06/26/2006
VOLUME 244
Companies featured in the current edition of the newsletter: ADSX, ASPN, CDSS, CLRI, EMIS, ENZ, FMTI, FSN, GEPT, GNBT, HOM, HYTM, IMMG, ISON, IVOI, LEVP, NVLT, PEFF, PTCH, RTK, SCLL, TAGS, UDTT, USAT, ZIOP
There was little direction for the market last week as the lack of influential news left major indices little changed. Concerns over inflation remain at the forefront as the week ahead should bring more clarity for investors. The Dow closed down 25 points for the week, paring its year to date gains to 2.5%. The Nasdaq lost 8 points increasing annual losses to 3.8%. The S&P dropped 7 points with annual losses equaling 0.3%. The Russell declined almost 3 points for the week keeping its annual gains in line with the Dow at 2.5%.
Comments from Atlanta Fed President Jack Guynn early last week echoed those of other Fed officials, who continue to state that core inflation is beyond an acceptable range. As a result, it is almost certain that the Fed will raise interest rates another 25 basis points to 5.25% on Thursday when it announces the results of its two-day meeting, representing the 17th consecutive rate hike since June 2004. Yields on the 10-year notes have risen to 5.22%, very close to where the Fed is expected to lift the benchmark lending rate. While economic growth appears to me moderating, results from FedEx (NYSE: FDX) and Morgan Stanley (NYSE: MWD) appear to suggest that the economy still remains solid. Weekly jobless claims continue to remain at low levels (308,000) suggesting that new job growth remains healthy.
The economic calendar will certainly provide important data to help the Fed make up decision, which will be released on Thursday afternoon at 2:15 pm. With the market pricing in a 100 % chance of the Fed raising rates at this meeting, comments pertaining to future tightening will be the significant market movers. Prior to this important policy statement, May New Home Sales will be released on Monday morning. Tuesday morning May Existing Home Sales will be reported along with June Consumer Confidence data which is expected to show a slight decline from May. Weekly Crude Inventories will be announced on Wednesday morning. Prior to the bell on Thursday, the final first quarter GDP will be announced along with Weekly Jobless claims. That same day the May Help-Wanted Index will be reported after the bell. Friday morning, May Personal Income & Spending numbers will be reported along with the Revised June Michigan Sentiment Index and the June Chicago Purchasing Managers Index. Investors are likely to pay particular attention to the core PCE Index component of the May Personal Income & Spending results.
The end of the week could be extremely volatile in the aftermath of the Fed meeting, but also because it is the end of the quarter and the Russell indexes, including the Russell 2000, will be rebalanced. Over the past 14 years, the companies that have been added to the Russell 2000 have outperformed the Russell 2000 during the two weeks prior to inclusion by an average of 9.3%. However, this year, the effect has only been 1.2%. Russell announced on June 16th that it would add 2347 companies to the broad-market Russell 3000 Index, most of which will be included in the Russell 2000. According to published reports quoting Satya Pradhuman, small-cap strategist at Merrill Lynch, candidates for inclusion in the index “may bounce sharply as we get closer to reconstitution date” as due to market volatility active investors may be waiting longer than usual before buying positions. Note that passive managers must wait until Friday’s close to make the changes to their portfolios. Companies that will be newly included in the Russell 2000 that could benefit include Emisphere Technologies (NASDAQ: EMIS), Home Solutions of America (AMEX: HOM), Hythiam, Inc. (NASDAQ: HYTM) and Rentech (AMEX: RTK).
There are few market-moving companies reporting results this week. On Tuesday Nike (NYSE: NKE) reports earnings after the bell. General Mills (NYSE: GIS) releases numbers prior to the open with Paychex (NASDAQ: PAYX) announcing figures after the market closes on Wednesday. Thursday, prior to the opening, A.G. Edwards (NYSE: AGE) reports earnings followed by Research In Motion (NASDAQ: RIMM) after the closing bell.
Jeffries & Co. begins its three-day Life Sciences Conference in New York on Monday. On Tuesday, Bank of America Securities starts it three-day Gaming Conference in Las Vegas and William Blair & Company begins its three-day 26th Annual Growth Stock Conference in Chicago.
Volume Alert: Shares of Enzo Biochem, Inc. (NYSE: ENZ), developer of innovative health care products based on molecular biology and genetic engineering techniques, traded roughly 9 times average volume and rose 33.6% for the week, as the company issued an 8-K relating to the granting of a patent for the “Array and Non-Porous Solid Support Comprising Fixed or Immobilized Neucleic Acids” last week. The patent could have far-reaching implications, as it appears that a number of major players in genomics may be infringing upon it with products currently on the market. These include Affymetrix, possibly Illumina and others. ENZ currently has ongoing litigation over other patents with Affymetrix and Hoffman-La Roche. ENZ said t hat it plans to use the patent to develop products in the marketplace, as it supplies consumables that go with the arrays. The company believes that the patent is a very strong adjunct to support marketing of those products. ENZ last year entered into a licensing agreement with Digene Corporation, worth at least $30 million to Enzo, after initially suing the maker of medical diagnostics products for patent infringement. Note that the stock, which has approximately 14% of the float short, broke through its 200-day moving average for the first time in nearly one year. Shares rose $3.27 to close at $13.00.
Hythiam, Inc. (NASDAQ: HYTM), a healthcare services management company that licenses the PROMETA™ physiological protocols designed to treat substance dependence, continues to achieve significant milestones and further build its brand name as Research Across America, a nationally-recognized clinical research center, reported positive results of its study of the PROMETA(TM) treatment protocol for methamphetamine dependence. It was found that after treatment, more than 80% of study participants experienced a significant clinical benefit with no adverse events. Even more impressive is the fact that the PROMETA treated patients improved almost immediately within the first three days, in sharp contrast from most studies on substance dependence therapies where other pharmacologic agents tested to date usually only show a gradual improvement over time. Such patients were treated in an outpatient setting without any psychosocial support, where despite such challenges, a high percentage of subjects completed both the treatment phase and the follow-up phase of this study. Hythiam also had additional positive developments with Pierce County Alliance (PCA) adopting the PROMETA Protocols for treatment of both cocaine and methamphetamine dependent individuals following a successful pilot program that showed 92.5% of participants remaining drug-free. PCA is the largest substance abuse treatment provider for criminal justice in Pierce County, State of Washington and currently services approximately 2,000 individuals. PCA presented its results at an industry conference. According to published reports, “There was an audible gasp from the audience when Dr. Schmidt-Whelan (an executive of PCA) reported that over 92.5% of study participants remained drug-free and that 98% of random urine screens tested clean. She was emphatic in her unqualified support for Prometa, saying the data were so compelling that she would infuse every (qualified) patient in her 2,000-member program. She reported that Prometa is the most dramatic thing she has seen in over 30 years and is beyond comparison.” Armed with study outcomes from well-known addiction expert Dr. Urschel, and references such as Gary City Court in Indiana and PCA in Washington, Hythiam should be able to attract interest from other agencies. The result should be increased numbers of pilots which could drive adoption among the numerous health and criminal justice agencies in the country. The PROMETA protocols are also featured in a favorable article in Sunday’s New York Times Magazine. The stock gained 2 cents to close the week at $6.99.
Shares of Home Solutions of America, Inc. (AMEX: HOM), a provider of recovery, restoration and rebuilding/remodeling services, remained under pressure last week, as a series of press releases, announcing purported class action lawsuits, provided another distraction for investors. The timing coincided with the release last week of June short interest, which showed one of the most dramatic increases in short selling we have seen in a single month. Shares short increased by nearly 6 million, rising to nearly 8.7 million, or almost 29% of the float. The timing of the announcements of the lawsuits coincides with HOM’s scheduled inclusion in the Russell 2000 on Friday and listing on the Nasdaq this week. The company called the lawsuits “frivolous and completely without merit.” This is the first time we have seen a lawsuit filed where the company has not warned on earnings or announced disappointing results. In fact, at some point, investors will again begin to focus on the growth prospects for the company, which again reaffirmed its guidance for 2006. We believe that there was nothing false about the press releases, and have spoken with the party the company entered into the largest contract with who confirmed the contract details to us. Ironically, the best thing that could happen for the company would be for somebody to investigate the situation, as investors would finally be able to concentrate on the company’s fundamentals. How many companies have issued guidance to more than double year-over-year earnings and trade for 12 times the mid-point of estimates? The stock fell 54 cents to end the week at $6.99.
Fusion Telecommunications International, Inc. (AMEX: FSN), a provider of advanced VoIP services, achieved a new milestone by launching a revolutionary free VoIP service under its global efonica brand. The new service eliminates the need for PC users to call each other while using their existing phone numbers, resulting in universal accessibility and remarkable ease of use. Such calls are facilitated through a worldwide Internet Area Code developed by Fusion where subscribers dial the prefix “10”, then dial familiar phone numbers as they normally would, rather than clicking on user names, as is common with other free VoIP services. Fusion believes that its efonica service will be particularly attractive to consumers in developing countries, who have expensive landline service and limited VoIP calling options. Additionally, FSN introduced its new paid services, efo out, at CommunicAsia 2006 in Singapore. This service allows users to call any landline or mobile telephone number in the world at extremely competitive prices and compliments the company’s newly launched efonica FREE service. Both efo out and efonica FREE work in conjunction with the company’s patent-pending Worldwide Internet Area Code. Clearly, executives at the company believe the recent launch has begun to generate positive responses, as three executives purchased 29,000 shares of the company’s stock. The stock climbed 30 cents to close the week at $2.40.
Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, reported that its subsidiary, VeriChip Corporation, continues to expand its presence in international markets for its healthcare security products by making the first sale of its RoamAlert® Wander Protection System into Australia. This PC-based wander prevention system provides effective, restraint-free protection of residents in long term care facilities with scalability and flexibility to address the increasing number of wandering incidents. The benefits of this product are becoming more widely recognized as over 4,000 facilities utilize this system currently where many customers are attracted to its feature-rich software and its ability to provide picture ID, complete record keeping and other advanced features. Shares fell 15 cents to close the week at $1.68.
Tarrant Apparel Group (NASDAQ: TAGS), an innovative design and sourcing company for private label and private brand casual apparel, has significantly expanded its financial flexibility to grow its business by receiving increased credit facilities from both new and existing lenders. The company closed a $65 million credit facility with Guggenheim Corporate Funding that consists of an initial term loan of up to $25 million for the repayment of certain existing indebtedness and working capital needs and a second term loan of $40 million for acquisitions acceptable to Guggenheim. Additionally, existing lenders increased the company’s borrowing base by up to $30 million with GMAC Commercial Finance increasing Tarrant’s credit facility by $10 million to $55 million and DBS Bank increasing its credit facility by $20.5 million to $25 million. Such increases enable the company to take advantage of new Private Label business opportunities in addition to pursuing acquisition opportunities which may be synergistic with its core competencies. The stock rose 14 cents to finish the week at $1.98.
Homeland security company Global ePoint, Inc. (NASDAQ: GEPT) completed the much-anticipated acquisition of Tops Digital Security, a leading enterprise video surveillance company. Tops anticipates it will generate approximately $8 million in revenue during the next twelve months thanks to its growing customer base, which includes customers from the casino gaming, museum, entertainment facilities, retailers and law enforcement facilities. The Tops platform provides GEPT with the high level enterprise surveillance solution that will enable the company to develop new opportunities in the lucrative casino gaming, museum, and government security markets. The acquisition further compliments GEPT’s existing line of video surveillance products, positioning the company for significant growth in this area. Shares fell 13 cents to close at $1.89 for the week.
Generex Biotechnology Corporation (NASDAQ: GNBT), a leader in the area of buccal drug delivery, continues to move forward with the global commercialization of its Generex Oral-lyn, a proprietary oral insulin spray product, as the company entered into contractual arrangements with Cardinal Health, the leading provider of products and services supporting the health-care industry, to manufacture clinical trial batches of Generex Oral-lyn for the remaining trials of the Oral-lyn product. Note that the product is already on the market in Ecuador. Shares climbed 42 cents to end the week at $1.89.
Life sciences company Forbes-Medi-Tech Inc. (NASDAQ: FMTI), along with its licensee Fayrefield Foods Ltd., formed a new UK company to expand distribution of finished products containing Forbes’ cholesterol-lowering ingredient, Reducol™. The new company will be called Forbes Fayrefield Ltd. and will be well-positioned to reach retailers looking for healthier alternatives to existing branded products. Such a strong partnership should help grow the top-line of both companies as the strength of Forbes’ product innovation and ongoing development is combined with Fayrefield’s experience in retail chain distribution. Forbes’ has a majority interest in the new company at 51 percent. Separately, FMTI announced that it will showcase its Reducol-based products at the Institute of Food Technologists Annual Meeting and Food Expo taking place in Orlando this week. Cholesterol-lowering Reducol continues to gain attention, especially in Europe, while trade shows like this one will also help the company reach consumers and manufacturers in North America. The stock fell 3 cents to close the week at $2.10.
Isonics Corporation (NASDAQ: ISON), a developer of innovative solutions for the homeland security and semiconductor markets, will pay its interest and principal payments due July 1st in cash to holders of its 8% convertible debentures. Previously, such scheduled monthly payments were made in stock but with the stock trading at its lowest level in more than three years, management opted to prevent dilution and pay such obligations in cash. The company reported revenue for May was a record for its semiconductor business and unaudited revenue for the fourth quarter ended April 30, 2006 increased by 160% versus the prior year. The stock closed at $0.69, up 1 cent.
New-York based brokerage firm Griffin Securities initiated coverage of Ziopharm Oncology, Inc. (OTCBB: ZIOP) over the weekend, establishing an 18-month price target of $18. ZIO-101 is the first of a new class of organic arsenicals that are potentially safer and more active for cancer treatment than the approved inorganic arsenic. ZIOPHARM has initiated a Phase I/II study in advanced multiple myeloma, a hematological cancer. According to the report, “Interim results of ongoing Phase I trials in diverse cancers indicate meaningful biological activity in patients at doses up to 50 times higher than Trisenox® (arsenic trioxide (ATO) by Cephalon with less toxicity. The company is planning to initiate the pivotal registration trial for advanced multiple myeloma in late 2007. It is also exploring the applicability of ZIO-101 in other blood and solid cancers. Additional trials for ZIO-101 are in the late-planning stages for both hematological malignancies and solid tumors.” Note that Griffin was one of the first firms to initiate coverage on Hana Biosciences, which has been a big winner. Shares ended the week at $5.05, down 10 cents, but could receive a significant boost on Monday as a result of the report.
Junior energy company Aspen Exploration Corporation (OTCBB: ASPN) drilled a new gas well, called the WGU #14-8, in Sacramento Valley and encountered approximately 100 feet of potential gas pay in several intervals. This was the tenth successful gas well out of ten attempts by Aspen where it has a 21% working interest in this well. The company continues to implement its exciting drilling program for 2006 with several more wells in this field being planned later this year. Further adding to the company’s successes are the results from The Morris #1-13 where the deeper zone tested gas at a prolific stabilized flow rate of 3,300 MCF per day. The stock rose 33 cents to close at $4.45.
We mentioned Insider activity in a positive light in Fusion Telecommunications above. Another company that has seen insider buying over the past two weeks has been Lev Pharmaceuticals (OTCBB: LEVP), a developer of therapeutics for inflammatory diseases. Both the Chairman and CEO purchased stock in the open market during each of the past two weeks, despite concentrated ownership positions. Lev’s product candidates are based on C1-esterase inhibitor, a human plasma protein that mediates inflammation and is potentially applicable as a treatment for a range of medical indications. The company is currently conducting a registrational Phase III clinical trial of its lead product candidate, C1-INH for the acute and prophylactic treatment of hereditary angioedema, a genetic disease affecting 6,000 or more people in the U.S. Despite the advanced stage of the trial, its valuation is just approximately $50 million. Shares ended the week at $0.60.
Citadel Security Software Inc. (OTCBB: CDSS), a leader in enterprise vulnerability management and policy compliance solutions, participated in a exercise sponsored by the U.S. Department of Homeland Security to test the activation of Continuity of Operations Plans in specific federal departments and agencies. This exercise, TOPOFF 4, was the fourth exercise in the TOPOFF Exercise Series, a congressionally mandated exercise program. The exercise is designed to strengthen the nation’s capacity to prevent, protect against, respond to, and recover from terrorist attacks involving weapons of mass destruction (WMDs). Shares fell 2 cents to end the week at $0.57.
Clearant, Inc. (OTCBB: CLRI), the developer of the patent-protected CLEARANT PROCESS® for pathogen inactivation, continues to execute its stated business objectives as it made available its Clearant Sterile Implants® for cervical spinal allograft surgery through its direct sales force for the first time last week. Tissues treated with the Clearant Process® are currently being marketed to surgeons, hospitals and clinics in six U.S. markets which is very significant considering the top fifteen markets in the U.S. represent in excess of $200 million in bone implant sales. Response from Clearant’s spinal and orthopedic sales representatives has been extremely positive where the company is ahead of its hiring plan with the total number of representatives dedicated to the spinal market totals six. The stock ended the week down 13 cents to close at $0.74.
Power Efficiency Corporation (OTCBB: PEFF), a developer and manufacturer of advanced energy savings technologies for electric motors, received an order by Amtech Elevator Services, a subsidiary of Otis Elevator Company, for installation of the company’s Power Commander® units on escalators at two Federal Government buildings in Philadelphia. This order is reflective of the lucrative opportunity made possible to the company after energy reduction mandates were adopted last year by the federal government requiring all non-exempt federal buildings to reduce energy usage per square foot by 2% every year until 2015. With its Power Commander® product being able to save 20-40% of the electricity used by an escalator motor once it is at full speed, the company should continue to increase brand awareness as soaring energy bills are forcing consumers to look for cost-saving products such as those offered by Power Efficiency. Shares rose 2 cents last week, closing at $0.29.
IMPART Media Group, Inc. (OTCBB: IMMG), an innovator in the creation of out-of-home digital advertising content and information network management, announced results for the first quarter ended March 31st with sales increasing nearly 19% to $1.2 million. The net loss for the quarter was $2.8 million as the company invested in the necessary infrastructure and systems. It appears than IMGGE has build a solid foundation and accordingly results should improve for the second quarter as this will be the first full quarter to include revenue from the company’s recent acquisition of E&M Advertising (now Impart Media Advertising) as well as revenue from the introduction of its IQ Box to the digital media network industry. Also, IMMGE signed a two-year strategic alliance agreement with Optical Products Development Corporation (OPD) of Elmira, New York to provide content and sell advertising for OPD’s 3-D Kiosk rollout. OPT has pioneered 3-D interactive display kiosks and has sold more than 50,000 units for applications in digital signage, integrated kiosk solutions, point-of-purchase displays and gaming. OPD will start delivering its new line of kiosks to grocery stores this summer with plans for production roll-outs by years end. Alliances such as this one, should aid IMMGE in gaining traction in the out-of-home advertisement market. Additionally, the company restructured its executive management team to capitalize on future growth opportunities. Such changes should help build brand awareness for the company as they focus on accelerating project deliverables, enhancing the company’s P&L and aggressively driving marketing and advertising efforts. Despite the news shares lost 31 cents to end the week at $1.70.
iVoice, Inc. (OTCBB: IVOI), a developer and licensor of proprietary technologies, is currently in final negotiations to acquire a biodiesel technology company, allowing it to enter the fastest growing segment in the alternative fuel market. iVoice will hold a majority interest in the new venture and is currently in the final stages of securing the technology and establishing a suitable location to build a biodiesel plant which is anticipated to be located in the southeastern U.S. Management is keen to recognize this lucrative opportunity as energy prices remain near record levels and more companies increasingly turning to alternative energy providers for cost savings and reliable alternative energy sources. The market potential is enormous where iVoice has already received indications that a customer would enter into a contract to purchase the biodiesel as soon as the facility is in commercial production. The company also reported that its wholly owned subsidiary, Thomas Pharmaceuticals, has entered into an agreement with Kinney Drugs, a leading New York-state based independent pharmacy chain with 60 stores, to distribute Thomas’ Acid + All product lines. These tablets should appear on Kinney Drugs’ shelves in July and should lead to increasing sales for IVOI. Despite the news, shares ended the week at $0.06, down 2 cents.
Volume Alert: Shares of Novelos Therapeutics, Inc. (OTCBB: NVLT), a biotechnology company focused on oxidized glutathione for use in fighting cancer and hepatitis, traded nearly 15 times their average daily volume as investors took notice of this late-stage biotech. NVLT plans to initiate patient enrolment in the third quarter for its pivotal Phase III trial in advanced non-small cell lung cancer for its lead product NOV-002. The stock rose 7 cents, finishing the week at $1.00.
Junior oil and gas producer Patch International Inc. (OTCBB: PTCH) has received regulatory approval to commence the drilling of a test well on its gas prospect in the Halkirk area of Alberta, Canada. The test well will target the Edmonton formation at a depth of approximately 1,835 feet with drilling expected to commence within the next two weeks. PTCH’s management is very exciting to add a new conventional drill prospect to its existing oil and gas prospects and its four Alberta Oil Sands properties. This Halkirk property is expected to be the first of four drilling projects for Patch this summer. The stock closed at $1.31, up 2 cents.
On the Wires: USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, appointed Stephen W. McHugh to the Board of Directors and Audit Committee to fill the vacancy resulting from the death of William W. Sellers. Applied Digital (NASDAQ: ADSX) announced that its subsidiary VeriChip Corporation will conclude presenting its RFID infant protection solutions at the Association of Women’s Health, Obstetric and Neonatal Nurses Convention trade show in Baltimore early this week that targets more than 2,000 healthcare professionals. Cell biology company Stem Cell Innovations (OTCBB: SCLL) announced that a former House Majority Leader and a long-time supporter of stem cell research, Tony Coelho, is joining its board of directors. Mr. Coelho intends to be a big advocate for the company’s technology. Universal Detection Technology (OTCBB: UDTT), a developer of early-warning monitoring technologies to protect people from bioterrorism and other infectious health threats, said it has completed development of an offer to the General Services Administration (GSA). The Company retained Joseph Breen & Associates, LLC of Washington DC to develop a compliant government sales and marketing program and submit the contract offering. The offer to the GSA has been tendered and is currently being reviewed for award by the GSA.
