03/11/2007
VOLUME 290
Companies featured in the current edition of the newsletter: ADSX, ARGA, AVGO, CYTR, ENZ, GNBT, HSOA, HYTM, IRBO, ITUI, LFBG, MBND, MLTC, PTCH, RTK, SCLL, SWTS, USAT
The stock market managed to recover from its prior week’s collapse as improvements in the Asian markets had a stabilizing affect. With conflicting reports of plunging oil prices and mortgage defaults pinning bulls against bears, investors decided to side with the bulls with the hope that a market bottom has formed. The Dow rose 162 points for the week to close at 12,114, reducing its annual losses to 1.5%. The Nasdaq finished the week up 19 points, but is still down 1.1% on the year. The S&P gained 15 points and is also down 1.1% for the year, while the Russell increased by 9 points leaving it down just 0.3% on the year.
The week began on a sour note as worries about sub-prime lenders weighed on an already nervous market. As the week progressed, bulls stepped in and took comfort in recovering overseas markets, declining oil prices and a better-than-expected jobs report that showed 97,000 new jobs being created and the unemployment rate falling to 4.5%. But despite the current rebound in stocks, there are many significant issues that could dictate trading activity in the upcoming weeks, including uncertainty in the housing market and questions pertaining to both economic and earnings growth. One thing is for certain, the road ahead for investors still has its obstacles.
What should investors look for this week? Taking center stage for earnings reports this week is the brokerage industry with Goldman Sachs (NYSE: GS) reporting results before the opening on Tuesday. Wednesday before the bell, Lehman Brothers (NYSE: LEH) announces results, followed by Bear Stearns (NYSE: BSC) on Thursday morning. Outside of the financial industry, Best Buy (NYSE: BBY) releases earnings Tuesday morning and Hot Topic (NASDAQ: HOTT) reports numbers on Wednesday after the close. Adobe Systems (NASDAQ: ADBE) reports earnings Thursday in the evening. Texas Instruments (NYSE: TXN) provides its mid-quarter update on Monday with industry giants Chevron Corp. (NYSE CVX) and Conoco Phillips (NYSE: COP) hosting analyst meetings on Wednesday.
The conference schedule for the week is active with Cowen and Company hosting its four-day Health Care Conference beginning Monday in Boston where CytRx Corporation (NASDAQ: CYTR) will be presenting on Wednesday at 9:30 a.m. Credit Suisse Group will be sponsoring its three-day Global Services Conference starting Monday in Phoenix. Also on Monday JP Morgan hosts its two-day Internet Conference in New York City. Beginning Tuesday, Stifel, Nicolaus & Company is conducting its two-day Consumer Conference in New York. Bank of America is holding its three-day Consumer Conference starting Tuesday in New York as well. Citigroup’s three-day Small & Mid-Cap Conference begins Tuesday in Las Vegas. Bear Stearns will be hosting its two-day 1st Annual Global Oil & Gas Conference beginning Wednesday in New York where Rentech, Inc. (AMEX: RTK), will present on Wednesday at 4:05 p.m.
The economic calendar will also be active this week beginning with the release of the February Treasury Budget on Monday afternoon. Tuesday morning February Retail Sales and January Business Inventories will be reported. Before the open on Wednesday the Fourth Quarter Current Account figures will be released along with February Import/Export Prices. Later that day Weekly Crude Inventories will be announced. Thursday morning is very busy and starts with the release of the February Producer Price Index, followed by Weekly Initial Jobless Claims and the March New York Empire State Index, which measures manufacturing activity. Net foreign purchases of bonds for January will also be reported before the open. At noon, the March Philadelphia Fed report, which measures economic activity in that region, will be announced. Friday morning the February Consumer Price Index will be reported, followed by February Industrial Production and Capacity Utilization numbers. Shortly after the bell the March Michigan Sentiment Report will be announced. On Tuesday, Fed Governor Kroszner speaks on the economy where investors may look for any hints about a shift in the Fed’s stance on the economy.
Earnings Preview: Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services to commercial and residential areas, will report fourth quarter and year-end results on Friday before the market opens. The company expects to hold a mid-morning call to discuss the results. Last week, HSOA pre-announced disappointing preliminary fourth quarter results, sending its stock to the lowest level since September. The company now expects to report fourth-quarter net earnings of 5 cents to 7 cents a share, sharply below its mid-November forecast of EPS of 18-22 cents. It said the shortfall was a result of weakness in the Rebuilding/Remodeling sector as a slowdown in the housing industry impacted work with certain customers of the company, and delays in government funding for several projects in New Orleans hurt results. Perhaps not coincidentally, company President and Chief Operating Officer Rick O’Brien will resign effective April 15 to pursue other opportunities. His operating responsibilities will be assumed by Brian Marshall and Mike Lane, two executives with significant operating experience, which should enable the company, which has grown rapidly, to better manage operations. To be sure, the magnitude of the miss and timing (late in the quarter) are troubling. Still, the company grew EPS at 80% last year, and if it earned approximately 45 cents last year as it preannounced, it trades for just 10 times trailing earnings, its lowest multiple ever. In the upcoming earnings announcement, investors will look for what the company says about first quarter and full-year prospects, and will look for improvements to the company’s balance sheet. Sentiment in the stock is poor, as shares barely moved later in the week after it reported that its Fireline Restoration, Inc. subsidiary was awarded $17 million in contracts to provide construction services on new residential and commercial construction projects in the Tampa, Florida area for a leading regional developer. The new projects are in addition to the previously announced remediation and recovery work the company commenced last month in connection with the tornadoes that struck the Central Florida region in early February. Historically, this has been a favorable time for investors to own the stock. Last year, between March and May, shares more than doubled, fueled by a series of positive contract announcements. The company earned 6 cents from operations in the first quarter of 2006, which is typically a seasonally slower period for the company, so comparisons for Q1 2007 should be relatively easy. With approximately 35% of the float “short”, significant multiple compression and poor sentiment, any favorable developments could cause shares to rally. Shares lost 21.6% and fell $1.27, to close at $4.60 for the week.
Earnings Preview: Enzo Biochem, Inc. (NYSE:ENZ), a company engaged in the research, development and manufacture of innovative health care products, will report financial results for its second quarter for the period ended January 2007 on Tuesday before the opens. Since its last quarterly report, the company has raised more than $60 million through a sale of common stock via a registered direct offering, the first time the company has accessed the capital market in more than 25 years. The financing has likely increased investors’ interest in what the company will say about development activities in its therapeutics division, as well as potential acquisitions to bolster its Life Sciences Division, which continues to build a direct sales force. Investors will also look for commentary regarding the impact on sales from the Aetna and United Healthcare/Oxford deals recently announced at Enzo Clinical Labs. The company was recently awarded two patents by the U.S Patent Board that will complement and strengthen existing proprietary labeling products for the genomics and diagnostics markets. Enzo also received a favorable ruling by the Board of Patents and Interferences of its subsidiary’s patent application for nucleic acid signal amplification over two patents owned by Princeton University. The decision could pave the way for the company’s patent in this area to issue, which could cover products that generate annual sales of approximately $100 million in the U.S. alone. The stock gained 35 cents last week to close at $14.18.
Earnings Preview: Hythiam, Inc. (NASDAQ: HYTM), a behavioral health management services company featuring its PROMETA protocols to treat drug and alcohol addiction, is scheduled to report financial results for its fourth quarter and fiscal year ended December 31, 2006 on Thursday, March 15, 2007, after the market closes. While revenue is still small ($2.9 million for first nine months of fiscal year), the company has forecast robust organic revenue growth for 2007 ($14 million), expected to begin in the second quarter fueled by potential Blue Cross Blue Shield adoption, state reimbursement, the release of double blind placebo controlled studies and a revamped private pay business. The company is likely to comment on each of these areas on its conference call on Friday. Note the stock was mentioned positively in an influential column in this weekend’s edition of BusinessWeek Magazine. The stock closed at $7.84, down 16 cents.
Rentech, Inc. (AMEX: RTK), a developer of alternative energy sources, continues to move forward with the commercialization of its patented and proprietary Rentech process and said it had signed a term sheet with Peabody Energy that will enable it to secure a cost-effective, supply of coal from Peabody Energy that will be used for Rentech Energy Midwest Corporation’s (REMC) ultra-clean fuels conversion project in East Dubuque, Illinois. The terms call for Peabody to provide up to approximately 7.2 million tons of Illinois coal commencing between August 2009 and January 2010 through December 2017. With current crude oil prices hovering $60 a barrel, Rentech’s technology becomes more valuable by the minute. Additionally, the company has an active conference schedule week, where it will have representatives attending its 2007 Client Conference at the Four Seasons in Scottsdale, AZ on Thursday and will be presenting at the Credit Suisse Alternative Energy Conference on Friday in New York. Note that the stock was under heavy pressure early in the week, possibly as a result of one of its big institutional investors selling its position, which caused the stock to fall as low as $2.13 in heavy trading on Tuesday before rallying. For the week, shares fell 58 cents, to close at $2.45.
Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, reported financial results for its fourth quarter ended December 31, 2006. The company’s results include its VeriChip Corporation and Digital Angel Corporation, both of which trade publicly. ADSX’s fourth quarter revenue increased 8.2% to $31.4 million compared to the 2006 third quarter, with gross profit increasing to $12.8 million in the fourth quarter, compared to $12.4 million in the 2006 third quarter. Full year revenue for 2006 totaled $122.7 million, an increase of 7.9%, compared to 2005 full year revenue of $113.7 million, with gross profit increasing to $51.1 million for the 2006 full year from $44.9 million for the 2005 full year. The improvement in gross profit was primarily a result of a more favorable mix of business. Losses from continuing operations for the 2006 full year totaled $27.2 million compared to losses of $12.4 million for the 2005 full year. The company said it was optimistic about future performance as it expects to benefit from the fact that its majority-owned subsidiaries VeriChip and Digital Angel have positioned themselves as leaders in RFID for people (VeriChip) and RFID for animals (Digital Angel). Digital Angel’s revenue increased to approximately $15.0 million for the 2006 fourth quarter, compared to approximately $13.2 million for the 2006 third quarter. VeriChip Corporation’s fourth quarter revenue grew 3.1% to $7 million in 2006. A total of 392 medical facilities enrolled in the VeriMed Patient Identification System, equaling a 266% increase during the last six months of 2006. VeriChip’s healthcare security businesses continued their strong combined track record of double-digit annual revenue growth. The stock ended the week at $1.51, down 6 cents.
Multiband Corporation (NASDAQ: MBND), a leading provider of video, data, and voice systems and services to multiple dwelling units, said last week that it had sold a portion of its California-based video and Internet subscribers to Consolidated Smart Broadband Systems for $1.6 million and is eligible to receive additional proceeds through February, 2008. Concurrently with the sale, Multiband was retained by Consolidated to provide customer support, billing, collection, Internet protocol and data services for the acquired customers. Shares fell 11 cents, to close the week at $0.46.
Drug delivery company Generex Biotechnology Corporation (NASDAQ: GNBT) said last week its pipeline of diabetes products was featured at the 38th Image Awards of the National Association for the Advancement of Colored People held in Los Angeles, CA on Friday, March 2, 2007. The number of reported cases of diabetes is expanding rapidly. In North America, for example, African American, Hispanic, and Asian populations are twice as likely to develop diabetes as the Caucasian population. If left untreated diabetes can cause heart disease, blindness, stroke and kidney failure. Recognizing the severity of this worldwide epidemic, Generex offers multiple products that treat this disease including its flagship product Generex Oral-lyn, an oral insulin spray that provides diabetics with an alternative solution to painful needle injections. The stock fell 1 cent, to close at $1.71 for the week.
Avicena Group, Inc. (OTCBB: AVGO), a biotechnology company focused on diseases of the central nervous system, said last week that it had been awarded a patent titled, “Use of Creatine or Creatine Compounds for Skin Preservation.” This patent contains claims which cover methods for treating uneven skin pigmentation using a topical application of creatine and carnitine, an effective treatment to a very common dermatological problem. While the business is not a core part of its therapeutic programs, it generates revenue to help offset development costs of its therapeutic platform, which includes a Phase IIb/III trial in ALS (Amyotrophic Lateral Sclerosis, or Lou Gehrig’s disease) and plans to initiate a Phase III trial in Huntington’s disease and a Phase III trial in Parkinson’s disease. The stock increased 23 cents for the week, closing at $5.98.
Volume Alert: Shares of Auriga Laboratories, Inc. (OTCBB: ARGA), a specialty pharmaceutical company, traded over 52 times average volume on Friday rising 19% to their highest levels since October, shortly after said it launched its Zinx line of cold remedy products that includes prescription and over-the-counter products. Patients will be able to benefit from this product line’s unique patent-protected zinc formulation that is clinically proven to reduce the duration and severity of the common cold. Auriga will market Zinx to physicians and pharmacists through its expanding 200 member national sales force and will also go direct-to-consumer through a nation-wide print and internet promotional campaign. Coupled with the recent launch of Aquoral, a prescription-only product designed to treat the widespread condition of Xerostomia (dry mouth), Auriga appears well positioned on the way towards meeting its target of $26 million in 2007 revenue, up from $3.8 million last year. Shares rose 24 cents, closing at $1.50.
USA Technologies, Inc. (OTCBB: USAT), a developer of cashless vending and energy management products, said last week that it had partnered with ShredStation to launch the intelligent ShredStation vault, the world’s first online information disposal box to help combat identify theft that is equipped with USA Technologies’ e-Port cashless payment technology. With nearly 10 million cases of identity theft and counting, the ShredStation offers consumers an alternative to noisy, often un-reliable home shredders to destroy confidential documents, as well as magnetic tapes, discs or debit/credit cards. The process is simple: customers seal their sensitive documents in a secure ShredStation envelope that is then inserted into a vault that is similar is size and shape to a FedEx or DHL drop box. The customer swipes their debit/credit card at the e-Port reader, pays the activation fee and receives a receipt for the transaction. The stock gained 17 cents, and ended the week at $6.20.
ImmuneRegen BioSciences, a wholly-owned subsidiary of IR BioSciences Holdings, Inc. (OTC Bulletin Board: IRBO), announced positive developments from its ongoing analysis of data acquired from previously performed animal efficacy studies. Studies performed at the Oak Ridge National Laboratory reveal that ImmuneRegen’s potential radioprotectant product, Radilex, not only prolonged survival of animals exposed to lethal gamma irradiation, but appeared to have increased platelet concentrations in surviving animals. ImmuneRegen has since filed a provisional patent entitled “Method to Treat Blood Cell Depletion” to provide intellectual property protection for this finding regarding Radilex. Continuing radiation studies will be performed at both the Translational Genomics Research Institute (TGen) and TGen Drug Development Services (TD2, its drug development arm) and at the Pacific Northwest National Laboratory Translational Genomics Research Institute for further exploration of such findings. These future studies have the potential to accelerate ImmuneRegen’s Radilex development program, and may support Radilex evaluation in non-human primates later this year. Shares gained a penny, to close the week at $0.15.
i2Telecom International, Inc. (OTCBB: ITUI), a pioneer in ultra-portable high quality Voice-over-Internet Protocol (VoIP) products and services, significantly strengthened its balance sheet after repaying $1.2 million in outstanding loans to Troon & Co. and two private investors. The elimination of this senior debt strengthens the company’s ability to invest in new revenue-generating business opportunities. Until recently, the company has been hampered by expensive debt which has limited the cash available for investment. The stock fell 2 cents, to end the week at $0.22.
Volume Alert: Shares of junior energy company Patch International (OTCBB: PTCH), traded approximately 9 times average volume, as investors reacted to last week’s private placement of approximately $20.1 million of special warrants, and flow-through special warrants. The stock climbed 18 cents, to close the week out at $2.43.
Sweet Success Enterprises (OTCBB: SWTS), the maker of a line of innovative and delicious healthy-lifestyle beverages, has received purchase orders from Rice Epicurean Markets, the oldest family-owned chain in Houston Texas, and Hi Health stores in Arizona, for its all-natural and functional healthy beverages. Rice Epicurean Markets will stock 6 of the 7 Sweet Success beverages and customers of Hi Health stores are able to purchase GlucaSafe and Ultra Greens beverages. Additionally, the company recently shipped the healthy beverages to Akins Natural Foods locations in the Midwest, and Chamberlin’s Market and Cafes in Florida. Shares remained unchanged for the week, to close at $0.45.
On the Wires: Stem Cell Innovations, Inc. (OTCBB: SCLL), a provider of toxicology testing and discovery systems, appointed Ian Lyons, Ph.D., as its Chief Scientific Officer for the U.S., where his vast experience with science management and his unique understanding of stem cell biology will enable the company to substantially accelerate its PluriCell programs for both disease modeling and cell therapy. Additionally, the company reported that David G. Perryman, J.D., founder and intellectual property counsel to the company, presented a short talk at TED2007 last week where he discussed the company’s PluriCell programs and how that technology will shape the future of biotechnology research. Auriga Laboratories, Inc. (OTCBB: ARGA) promoted its Senior Vice President of Scientific Affairs, Alan Roberts, to the position of Chief Scientific Officer where he will apply his 18 years of experience spanning various technical disciplines of the pharmaceutical industry to this position. Left Behind Games, Inc. (OTCBB: LFBG), a leader in the inspirational video game market, held its first church sponsored outreach event last week in California to utilize LEFT BEHIND: Eternal Forces, one of the only games in history to promote the power of prayer and worship as more powerful than guns, as an evangelistic tool to reach the youth. Sweet Success Enterprises (OTCBB: SWTS) reassigned Mike Launer, Senior Vice-President of Sales, to a new position as the company’s new Regional Vice- President of Sales for the Midwestern United States. RXi Pharmaceuticals Corporation, a majority-owned subsidiary of CytRx Corporation (NASDAQ: CYTR) appointed Pamela A. Pavco, Ph.D., as Vice-President of Pharmaceutical Development where she brings over 14 years of demonstrated success in RNAi drug development while at Sirna Therapeutics. Melt, Inc. (OTCBB: MLTC), owner, operator and franchisor of quick service restaurants operating under the name “Melt gelato & crepe cafe”, will restate its 10-QSB filings for the periods ended June 30, 2006 and September 30, 2006, where Melt will now recognize franchise fees as income when the franchisee commences operations. Previously, the company recognized the revenue when the franchisee signed the franchise agreement and paid the fee.
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