Companies featured in this edition of the newsletter: CNLG, ESYM, GERS, ICLK, IWEB, MNDL, PHC, PLKH, PSTI, SKYI, SVUL, TAGS, URGP, XCR
For the second time in as many weeks, markets managed to end the week in positive territory following a surprise announcement by the Fed that it plans to inject another round of capital into beleaguered financial firms in an attempt to spur continued economic recovery. The Dow finished up 54 points on the week, closing at 7278, up 0.8%, narrowing its YTD loss to 17.1%. The Nasdaq finished up 1.8%, closing at 1457, paring its yearly loss to 7.6% while the S&P 500 and Russell 2000 finished up 1.6% and 1.8% respectively, bringing their YTD loss to 14.9% and 19.9%.
Choppy trading characterized markets early in the week, as the rally which began the previous week continued in earnest but was met with profit taking, to send stocks trading mostly sideways. The Federal Open Market Committee’s rate decision and policy statement sent stocks sharply higher late Wednesday, as the Fed announced its intention to purchase an additional $750 billion of mortgage-backed securities, bringing its total purchase of these toxic assets to $1.25 trillion this year. Plans were also announced to purchase up to $300 billion of longer-term Treasury securities over the next six months as part of continued efforts to help improve conditions in private credit markets. The announcement sent the bond market rocketing higher, as the yield on 30 year bonds rose more than 6 points before retreating.
Economic data also helped send stocks higher on the week, as Housing Starts and Building Permits both showed large, unexpected jumps in February. Starts increased 22.2% month over month to 583,000, while Permits increased by 3% to 547,000, beating expectations of 500,000 and 450,000 respectively. The unexpected jumps could reflect favorably in revised forecasts for Q1 GDP.
What should investors look for this week? Federal Reserve Chairman Bernanke and Treasury Secretary Geithner will both be testifying before the House Financial Services Committee on Tuesday regarding the government bailout of AIG. Geithner will be back in front of the Committee again on Thursday to address financial market regulation; both of these events will be closely monitored by investors.
Earnings reports will be minimal, but expect data from Walgreens (NYSE: WAG) Monday before the open, with Carnival (NYSE: CCL) and Williams Sonoma (NYSE: WSM) reporting before the bell on Tuesday. On Thursday, look for Best Buy (NYSE: BBY) and ConAgra (NYSE: CAG) before the open followed by Accenture (NYSE: ACN) and Embraer Jets (NYSE: ERJ) after the close.
Economic reports due out this week begin with February Existing Home Sales, due out on Monday at 10:00am. Durable Goods Orders and Durables excluding transportation, both for February will be released together at 8:30am Wednesday, followed by February New Home Sales at 10:00am. Weekly Crude Inventories will be released at 10:30am, also on Wednesday. Weekly Initial Jobless claims are due out at 8:30am Thursday along with Final Q4 GDP figures and Q4 GDP Price Index. February Personal Income and Personal Spending figures are due out Friday morning at 8:30am along with Revised Michigan Sentiment for March.
Conference schedules will be light for the week, but kick off with the two day Sidoti & Co. Emerging Growth Institutional Investor Forum beginning in New York on Tuesday. Barclay’s holds their Fixed Income Energy and Pipeline Conference in New York on Wednesday, while Think Equity’s two day ThinkGreen Conference begins the same day in San Francisco. Also beginning on Wednesday is the Lazard Capital Markets Medical Device Technology Conference which runs two days and is being held in Snowbird, Utah.
Pluristem Therapeutics (NASDAQ: PSTI), a company engaged in developing regenerative therapies from stem cells derived from the placenta, recently had an analyst at independent research firm First Berlin reiterate its “Buy” rating, with a $3.20 price target, based on the fact that the company will soon begin human clinical trials of PLX-PAD in Europe and the US. The analyst also recognized the company’s ability to access the capital markets, noting the company’s recently successful capital raise of $2.8 million in addition to a $1.6 million grant from the Israeli government to finance pipeline development. Shares lost 34 cents on the week, reflecting pronounced weakness in the stem cell industry, to close at $1.16.
Healthcare services company PHC, Inc. (AMEX: PHC) announced early last week that it had completed the sale of the company’s Pivotal Research Centers to Premier Research Arizona, LLC, a unit of Premier Research Group PLC, for a total of $5 million. The payment is comprised of $3 million paid in cash to PHC at closing and additional payments totaling $2 million that are contingent upon Pivotal Research Group achieving certain revenue targets over the course of the next 12 months. The sale advances the company’s plan to focus on its faster growing core business of delivering behavioral healthcare services and will aid in funding operations currently in development in key behavioral healthcare markets such as Las Vegas and Detroit. Shares lost two cents on the week to close at $0.68.
interCLICK (OTCBB: ICLK) the fastest growing advertising network in the US according to comScore, raised its guidance for revenue and gross margin for the first quarter ending March 31, 2009. The company now expects revenue to exceed $7.0 million, compared to the $6.5 million it had previously forecasted, and expects gross margin to exceed 41%, compared to its previous estimate that gross margin would exceed fourth quarter gross margin results of 38.6%. The company has been able to post record results despite the global economic slowdown and the significant effects which it has had on the advertising industry due to the superior return on investment that it provides to advertisers, positioning them at the forefront of many large media plans as companies attempt to maximize the power of their advertising dollars. Shares gained two cents on the week to close at $0.77.
Conolog Corporation (NASDAQ: CNLGD), an engineering and design company that provides digital signal processing solutions to global electric utilities, reported results for the six months ended January 31, 2009 last week. Product revenue for the period totaled $945,640, up from $522,727 in the corresponding period last year, representing an increase of 81%. Gross profit for the six months ended January 31, 2009 amounted to $711,277, or 75%, a direct result of increased sales during this fiscal year. In other news last week, Conolog announced that it has entered the South African teleprotection market, as it received an initial order for 16 systems bound for the African nation valued at $80,000. The company continues to look forward to the introduction of its CM100 product line later this quarter, which it believes will greatly expand application configurations and sales as they work to further penetrate both domestic and international markets. Shares gained 77 cents on the week to close at $1.88.
Steel Vault (OTCBB: SVUL) a premier provider of identity security products and services, announced last week that it has entered into an agreement with business marketing consultant and leading Internet marketing agency, TenGoldenRules.com, to assist with its strategic Internet marketing and development of social media strategies. The focus of the partnership will be increasing traffic on NationalCreditReport.com and converting site visits into sales of SVUL’s identity security services. The increased marketing efforts come on the heels of an announcement that NationalCreditReport.com increased its subscriber base by 120% in the two months since the site has been relaunched by Steel Vault, and should significantly enhance the company’s ability to attract subscribers as the previously announced triple digit growth came with limited marketing efforts. Ten Golden Rules is a well known and respected search engine marketing expert and plans to enhance Steel Vault’s customer acquisition and revenue generation capabilities through pay-per-click advertising, search engine optimization solutions and new social media applications. Shares gained a penny on the week to close at $0.40.
IceWeb (OTCBB: IWEB), a storage technology company specializing in Geographic Information Systems (GIS) that provides services to bureaucratic and corporate organizations, announced the sale of a $135,000, 70+ TeraByte GIS project to a Canadian organization through its subsidiary INLINE. The solution includes multiple Enterprise GIS servers and multiple Enterprise Class, High Performing Storage Arrays to be used in conjunction with a strategic initiative across the border. The Canadian organization also recommended INLINE to provide hardware solutions for one of their leading clients, verifying IWEB’s belief that there are significant opportunities for additional sales throughout the organization which are reflective of the high-margin sales opportunities for INLINE’s suite of products. Shares lost a penny on the week to close at $0.08.
Skye International (OTCBB: SKYI), a company developing and marketing a suite of tankless water heating solutions, announced that several leading national and regional wholesale distributors will distribute the company’s FORTIS whole-house electric tankless water heaters. Despite having commenced commercial production of the heaters only five months ago, Skye has gained significant penetration among both local and regional plumbing supply distributors, such as National Wholesale, Locke Supply Company with locations in Arizona, Texas, Oklahoma, Kansas and Missouri and Benjamin Supply and Canyon Pipe in Arizona. The company is currently producing at 60% capacity and expects to reach full production of 20,000 units annually by the end of ’09. Shares gained three cents on the week to close at $0.54.
Tarrant Apparel Group (NASDAQ: TAGS), a design and sourcing company for private label and private brand casual apparel, announced results for the fourth quarter and year ended December 31, 2008. The company reported 2008 fourth quarter net sales of $37.5 million, a decrease of 34.5% compared to $57.3 million in the fourth quarter of 2007. Private Label sales in the fourth quarter of 2008 were $24.0 million compared to $44.5 million the fourth quarter of 2007 due to the economic downturn and bankruptcies of significant customers such as Mervyn’s. Private Brands sales in the fourth quarter of 2008 totaled $13.5 million compared to $12.8 million in the fourth quarter of 2007. The increase was primarily due to increased sales to Macy’s Merchandising Group. Loss from operations was $5.2 million in the fourth quarter of 2008, or 13.8% of total net sales, compared to $61,000 in the fourth quarter of 2007, or 0.1% of total net sales. The net loss in the 2008 fourth quarter, including charges, was $5.8 million or $0.19 per share, compared to net income of $325,000 or $0.01 per share in the 2007 fourth quarter. For the fiscal year ended December 31, 2008, total net sales decreased by $48.4 million, or 19.9%, from $243.7 million in 2007 to $195.3 million in 2008. Sales of Private Label in 2008 were $147.2 million compared to $198.8 million in 2007, with the decrease resulting primarily from reduced demand resulting from the worldwide economic slowdown. The Company recorded a net loss of $11.1 million or $0.35 per share in 2008, compared to net income of $1.7 million, or $0.06 per share in 2007. Shares remained unchanged at $0.70 on the week.
Xcorporeal, Inc. (AMEX: XCR), a development stage medical device company that is developing an extra-corporeal platform of products that might be used in devices to replace the function of various human organs, announced that it has streamlined operations in response to general economic conditions. The decrease in operating expenses was primarily achieved through cutbacks in personnel, resulting in reductions of approximately $3.5 million annually to a current operating burn rate of approximately $200,000 per month. The company plans to employ additional measures to minimize expenses and is currently exploring various strategic alternatives which may include the license of certain of the company’s intellectual property rights as a means to further develop its technologies. Shares lost three cents on the week to close at $0.15.
EcoSystem Corp. (OTCBB: ESYM), a company innovating industrial-scale applications of bioreactor technology that are designed to resolve compelling ecological challenges while producing value added carbon neutral products, unveiled its MAGFUEL biofuel feedstock model last week. ESYM will apply its bioreactor technology to convert food scrap waste into natural oils for biodiesel feedstock and specialty chemical applications, allowing for waste to be converted into a viable commercial product while reducing environmental impact at the same time. The company’s highly specialized bioreactor relies on the Black Soldier Fly, a non-pest insect that converts food scrap waste into refinable oils at a rate that could yield up to 190,000 gallons of crude (non-food) natural oils per acre of bioreactor surface area annually. Soy bean yields an average of 40 gallons per acre by comparison, suggesting that ESYM’s technology may be significantly more sustainable, especially considering that it is estimated to be deployable at a cost of less than $100 per square foot with minimal use of utilities other than periodic cleaning and heating. The company has filed a grant application with the U.S. Department of Energy’s Biomass Research and Development Initiative in hopes of obtaining additional funding to develop the technology further. A demonstration project has been arranged with a regional waste transfer station in the greater Cincinnati-Dayton Ohio region where ESYM will intercept and devour food waste prior to disposal in landfills. Natural oils produced in the project will be sold under EcoSystem’s MAGFUEL brand to a refinery located in Adrian, Michigan, for conversion into biodiesel fuel. Shares remained unchanged on the week at $0.0035.
Greenshift (OTCBB: GERS), a company that develops and commercializes clean technologies that facilitate the efficient use of natural resources, released a letter to shareholders last week providing operational updates and an outline of the company’s forward-looking strategic initiatives. The letter highlighted the company’s position at the intersection of the corn ethanol and biodiesel industries and its ability to extract 6.5 million gallons of corn oil from every 100 million gallons of corn ethanol produced, equating to a potential production of over 680 million gallons per year of inedible feedstock available for extraction and conversion into biodiesel worth an estimated $2 billion dollars. The letter further outlined the potential impact of expected government initiatives aimed at spurring growth in the biofuels industry, and how they can better leverage the strategic value of their intellectual properties to achieve their goals. The letter can be found on the company’s website. Shares gained $0.0013 on the week to close at $0.0048.
Mandalay Media (OTCBB: MNDL), the owner of new media distribution and content companies, had coverage initiated by analysts from Merriman, Curhan and Ford last week. Analysts initiated with a Buy rating and put a price target range of $2.00 – $3.00 on the company’s shares which are currently trading below a dollar. Analysts cited the company’s position at the crossroads of two secular trends -3G/ smartphone adoption and wireless content growth- and its ability to differentiate itself from competitors in the space as being far more than just a content publisher, but rather a content management platform with diversified content – video, chat, gaming, search, advertising and games- as reasons for the Buy rating. They expect Mandalay to benefit from synergies between their two subsidiaries, Twistbox Entertainment, and AMV Holdings, as markets continue to right themselves in ’09. Shares gained three cents on the week to close at $0.88.
Prolink Holdings Corp. (OTCBB: PLKH), the world’s leading provider of Global Positioning Satellite golf course management systems and digital out-of-home on-course advertising, announced that The Hollows Golf Club in Montpelier, Va. Is the latest course to join the Prolink network. The Hollows is a short drive from downtown Richmond, and is nestled in the heart of historic Hanover County. Regarded as one of the area’s most user-friendly links, the golf club features three 9-hole courses (Road, Lake, and Cottage) designed to accommodate golfers of all skill levels. Shares gained a penny on the week to close at $0.046.
SPECIAL SITUATIONS:
Urigen Pharmaceuticals (OTCBB: URGP) $0.09
As the American population continues to age, increasing numbers of people will begin to experience maladies associated with degeneration of the body and inhibition of normal functions which healthy people take for granted. Urology is fast becoming one of the hottest fields in specialty pharmaceuticals, as the Baby Boomers continue on towards advanced age and the problems associated with it, and companies which recognize this shift ahead of the competition are extremely well positioned to reap the benefits as demand for products that address these needs are sure to rise accordingly. Urigen Pharmaceuticals is a San Francisco based company specializing in the design and implementation of innovative products for patients with urological ailments that has the potential to do big things as the Boomers continue on in years.
The company’s lead product candidate, URG101, targets Painful Bladder Syndrome/Interstital Cystitis (PBS/IC), a significant and unmet medical need that afflicts 10.5 million men and women in the US. PBS/IC is a painful condition characterized by frequent, urgent needs to urinate and significant, discomforting pressure in the bladder/pelvic region which increases as the bladder fills; the quality of life for people suffering from PBS/IC has been compared to those suffering from end stage renal failure. Urigen’s answer to this excruciating condition is a proprietary formulation of two previously approved drugs, buffered lidocane and heparin, and can provide rapid symptom relief following the 30 minute bladder instillation procedure- a significant improvement over existing treatments which can take months to work and typically have little impact on patients suffering from the condition. Clinical trials in URG101 have garnered positive results, as a Phase II Crossover Study demonstrated a 42% improvement in average daytime pain with the drug versus 21% for placebo.
There is a significant market opportunity available to companies seeking treatment options for PBS/IC, as the current market leader, Elmiron, a Johnson & Johnson product with $150 million in sales in 2008, does not provide immediate pain relief and can take between three and six months to provide even modest benefits to patients suffering from the disorder. Urigen estimates that sales of its URG101 will be in the neighborhood of $450 million, based on 10 million people being afflicted with the disorder in the US, but as the population continues to age, that number could in fact be significantly higher- the company places a conservative estimate of a worldwide market potential of around a billion dollars. Big pharma has also begun to show interest in the PBS/IC space, as several major names in the pharmaceutical space have flocked to investigate treatments, further illustrating the market opportunity which Urigen has on its hands.
Along with URG101, Urigen is currently developing a Female Urethral Suppository designed to treat Urethritis, Urethral procedural discomfort, and Nocturnia secondary to Overactive Bladder. The suppository is designed to be inserted into the urethra and dissolve, releasing local anesthetic which greatly reduces symptoms of those suffering from these uncomfortably painful conditions. Early clinical results indicate significant potential for the suppository’s efficacy, as PBS/IC patients with urethral pain reported rapid pain and urgency relief shortly following treatment. There is currently only one approved product for urethritis, 2% Lidocane Jelly, which drips out of the urethra, making it both less effective and a less attractive treatment to patients. Urigen’s suppository is designed to fit snugly in the urethra until it is dissolved without dislodging or entering the bladder, providing local anesthetic acutely to the affected area, making it a unique and effective alternative to the previously approved option.
Urigen’s portfolio of unique solutions to common problems not effectively addressed by the pharmaceutical industry presents investors with an opportunity to invest in a company with significant potential for long term growth at a time when they are still flying under the collective radars of the investment community. With the increased interest of big pharma recently demonstrated in the PBS/IC market comes an increase in the potential of a major deal for small companies already operating in the space that have a head start on both clinical research and product development. This potential for take over coupled with the growth in demand for specialty pharmaceuticals as the Baby Boomers continue to age presents investors with an opportunity to take a position in a company with significant prospects in both the long and short term.
