: ARGA), a specialty pharmaceutical company with products for the treatment of acute respiratory diseases and dermatological conditions, announced last week that it formed a new division called Advanced Topical Solutions (A.T.S. Pharmaceuticals), whose primary focus will be on dermatologists with a secondary focus on gastroenterologists and colon-rectal specialists. The national sales team for this division will consist of 46 people whose initial product focus will be towards dermatologists who prescribe AKURZA Cream & Lotion (salicylic acid 6%). This near-term opportunity is exciting as dermatologists account for 85% of the total salicylic acid 6% cream/lotion prescriptions. Auriga expects to add two additional products next month, with other products to follow later this year and in 2008. The creation of A.T.S. Pharmaceuticals broadens the company’s scope as the U.S. Dermatology market exceeds $4.2 billion in sales with more than 44 million prescriptions written on an annual basis. Furthermore, this division allows the company to offset some of the seasonality issues from its other businesses. Shares ended the week at $1.10, down 6 cents.
With the second quarter winding down, could Ceragenix Pharmaceuticals, Inc. (OTCBB: CGXP), a biopharmaceutical company focused on infectious disease and dermatology, be getting closer to inking a deal for EpiCeram with a pharmaceutical partner? CGXP previously announced positive results from its post-clearance marketing study comparing EpiCeram’s efficacy to that of Cutivate cream, a mid-strength topical steroid in the treatment of moderate-to-severe atopic dermatitis. The company said that its goal was to have a deal in place by the end of the second quarter with a marketing partner. EpiCeram is a prescription only product intended for use to treat dry skin conditions and to manage and relieve the burning and itching associated with various types of dermatoses including atopic dermatitis (eczema), irritant contact dermatitis, and radiation dermatitis. Shares ended the week at $1.65, down 16 cents.
BigString Corporation (OTCBB: BSGC), a provider of user-controllable email services, announced the release of BigString 3.0, a patent-pending disruptive technology that will allow users to remotely erase or modify emails sent to any recipient. This service gives the sender of an email total control, without worrying whether personal videos, photos or messages will be indiscriminately forwarded or shared with someone other than the recipient. Furthermore, BigString’s technology gives the user the luxury of being able to correct or retract emails that may have typos, were sent in anger, haste or an altered state, a common occurrence for most email users. Other features include non-printable/savable emails, Advanced Email Tracking, which allows user to see if an email has been opened, how many times it has been read, and whether or not it has been forwarded. In addition to providing users with four gigabytes of storage, there is also a self-destructing “Mission Impossible” style email that can be set to self-destruct a set number of seconds or minutes after being opened. Shares ended the week at $0.28, up 1 penny.
Electro Energy, Inc. (NASDAQ: EEEI), a developer and manufacturer of high-powered, rechargeable bipolar nickel-metal hydride batteries, said last week it was awarded a new contract from Lockheed Martin for technology development of Very High Specific Energy Battery Cells for use in Lockheed’s High Altitude Airship (HAA) program. Electro Energy has been contracted to develop an advanced, light-weight, rechargeable lithium ion battery to help power an unmanned, lighter-than-air vehicle that will operate in a geostationary position to provide an array of communication and navigation services for both civilian and military purposes. Lockheed has commented that Electro Energy’s advanced rechargeable lithium-ion battery is an example of the very high specific energy rechargeable storage technology that is a key to enabling stratospheric airships like HAA to stay aloft for many months at a time. The benefit of Electro Energy’s bipolar wafer cell design compared with conventional batteries is lower cost, increased energy density, longer life and improved reliability. Such attributes enable Lockheed to move towards its goal of achieving significantly higher specific energy than current state-of-the-art batteries in support of this next-generation airship. Separately, Electro Energy continues to broaden its intellectual property after announcing the addition of a Chinese patent to its portfolio. This patent marks the 11th foreign patent that been issued relating to the company’s bi-polar advanced rechargeable battery technology in addition to the 8 U.S. patents the Company currently holds. Patent # ZL 02817670.7 relates to packaging methods and fabrication techniques for making bi-polar flat wafer cells that are capable of being stacked in a multi-cell battery construction. Lastly, the company also announced Bruce Lev has been elected to the Board of Directors, replacing Warren Bagatelle, who passed away on May 31, 2007. Lev has been appointed to serve as Chairman of EEEI’s Audit Committee, and will also serve as a member of the Compensation Committee. Shares ended the week at $1.10, up 1 cent.
GreenShift Corporation (OTCBB: GSHF), a company devoted to facilitating the efficient use of natural resources, reported that its majority-owned subsidiary, GS CleanTech Corporation, executed an agreement to extract about 7 million gallons per year of crude corn oil from the distillers grain co-product from a new 110 million gallon per year dry mill ethanol plant scheduled to commence operations later this year. It was also reported that GS AgriFuels Corporation, a majority-owned by Greenshift Corporation, will finance, build and operate a 10 million gallon per year biodiesel facility proximate to the ethanol producer where it will be integrated with GS CleanTech’s extraction system to convert the extracted corn oil into biodiesel fuel. This facility, which is scheduled be brought online next year, is expected to be GS AgriFuels’ second co-located biodiesel facility. GS AgriFuels is also in the final stages of contract negotiations to co-locate a third planned facility at an existing 50 million gallon per year ethanol facility in the Midwestern U.S., and is working through a pipeline of several similar agreements. GS AgriFuels expects to have more than 20 million gallons of co-located biodiesel production assets contracted in 2007. Such opportunities are very lucrative as a single 10 million gallon per year corn oil extraction and biodiesel production facility can be expected to result in $24 million in one-time sales and about $1 million per year in royalties for GS CleanTech and, at current market rates, about $28.5 million in annualized biodiesel sales for GS AgriFuels. Additionally, the company continues to remain committed to maximizing shareholder value with its core focus centering on sales and earnings growth through the deployment and commissioning of corn oil extraction systems, the sales of biodiesel equipment, the financing, construction and operation of its co-located corn oil biodiesel production facilities, the expansion and operation of its oilseed crush plant, and the growth of its environmental services group. Greenshift is expected to hold a conference call this week to respond to shareholder questions, after the company released a letter to shareholders last week highlighting prior successes and future plans. Shares remained unchanged for the week to close at $0.03.
Neutron Enterprises, Inc. (OTCBB: NTRN), a developer of digital media solutions, announced the results of the alpha version of its contest site www.wallstreetsurvivor. The company reported that the average user spent approximately 10 minutes on the site, with more than 81% of the visitors returning, and that 66% of registered users became active players. Neutron also announced that the web site was available more than 99.9% of the time, suggesting a robust platform. Earlier this month on June 4, 2007, the company also launched its beta version of the game that will last until July 27, 2007 and offers $25,000 in prize money. This will be the last test version before the company launches its first $1 million competition later this year. Shares ended the week at $0.83, up 3 cents.
On the Wires: Protocall Technologies Incorporated (OTCBB: PCLI), a leading provider of DVD on-demand systems for retailers and etailers, reported last week that Aaron Knoll, Chief Technology Officer of TitleMatch Entertainment Group, a subsidiary of Protocall Technologies, will participate as a speaker at the Entertainment Supply Chain Academy (ESCA) conference, being held on June 27-28 in Los Angeles, California.