03/25/2007
VOLUME 292
Companies featured in the current edition of the newsletter: ADSX, ARGA, AVGO, AXMP, CGXP, CVM, CYTR, EMIS, GNBT, HSOA, IRBO, ISON, JMAR, LANW, LFBG, OXIS, RTK, TAGS, USAT, VOII
What a difference a week makes. A reassuring policy directive from the Federal Reserve, solid existing home sales and leadership from the Energy sector helped stocks rebound sharply, pushing all of the indexes into positive territory for the year. The Dow surged 370 points, helping the index nudge into positive territory for the year with annual gains totaling 0.1%. The tech-heavy Nasdaq increased 83 points, and is now up 1.6% for the year. The S&P gained 49 points with its year-to-date gain equaling 1.2%. The Russell increased 30 points for the week, equating its annual gain to 2.7 %.
It was not unexpected that interest rates remained unchanged at the conclusion of last week’s FOMC meeting. Although inflationary concerns have yet to subside and remain at the forefront of the Fed’s monetary policy, statements indicating a softening in the committee’s tightening bias sent bears scrambling and the market climbing higher that day. Investors waiting for clarity on the housing picture were thrown a curve ball on Friday as data on existing home sales for February rose an unexpected 3.9%. Such an increase in sales reduces concerns of a housing crisis and could signal a bottoming. Of course, a “soft landing” in the housing sector lowers the chances of Fed officials reducing rates in the near-future. Not helping matters on the easing front was the surge in oil prices to close at over $62/bbl for the week, stemming from political tensions in Iran combined with worries over inadequate supply to satisfy summer driving demand.
What should investors look for this week? As the final week of the quarter has arrived, earnings warnings may start to increase. Only a handful of leading companies announce results this week. Tiffany & Company (NYSE: TIF) reports earnings on Monday before the opening and Lennar Corp. (NYSE: LEN) releases earnings on Tuesday morning. After the close on Wednesday, Micron (NYSE: MU) announces operating results and A.G. Edwards (NYSE: AGE) reports numbers on Thursday before the opening. Kimberly-Clark (NYSE: KMB) sponsors an investor day on Monday and Boston Scientific hosts an analyst meeting on Monday as well. Adobe (NASDAQ: ADBE) meeting with analysts on Wednesday, while Brocade Communications (NASDAQ: BRCD) meets with analysts on Thursday.
The conference schedule is light, as Lehman Brothers holds its two-day High Yield Bond and Syndicated Loan Conference in Arizona beginning Monday. The three-day CTIA Wireless 2007 convention takes place in Florida starting Tuesday. Bank of America hosts its Media, Telecommunications and Entertainment Conference on Wednesday in New York. Credit Suisse Group sponsors a two-day Global Basics Conference beginning Wednesday in New York.
The economic calendar will be active, starting with February New Homes Sales being reported at 10:00 on Monday. Tuesday morning shortly after the opening, March Consumer Confidence will be announced. Before the opening on Wednesday, February Durable Goods Orders will be released, with Weekly Crude Inventories being reported at 10:30. Durable Goods has been highly volatile recently. Thursday morning, the Final Q4 Chain Deflator and the Final Q4 GDP numbers will be reported at 8:30 along with Weekly Jobless Claims. Also on Thursday, the February Help-Wanted Index will come in at 10:00. Friday ends the week with February Personal Spending and Income data being announced prior to the bell, followed by the March Chicago PMI shortly after the opening. February Construction Spending data will be released along with the Revised March Michigan Sentiment numbers at 10:00.
Home Solutions of America, Inc. (NASDAQ: HSOA), a provider of recovery, restoration and rebuilding/remodeling services to commercial and residential areas, announced that its Fireline Restoration subsidiary continues to expand upon its order backlog, as it was part of a joint venture awarded a $50 million contract to provide a wide range of engineering services to the Naval Facilities Engineering Command Southwest. Home Solutions’ portion of the work is $15 million, which is expected to commence in April and be completed during 2007. This new contract that targets installations primarily located in the western United States is further evidence of the company’s growing geographical diversification. Investors may note that one of the reasons the company cited for its Q4 earnings “miss” was delays in funding in New Orleans. Momentum for new orders received by Fireline is on the rise and adds to the $35.5 million in new contracts previously awarded to the company over the past two weeks, all of which are outside New Orleans. It is worth noting that the company’s backlog of 2007 restoration and construction services projects is now approximately $123 million, which excludes any revenue to be generated from its Interior Products Manufacturing and Services Division, which generated revenue of nearly $39 million in 2006, or revenue from any of the company’s operations from the beginning of the year through March 16th, the date the company provided its 2007 backlog. HSOA had revenue for all of 2006 of $127.2 million. The investment community remains skeptical due to the company’s bad Q4 miss, as there is no other way to explain the company’s current valuation. It is worth noting that ServiceMaster (NYSE: SVM), a provider of construction and residential services, accepted a $4.6 billion all-cash buyout offer from private-equity firm Clayton, Dubilier & Rice Inc. last week that valued the company at 24 times trailing 12-month earnings from continuing operations. HSOA trades at half of that multiple. The disparity is even greater when one compares forecasted 2007 earnings. According to an analyst at Sanders Morris Harris, who reiterated his “Buy” rating on HSOA last week and $9.50 price target, he expects Home Solutions to earn $0.61 for 2007, suggesting the stock trades for just 8 times ’07 estimates. By contrast, ServiceMaster’s buyout values that company at 23 times ’07 estimates. ServiceMaster grew ’06 EPS at a single-digit rate, while HSOA’s EPS rose by 72%. The stock ended the week at $4.99, up 3 cents.
Earnings Preview: Tarrant Apparel Group (NASDAQ: TAGS), an innovative design and sourcing company for private label and private brand casual apparel, will announce fourth quarter and year-end results for the period ended December 31, 2006 on Monday before the opening. The company has previously said sales would be in the $220 million to $230 million range, indicating fourth quarter sales of $45-$55 million. Investors can also anticipate an increase in gross margin over last year’s fourth quarter of 19.9%, coming on the heels of last quarter’s year to year 0.7% gain, and a return to profitability after the third quarter’s one-time $27.0 million charge relating to certain notes receivable connected with the company’s now shuttered Mexican operation. Focus will likely be on the company’s ability to replace sales from discontinued business with increased revenue from its Private Label business, which had nets sales of $135.8 million for the first nine months of 2006, compared with $119.5 for the first nine months of 2005. Also of interest will be any comments regarding the acquisition of Buffalo Group, which was announced in December. Buffalo Group had revenue for the first nine months of 2006 of $75 million. Shares fell 8 cents for the week to close at $1.55.
While investors continue to focus on healthcare services company Hythiam’s (NASDAQ: HYTM) private pay business, it is likely that the future success of the company will be predicated on the company’s ability to get states to authorize funding for PROMETA and for managed care organizations to agree to reimburse for the Protocols, which represent a new way to treat drug and alcohol addiction through the brain. Last week, the company said on its earnings call that the Hawaii House of Representativesapproved House Bill 1792 which authorizes the State to evaluate existing pilot results, which have already been completed in other jurisdictions to move towards funding and adoption. This will now be put to a vote before the full Hawaiian Senate. The company said on its call that other initiatives, which would provide funding for PROMETA from states or statewide organizations, are also near completion, which could, if successful, serve as a near-term catalyst for the stock. Shares ended the week at $6.75, down 31 cents.
Volume Alert: Shares of USA Technologies, Inc. (NASDAQ: USAT), a developer of cashless vending and energy management products, traded roughly 7.5 times average volume, as investors continued to bid the stock higher after hedge fund giant SAC Capital invested $10 million in the company via a private placement. The company, along with MasterCard Worldwide, announced that Great Plains Coca-Cola Bottling Company will begin equipping vending machines with USA Technologies’ e-Port G6 cashless transaction solution that will accept MasterCard PayPass contactless payments, as well as all major credit cards and cash. Great Plains Coca-Cola Bottling Company is the third major U.S. bottling company to convert to cashless and contactless vending in recent months, where such machines will be deployed first in Oklahoma City and Tulsa in multiple market environments. Such installations are among the 6000 self-service point-of-sale terminals and vending machines MasterCard and USA Technologies are deploying in more than a dozen cities nationwide. This opportunity is very lucrative for USAT as the deployment of the 6000 e-Port G6 PayPass-enabled vending machines represents the largest rollout of contactless technology in the vending and point of sale markets in the U.S. The stock rose 20% for the week to close at $8.40, up $1.40.
Sometimes it can take longer to attract the interest of the investment community when a company pursues a non-traditional development path. That appears to be the case with Avicena Group, Inc. (OTCBB: AVGO), a biotechnology company focused on diseases of the central nervous system. Unlike most biotechnology companies that have relied on Wall Street to fund their clinical trials, AVGO has funded itself primarily through the receipt of grants from government agencies. Last week, the company achieved a major milestone as the National Institute of Neurological Disorders and Stroke (NINDS) initiated patient enrollment in a Phase III efficacy trial of PD-02, the company’s lead Parkinson’s disease drug candidate. The NINDS has agreed to provide complete funding for this five-year trial, estimated to be approximately $30 million which will be one of the largest in the history of the NINDS. The purpose for the trial is to evaluate PD-02’s potential to slow the progression of Parkinson’s disease, an incurable brain disorder that can slowly but steadily paralyze patients, where more than 1,720 Parkinson’s patients at over 50 trial sites across the US and Canada are expected to be enrolled. As part of its ongoing collaboration with the NINDS, Avicena will supply the drug candidate, PD-02, and placebo for this trial and will have rights to the study’s findings for New Drug Application submission to the FDA for the approval of PD-02. Such impressive support from the NINDS is a strong validation of Avicena’s technology platform which should be a huge catalyst for investors. While the trial is a five-year study, results from each of the arms are expected to be announced on an annual basis. There is also much interest from the medical industry, as the journal Neurology previously published results from a Phase II study where PD-02 demonstrated a rate of disease progression that was lower than the threshold for futility. The company will host a live webcast and conference call on Monday, March 26, 2007, at 11:00 a.m. Eastern Time, to discuss the trial in greater detail. While published reports have compared PD-02 to creatine, there is a substantial difference between the form of creatine commonly used as a nutritional supplement. PD-02 is a unique creatine-based formulation that has been manufactured to strict FDA drug GMP guidelines and is produced using a patented process that ensures a highly purified form of creatine without the harmful neurotoxins which may be dangerous to patients. In addition, only this GMP drug formulation has been shown to be safe and well tolerated in high doses in previous clinical studies. The market opportunity is huge for Avicena as more than 1.5 million Americans suffer from Parkinson’s Disease and nearly 60,000 new cases are reported each year. This disease affects more people than multiple sclerosis, muscular dystrophy, and Lou Gehrig’s Disease (ALS) combined. Despite the news, shares ended the week at $5.83, down 7 cents, in quiet trading as the company remains under Wall Street’s radar.
CytRx Corporation (NASDAQ: CYTR), a biopharmaceutical research and development company, announced that its majority-owned subsidiary, RXi Pharmaceuticals Corporation, has secured a non-exclusive, worldwide research and therapeutic license from Cold Spring Harbor Laboratory to their short hairpin RNAi technology. The licensed technology potentially allows for the more efficient triggering of RNA interference (RNAi) and includes the use of short hairpin RNAis (shRNAis) either delivered as RNA compositions or encoded by DNA constructs. With this license, the company gains the well-validated advantage of shRNAi – which is reported to be up to 10 to 100 times more potent compared with standard siRNA. This is an important achievement as RNAi is a powerful enabler of drug discovery in cells, in animals, and in humans that enables an entirely novel approach to discovering drugs with the potential to produce highly specific, potent, and long-lasting effects. This license supports RXi’s activities to accumulate a broad technology portfolio of RNA chemistry. Additionally, CytRx continues to strengthen its financial position as it has received approximately $10.6 million from the exercise of warrants and employee stock options since the beginning of the year. Such capital increases the company’s flexibility to fund its RXi subsidiary. Shares gained 36 cents to close the week at $4.58.
VeriChip Corporation, a majority-owned subsidiary of Applied Digital (NASDAQ: ADSX), a leading provider of identification and security technology, said last week that it continues to grow its customer base through attendance at American Diabetes Association (ADA) events, adding 13 diabetic patients to its VeriMed Patient Identification System network at the recent ADA Diabetes EXPO in Boston. A similar outcome occurred earlier this month at the EXPO in Atlanta where the company enrolled 18 attendees into its system. Furthermore, these sign-ups by diabetic individuals underscore the importance of the company’s planned future development efforts to commercialize a glucose-sensing implantable microchip with its sister company Digital Angel, which was previously awarded a patent on this breakthrough product. Such events provide a viable platform for VeriChip to increase its brand awareness, with further EXPOs taking place in 18 metro, major and mid-size cities around the country. Investors should keep a watchful eye on the company’s progress as it attends the next event in Chicago on April 28, 2007. Last week, regional brokerage firm Merriman Curhan Ford initiated coverage of VeriChip with a Buy rating based on the company’s enviable position as the only supplier for human implantable RFID chips via its VeriMed division, importantly becoming the medical industry’s de facto standard over the next 3-4 years. The stock closed at $1.54, up 4 cents.
Emisphere Technologies, Inc. (NASDAQ: EMIS), a biopharmaceutical company pioneering the oral delivery of otherwise injectable drugs, formed a Scientific Advisory Board (SAB) to help guide the company’s clinical development program for its oral insulin product. The SAB is comprised of six independent scientific experts in several fields related to diabetes research and is an important step to advancing Emisphere’s oral insulin program further in the clinic this year. The stock ended the week at $3.23, down 22 cents.
Last week, Torc Investments and Research, a NYSE/NASD registered broker-dealer, reitereated its “Buy” rating on drug delivery company Generex Biotechnology Corporation (NASDAQ: GNBT). The firm has a 12-month price target of $3-$3.50, predicated on Generex continues to create brand awareness for its main product-line centered on the management of diabetes. The report also highlighted the potential for GNBT’s Antigen Express subsidiary, as it continues to move forward with its breast cancer, avian flu and prostate cancer vaccines. Note that GNBT recently initiated the first human clinical studies of its proprietary synthetic bird flu vaccine. To date, only egg-based or cell culture-based vaccines have been studied for their ability to confer protection against the potentially pandemic H5N1 bird flu. The synthetic vaccine can be made much more rapidly and cost effectively relative to other vaccines, offering the possibility of far greater population coverage. Shares gained 3 cents to close the week at $1.68.
Isonics Corporation (NASDAQ: ISON), a provider of innovative solutions for the homeland security and semiconductor markets, announced operating results for its third fiscal quarter ended January 31, 2007 last week. Revenue for the three months totaled $6.5 million, reflecting an increase of 24.2% compared to last year. Gross margins as a percentage of sales rose to an impressive 21.4% compared to 6.3% from last year, mainly attributable to the increase in semiconductor sales as a percentage of overall sales. Sales for the nine months totaled $20.5 million, an increase of 58.8% from the same period last year, with gross margins improving to 21.4% from last year’s negative gross margin of (1.8%). The company anticipates that its semiconductor segment will continue to significantly drive growth for the foreseeable future, as interest in the wafer services business, driven by continued adoption of the 300-millimeter products and services, remains strong. Improvements in consolidated revenues going forward will depend primarily on the company’s success in developing and selling products in the homeland security division and continued performance in the semiconductor markets. Updates pertaining to the company’s homeland security segment should be monitored closely as the company focuses its efforts on high margin products, mainly its IMS technology, that should further contribute to both top-line growth and margin expansion. The stock ended the week at $1.51, up 1 penny.
Auriga Laboratories, Inc. (OTCBB: ARGA), a specialty pharmaceutical company with products for the treatment of acute respiratory diseases and dermatological conditions, reported that its nationwide sales force now exceeds 200 associates, exceeding the target of 175 that had been predicted for the end of the first quarter ending March 30, 2007. The company’s ability to attract sales associates to its commission-based sales model speaks volumes about Auriga’s strong line-up of products, such as Aquoral, a prescription-only product designed to treat dry mouth and the recently launched Zinx line of cold remedy products. Auriga has also said that it will add approximately 75 more sales associates by the end of 2007. With January 2007 prescriptions of Auriga products increasing over 300% from January 2006 levels, and the company forecasting revenue of $26 million in 2007, up from $3.8 million in 2006, shares of Auriga appear to be a bargain at current levels, and could be poised to take out last years highs. Shares ended the week at $1.62, down 2 cents.
Ceragenix Pharmaceuticals, Inc. (OTCBB:CGXP), a biopharmaceutical company focused on infectious disease and dermatology, reported fourth quarter and 2006 year-end results last week. Although no revenues were recorded for the year, the company is entering an exciting phase of its business cycle for its BRT platform as initial sales from its first FDA-approved product EpiCeram are anticipated to begin this year. Additionally, there are many milestones to watch for in 2007. Results for the company’s clinical study evaluating the efficacy of EpiCeram in comparison to a mid-strength topical steroid in treating 112 patients with moderate to severe eczema should be released in April. The initiation of a clinical study for its second topical cream called NeoCeram to treat the skin of premature infants should also begin later this year. Further successes in the development of its Ceragenin compounds should also be watched as one of its lead compounds CSA-13 is highly effective at clinically relevant concentrations against a broad spectrum of bacterial infections. Shares fell 34 cents to close the week at $2.10.
ImmuneRegen BioSciences, a wholly owned subsidiary of IR BioSciences Holdings, Inc. (OTC Bulletin Board: IRBO), a development stage biotechnology company, reported that data obtained on its Substance P analog, Homspera, suggests that the compound has potential value as a co-therapeutic agent or vaccine adjuvant. Studies performed have revealed the ability of Homspera to diminish the impact of influenza virus infection on animal weight loss and temperature. In addition, viral titers, or the amounts of a given virus in a solution, were found to be decreased up to 90% in lungs and nose of treated animals. Upcoming studies in non-human primates may provide confirmation that Homspera could play an important role, in conjunction with other therapies, in improving treatment outcomes in influenza and cancer, two large- market opportunities for the company. With the pharmaceutical and biotechnology industries increasingly focused on adjunctive therapies, the company is committed to accelerating development of this promising compound. Shares fell 1 penny to close the week at $0.13.
JMAR Technologies, Inc. (OTCBB: JMAR), a leading developer of advanced laser, high resolution imaging and photonics technologies, announced last week that the company had received another large purchase order from a major European water utility. Their distributor Interline Systems BV, will install and lease the BioSentry Water Monitoring System to Vitens, a leading Dutch water utility that serves approximately 5.4 million consumers. This will be the second application of BioSentry in the water utility market in Europe, coming on the heels of a previously announced application in England. The BioSentry Water Monitoring System is the only biological contamination detection system that provides on-line, real-time results. The system uses laser-based, multi-angle light scattering technology to monitor for harmful microorganisms and other contaminants, and is currently being tested by the U.S. Environmental Protection Agency for homeland security applications. As the world continues its focus on the war against terrorism, JMAR’s technology appears to have significant potential against the threat of bioterror, as well as accidental contaminations of water systems. With the stock currently hovering around $0.20 per share, there appears to be quite some upside potential for investors. The company also reported that it appointed Michael Sweatman as its Chief Financial Officer. Shares gained 5 cents to end the week at $0.23.
Language Access Network (OTC: LANW), a leader in video interpretation services, signed a definitive agreement with EnovateIT, a provider of video remote interpretation services, and will integrate Language Access’s Martti system into EnovatelIT’s network. This partnership will greatly aid hospitals and physicians in dealing with the approximately 42 million non-English speaking people in the U.S. by providing translation services 24 hours a day, 7 days a week in over 150 languages, using real-time video technology. EnovatelIT has a large presence in the healthcare market with of 40,000 installations in over 1,100 healthcare facilities, enabling Language Access the opportunity to build brand awareness in a cost-efficient manner. Many hospitals are recognizing the benefit of the Martti system as both Mercy Hospital, a 483-bed acute care hospital located in Miami, and Indian River Medical Hospital, a 335-bed facility located in Orlando, announced completion of the first installations of the Martti system. On a separate note, Language Access also announced restructuring of $600k of long-term debt, freeing up capital to be used maintaining the company’s rapid growth and placement of its services. Language Access Network’s recognition is undoubtedly growing, as indicated by announcing it has become a Computerworld Honors Laureate, an honor held by such industrial giants as Pfizer, Inc., and Bristol-Myers Squibb. The stock closed at $1.40, down 35 cents.
Volume Alert: Shares of Left Behind Games, Inc. (OTCBB: LFBG), a leader in the inspirational video game market, traded approximately 7.2 times average volume last week as excitement is building around the company’s growing efforts of increasing distribution for its LEFT BEHIND: Eternal Forces PC game. The storyline for the game is based on the best-selling “Left Behind” book series by Tim LaHaye and Jerry Jenkins, which sold more than 63 million copies worldwide. In February, shipments to South Africa and Australia began. The company also recently signed on an expert that will help the company tap into the Asia market. After generating over $2 million in gross revenues within the first six weeks of its release, investors seem to be betting on LEFT BEHIND: Eternal Forces to drive top-line growth in the upcoming quarters. Shares gained 9 cents for the week to close at $0.31.
OXIS International (OTCBB: OXIS), a biopharmaceutical company focused on commercializing predictive biomarkers, clinical assays and nutraceutical and therapeutic products, has signed a supply agreement for L-Ergothioneine (ERGO) with Golden Gourmet Mushrooms, a leading marketer to the equine industry of natural organic dietary supplements. As a result of this partnership, ERGO is planned to be marketed as a potential solution for the equine herpes virus, which has affected horses in at least 11 states. If not treated, this condition can be fatal as this virus infects cells of the nervous system. With the outbreak of equine herpes continuing to rapidly spread, and no effective treatment or vaccination available, it is believed that ERGO has the potential to boost a horse’s immune system and fight this virus. The target market is large as sources estimate that the equine industry has a $102 billion impact annually on the U.S. economy. Just as exciting are the potential future markets for ERGO which include making this product available for other domestic animals, such as dogs and cats. The stock ended the week at $0.22, up 2 pennies.
VoIP, Inc. (OTCBB: VOII), a leading provider of Voice over Internet Protocol (VoIP) communications solutions for service providers, resellers and consumers, stands to benefit greatly from a jury decision earlier this month that found Vonage guilty of infringing on Verizon patents. Prior to this ruling, the benefits of suing for patent infringement in voice over internet technology cases were very unclear. Going forward, this landmark verdict will help companies like VoIP, Inc., who have very strong intellectual property portfolios, protect their technology. Upon learning of the Verizon verdict, VoIP Inc. began proceedings against companies that it believes to be infringing on the company’s patented technology that delivers phone calls the same way e-mail travels over the Internet. Such a verdict has opened up the validity of protecting the patents. This comes at no small price as jurors for this particular case ruled that $58 million in damages plus licensing fees must be paid by Vonage Holdings to Verizon. Additionally, shareholders approved a proposal to increase the company’s authorized common stock to 400 million shares, and to authorize 25 million shares of preferred stock. Lastly, WQN, Inc. notified VoIP, Inc. that it was exercising its convertible note into approximately 22 million restricted shares at a conversion rate of $0.18 per share. The stock closed at $0.25, down 5 cents.
On the Wires: CEL-SCI Corporation (AMEX: CVM), developer of new immune system based treatments for cancer and infectious diseases, said it had been invited to speak at the First International Congress of the International Academy of Oral Oncology in Amsterdam, May 17-20, 2007, where data will be presented from the company’s last Phase II clinical study that was conducted in advanced primary head and neck cancer patients with the CEL-SCI’s cancer product Multikine. Generex Biotechnology Corporation (NASDAQ: GNBT), reported that the Director of Immunobiology at the company’s wholly-owned subsidiary Antigen Express presented at the World Vaccine Congress 2007 last week, summarizing the results of H5N1 vaccines currently under development. Rentech, Inc. (AMEX: RTK), a developer of technologies that transform under-utilized energy resources into valuable and clean alternative fuels, hired former transportation official Tom Sayles as Senior Vice President, Corporate Communications and Government Affairs. The company also appointed Michael S. Burke to its Board of Directors effective March 22, 2007 where he will serve as the Chair of the Audit Committee. Mr. Burke will fill Mr. Thomas L. Bury’s seat. The annual meeting held last week is available to investors on Rentech’s website. AXM Pharma, Inc. (OTC: AXMP), a manufacturer of proprietary and generic pharmaceutical and nutraceutical products for the Chinese and other Asian markets, in its efforts to achieve its 2007 sales objectives, has hired four experienced Chinese pharmaceutical sales and marketing employees to lead its sales activities. Wang Wenxiu was appointed General Manager of AXM Pharma (Shenyang), Inc., Mei Shengliang was appointed General Manager of Sales & Marketing, Han Aiguo as Vice General Manager and Jiao Yu as Vice General Manager.
